New healthcare model cut even more costs in year two:

By Sharon Begley

NEW YORK | Thu Jun 6, 2013 8:10am EDT

(Reuters) - The nation's largest experiment in delivering medical care in an innovative way has reduced costs and improved the quality of care even more in its second year than in its first, according to the insurance company behind it.

The nonprofit CareFirst BlueCross BlueShield launched its "Patient-Centered Medical Home" program in January 2011 among primary-care providers serving about one-third of its 3.4 million members in Maryland, Washington, D.C., and northern Virginia.

Like other "accountable care organizations" (ACOs), which are centerpieces of President Barack Obama's healthcare reform, the medical home program ties insurance payments to healthcare providers to the quality of care they deliver.

On Thursday, CareFirst reported cost savings of $98 million for the medical home program in 2012, compared with $38 million the year before. Proponents of the model say it shows that "bending the cost curve downward," as Obama described one of the goals of his 2010 healthcare law, is achievable. If innovative models like CareFirst's deliver as promised, it will ease the financial pressures on Medicare, the government health insurance program for the elderly and disabled, and make Obama's healthcare reform more likely to succeed.

"This is a very important finding, that a major health plan is able to achieve savings" of this magnitude, said Dr Elliott Fisher, a health policy expert at the Dartmouth Institute for Health Policy and Clinical Practice and an architect of accountable care organizations.

Medical homes, like other ACOs, induce physicians to coordinate care to make sure patients' prescriptions don't interact adversely, for instance, and to think twice before ordering unnecessary tests. Physicians who reduce costs while hitting quality metrics such as regularly checking a diabetic's eyesight receive awards in the form of higher payments.

In CareFirst's program, that incentive is substantial: a 29 percent bump in physician reimbursement rates. The insurer can afford to be so generous because improving primary care, which accounts for only 6 percent of medical spending, reduces far pricier hospitalizations and specialist visits.

CareFirst's success is likely to accelerate other efforts to move from a traditional fee-for-service model, where the more tests and treatments physicians and hospitals do the more they make, to one that rewards efficiency and quality. Twenty-nine U.S. states now let primary-care providers act as patient-centered medical homes for residents on the Medicaid program for the poor, for instance.

Major insurers including UnitedHealth Group, WellPoint, Aetna, Humana and Cigna are also contracting with physicians to operate under an accountable care model.

BUILDING UP SAVINGS

Skeptics have warned that any savings in programs like medical homes would peter out after their first year, as physicians eliminated the most obvious and easiest-to-cut waste, and that further reductions would cut necessary care.

CareFirst has found otherwise.

One million of its members (almost all employed, with an average age of 42) were in medical homes in 2012, the company reported, and 80 percent of the primary-care providers in CareFirst's network participate in the program. These members' healthcare costs were $98 million (2.7 percent) less than CareFirst projected. In 2011, the savings were 1.5 percent.

Most of the savings came from reduced hospital admissions, less use of emergency rooms and lower spending on drugs, said CareFirst Chief Executive Officer Chet Burrell.

Two-thirds of the 3,600 physicians and nurse practitioners participating in the medical home program earned higher reimbursements from CareFirst in 2012, based on a combination of cost savings (which averaged 4.7 percent) and quality measures. Measuring quality - which also includes having extended office hours and using electronic medical records - keeps doctors from trying to save money by skimping on needed care.

"This is a measurable and meaningful step in the right direction of slowing the rise of healthcare costs," said Burrell.

At primary-care practices that did not earn an incentive award, costs averaged 3.6 percent higher than expected. Their quality scores were also worse, suggesting that wasteful care often goes hand in hand with poor care.

CareFirst's savings are in line with those reported by 10 physician groups across the United States that treated Medicare patients under an accountable care model. Annual savings averaged $114 per patient, researchers led by Fisher reported in the Journal of the American Medical Association last year. But savings reached $532, or 5 percent, for patients eligible for both Medicare and Medicaid.

CareFirst received a grant from the federal Centers for Medicare and Medicaid Services to expand the medical home model to Medicare patients starting July 1. These older Americans "frequently have complex health needs and multiple chronic health conditions," said Burrell, and so "could benefit greatly from the coordinated model of care" in medical homes.

(Reporting by Sharon Begley and Caroline Humer; Editing by Douglas Royalty)