Some failures with the Affordable Care Act, commonly referred to as Obamacare, have received plenty of media attention. A disastrous website launch. Multiple delays in key components. Dismal public approval ratings.
There's one ACA disappointment, however, that hasn't gotten much press. A key cost-saving program established by the health reform legislation has been underwhelming, but few are talking about it.
Pioneer Accountable Care Organizations, or ACOs, seemed to make a lot of sense as cost-savers when the ACA was first proposed. The idea was that healthcare organizations and providers that were adept at coordinating care for patients across different care settings would be the trailblazers to show other organizations how to control healthcare costs effectively.
It's no secret that providing extraneous medical care and treating patients in unnecessarily high acuity care settings costs the U.S. healthcare system a lot of money. Proponents of the ACO model say that financial incentives for better coordination of care can address these problems.
32 organizations signed up to participate in the Pioneer ACO program. These organizations joined in the hope that they could demonstrate substantial cost savings and receive financial incentives for doing so. The "pioneers" were in many ways the cream of the crop -- the most likely to produce big savings.
Unfortunately, the results from the Pioneer ACO program haven't been very impressive. After the first year of participation, nine of the organizations dropped out. Another four organizations later left the program. That's a dropout rate of over 40% -- so far.
During year one, 14 participants saw gross losses compared to the target benchmark. Another two organizations experienced no real improvement versus the benchmark. Did things improve after working out the first-year wrinkles? Not really. Only seven participants increased their gross savings from year one to year two.
With bonuses and penalties factored out, the Pioneer ACO program saved a little over $61 million during 2012 and 2013. That doesn't sound too bad -- except the participants spent around $64 million to get up and running with the program. And these were supposed to be the trailblazers for others to emulate.
Some of the Pioneer ACOs performed well. Montefiore ACO, for example, achieved gross savings of at least 7% in both years of the program. Some observers think that the ACO concept still has potential if fewer restrictions are imposed.
Perhaps the best proof that the core idea of the Obamacare ACO program can be successful is in adoption by health insurers that must show shareholders they're managing care effectively. The nation's largest health insurer, UnitedHealth Group (NYSE:UNH), decided to expand its accountable care initiatives. UnitedHealth expects to have accountable care contracts totaling $65 billion in annual reimbursements by 2018 -- more than double the current level.
WellPoint (NYSE:ANTM), the second-largest health insurer in the U.S., is also moving forward with ACO and other value-based reimbursement models. The company recently launched an ACO with Mount Carmel Health Partners in Ohio.
When asked about striking out many times in his quest to find the best filament for an incandescent light bulb, Thomas Edison reportedly responded, "I have not failed. I've just found 10,000 ways that won't work." Obamacare's Pioneer ACOs have indeed found several ways that the new reimbursement model won't work. But perhaps some for-profit companies will find what does work.
Keith Speights has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.