Insight: Insurers see promise in pay-for-performance health plans By Caroline Humer Tue Apr 9, 2013 8:29am EDT (Reuters) - Insurers and doctors are testing a way to pay for healthcare that has been more common in the corporate suite than the emergency room - paying for better performance, betting it is the key to controlling runaway costs. Both private insurance plans and Medicare plans in hundreds of locations around the country are using incentives to try to cut healthcare spending and still keep Americans healthy. After a few years of pilot programs and studies, companies as large as Intel Corp. are offering these plans to employees this year. They believe the programs' tenets - eliminating unneeded tests and following best practices for prescriptions and care - will work. UnitedHealth Group Inc, Humana Group, Cigna Corp. and others are compensating medical providers if they meet targets in areas such as cancer screening or managing diabetics' cholesterol levels. While robust data is still scant, a study published last year in the Journal of American Medical Association showed these plans - called Accountable Care Organizations (ACOs) - can produce savings of 5 percent to 10 percent, which are typically shared between the provider and insurer. Much of the Affordable Care Act kicks in next year, which has increased the pressure on insurers and providers to provide more services while cutting healthcare costs, which are now 17 percent of the U.S. economy, up from 13 percent in 2000. Insurers say they will double the number of members in plans based on incentives for care in the next few years. Large employers, which provide about half of Americans with healthcare plans, are adding these accountable care organizations and other coordinated care initiatives on top of other benefits that focus on prevention. For instance, they are charging smokers more and monitoring employees' health. About 13 percent of them will have ACOs or similar quality-based contracts with providers by the end of 2014, and 29 percent expect to in the next five years, according to a recent Towers Watson/National Business Group On Health survey. The U.S. government has several standardized models for ACOs for Medicare, which provides benefits for 50 million Americans, and has so far approved more than 250 ACOs. In addition to trying to lower costs for individual and small group customers, insurers are creating the plans to hold onto large company business. Healthcare spending cuts and the Affordable Care Act have hit insurers with new taxes and mandatory services while also limiting profits. For many of them, that's how they see themselves surviving this transition. They'll have a major role in helping systems improve their care as one of their business lines in addition to insurance, or just paying claims," said Dr. Elliott Fisher, a health policy expert at Dartmouth University's medical school who worked on the study and with the Brookings Institute designed several ACO pilot programs in the private sector. The plans are just starting, so it is not clear whether all the different designs set up by companies, hospitals and private insurers will produce the savings seen in the more regimented JAMA study, which was based on preset parameters. Everyone is rushing to change to a different model, but the results aren't in yet. So when you say what's the success of ACOs to date, the real honest answer is premature," said Dr. Phil Polakoff, a senior managing director in FTI Consulting's corporate finance group. One of the new programs is in Kentucky. Norton Healthcare, the state's largest hospital system, and Humana Inc., also based there, started an ACO several years ago for their employees as a pilot that it decided to renew this year. Norton aimed to cut what it spent sending its employees to other caregivers. While neither company provided data on savings to them, saying it was too early for a full analysis of the claims, Humana said its program was "trending in the right direction." Intel Corp. started its first ACO in January for employees and their families at its Rio Rancho, New Mexico, semiconductor plant. After savings from wellness and prevention initiatives slowed, it wanted to control spending, particularly for its sickest members, who account for about 20 percent of the company's $500 million annual healthcare spending. Intel's plan includes full coverage of drugs for chronic conditions such as asthma and hypertension and preventive services. Beyond that, it pays more or less depending on how the plan provider, Presbyterian Healthcare Services, meets targets for providing same-day access to care, low cost and patient satisfaction, among other criteria. Consumer advocates say the focus on quality and improved care is good for patients, but if ACOs limit access to care they could backfire. "What we would want to ensure is happening is that people have access to the care they need and that all of the appropriate providers are engaged," said Kim Bailey, research director for Families USA in Washington, D.C. The JAMA study was based on eight years of data at 10 institutions that took part in the Medicare Physician Group Practice Demonstration pilot and showed that coordinated care cut medical spending by 5 percent to 10 percent. The biggest savings were in lower hospital readmissions and in acute care among people eligible for both Medicare and Medicaid. The federal government says its Medicare ACO plans could save up to $940 million over four years. It set 33 measures related to patient safety, preventive health services, at-risk populations and patient experience. Insurers say they are seeing financial benefits. Aetna Inc, for instance, said hospital admissions have dropped by up to 45 percent in a small Medicare Advantage program - private insurance for seniors - it ran in Maine. UnitedHealth aims to more than double by 2017 its pay-for-performance medicine, to $50 billion, from $20 billion now. "Measuring the impact on patients of the commercials ACOs is something we are all interested in doing," Fisher said. The plans themselves are pretty confident they are doing both - improving care and lowering costs. Editing by Ed Tobin, Jilian Mincer and Douglas Royalty; Reporting By Caroline Humer