Hospitals Give Health Law Real-World Test - Wall Street Journal

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• MELINDA BECK

NEW YORK—Dale Johnson is Exhibit A for people who believe that the new federal health-care law has embedded in it the secret to better care for less money.

Suffering from congestive heart failure, coronary-artery disease and diabetes, the 58-year-old former teacher was hospitalized five times last year at Mount Sinai Medical Center here and visited its emergency room 12 times. Cost to Medicare: $43,849.

This year—with the help of a team of doctors, nurses and social workers—Mrs. Johnson shows up for appointments, takes her medications and is managing her chronic conditions. She has been hospitalized only once and ran up only $6,796 in Medicare costs through late August.

But there is an Exhibit B in the same program, a 65-year-old woman with cancer and mental-health problems who has missed 10 appointments, often won't answer the hospital's phone calls and has cost Medicare about $70,000 this year at Mount Sinai alone, much of it from hospital visits she could have avoided if she had followed doctors' instructions.

"She's a great example of a kind of patient that poses a great challenge for us as we try to avoid unnecessary costs," says Jeffrey Farber, a Mount Sinai medical officer.

Mount Sinai's experience with patients like these provides an early glimpse at one facet of the federal health act in the real world. The women are part of a so-called accountable-care organization, a concept that has quickly gained adherents in the health-care industry.

In an ACO, hospitals or groups of doctors contract with insurers to provide care for an assigned patient population. The aim: better care at lower cost. ACOs have incentives to keep patients healthy and incurring lower costs because they get to share the savings. Commercial insurers have created more than 200 ACOs with health-care systems in recent years.

Now, the Affordable Care Act is giving the concept a government-funded test by authorizing Medicare to set up pilot ACOs. More than 250 health systems have signed on since 2011, creating ACOs covering more than four million Medicare beneficiaries.

The Obama administration has much riding on these Medicare ACOs, which are among the health act's main cost-cutting efforts.

Proponents say ACOs are a way to take a step away from fee-for-service systems, which pay doctors for ordering more tests and treatments, toward systems that reward cost-effective care instead. In an ACO, doctors work together to try to coordinate treatment and reduce avoidable costs.

An ACO has helped Dale Johnson, at Mount Sinai in New York, manage her chronic health conditions better and reduce costs billed to Medicare.

Many ACOs believe that targeting their costliest patients—like Mrs. Johnson—can net some of the most significant savings. Nationwide, 1% of patients account for nearly 22% of health spending, government data show.

But solving their health issues isn't easy, as Mount Sinai's two patients show. Many of these so-called high utilizers have multiple chronic illnesses, chaotic family lives, and food, transportation and housing issues that complicate their ability to care for themselves. Some defy even ardent outreach efforts.

And some do end-runs on their ACOs. Mount Sinai's 65-year-old patient visits other New York hospitals, too. Under Medicare rules, Mount Sinai is responsible for those costs even though it can't control them. Patients can seek outside care, unlike in many health-maintenance organizations that fell out of favor in the 1990s, and have little incentive to cooperate.

That is one of many cumbersome rules that could undermine Medicare ACOs' cost-cutting efforts. Among others: Medicare automatically assigns patients to an ACO, whether they like it or not, if they get most of their primary care from a doctor that participates in that ACO. Doctors don't know for sure which patients are in their ACO from quarter to quarter because Medicare calculates that retroactively, making it hard to plan budgets.

And ACOs are a still a hybrid of managed care and a fee-for-service approach. Doctors share savings when they do cut costs but are paid for services even if they don't.

"This is a really flawed idea," says Jeff Goldsmith, president of Health Futures Inc., a health-care consulting firm. "It's like people were allergic to the HMO, so they tried to design a managed-care plan that didn't offend anybody, and it doesn't work like that."

Most Medicare ACOs won't know their final first-year results until 2014. But one early gauge wasn't strong.

Under federal rules, if a Medicare ACO meets 33 quality criteria—from cancer and depression screenings to scoring well on patient-satisfaction surveys—and lowers average patient cost below an assigned benchmark, it splits the savings with Medicare.

For Mount Sinai's ACO, for example, the Medicare-set number to beat this year is $11,780 per patient.

A group of 32 ACOs, run by health systems with long experience in coordinated care, in Medicare's Pioneer program posted mixed results in July. All satisfied the quality criteria. But only 13 lowered costs enough to split the savings. Two left the Medicare program.

Some pioneers felt penalized because Medicare calculates benchmarks using a health group's historic costs. Atrius Health, a nonprofit alliance of Massachusetts health groups, had already cut costs so much that its Medicare ACO benchmark of $10,665 was artificially low, says Emily Brower, executive director of Atrius's ACO programs, adding that Atrius remains committed to the Pioneer ACO program.

And several models of coordinated care, such as Cleveland Clinic, have declined to participate, citing Medicare's cumbersome rules. "People are still trying to define what an ACO is," says Delos Cosgrove, Cleveland Clinic's chief executive. "We've taken the approach that we'd rather be a fast-follower than a pioneer."

ACO proponents say the promise outweighs the flaws. "We really need ACOs to work," says Chas Roades, chief research officer of the Advisory Board Co., a health-care consulting firm. "The only other option to rein in spending growth is to drastically cut payments to hospitals and doctors to the extent that many would go out of business."

Mount Sinai's experience to date shows some of the promise and pitfalls of the ACO. Based in Manhattan, it applied for Medicare's ACO program largely because "we wanted to position ourselves for what we think will be the future of reimbursement," says CEO Kenneth L. Davis.

Its ACO began its three-year Medicare contract in 2012 with 130 physicians and nearly 22,000 Medicare patients. As in other Medicare ACOs, many of Mount Sinai's patients don't see much change. They can still visit the doctors they choose and pay the usual copays.

They may get extra services such as checkup reminders, screenings and help managing chronic conditions. Doctors may be slower to order MRIs and CT scans. But for now, Mount Sinai, like most Medicare ACOs, is more focused on reducing unnecessary hospitalizations than holding down other costs.

That is why Mrs. Johnson caught the attention of Mount Sinai's ACO leaders. They mined their data to identify patients with the most hospital stays and emergency visits, and who were most at risk of admission; 75 of the 22,000 were in the top 2% in all categories.

A task force of doctors and nurses studying those cases found access to care wasn't the problem. "There are plenty of services to help these patients. They just need to be coordinated better," says Dr. Farber, the ACO's chief medical officer.

Mrs. Johnson has had three heart attacks and qualified for Medicare disability at 54. Her congestive heart failure, coronary artery disease and pulmonary hypertension are related to her uncontrolled diabetes.

Last year, a radiating abdominal pain kept waking her, leaving her gasping and afraid she would die alone in her East Harlem apartment. She had her daughters on speed dial; they often called 911. "The ambulance drivers all knew me," she says.

Emergency doctors at Mount Sinai sometimes stabilized her and sent her home. Other times, they admitted her, fearing her conditions could turn life-threatening.

At one point, doctors suspected her pain was from an inflamed pancreas. Other diagnoses included an ulcer-causing bacterium and gastroparesis, a slowing of the intestinal tract. "I drove these doctors crazy, trying to figure out what was wrong with me," she says.

That kind of crisis care, with repeated emergency visits and hospital stays, is the most expensive and fragmented care possible—exactly the kind of costs ACOs seek to tame with provider teams and care coordinators.

The task force noted that while Mrs. Johnson had seen many doctors in 2012, she didn't have a consistent primary-care provider. In January, the ACO assigned a nurse practitioner as her primary-care provider and a social worker to coordinate her care.

They monitor Mrs. Johnson's blood pressure, blood sugar, diet and medications. She regularly sees two cardiologists, a vascular surgeon, a pulmonologist, a diabetes specialist and a diabetes educator, an ophthalmologist, a neurologist, a pain-management specialist and a physical therapist—all communicating about her care.

Before, "every time I went, I'd see somebody else and have to start all over," says Mrs. Johnson. Now, "I don't have to explain to them why I'm there."

The results have been encouraging for Mrs. Johnson and the ACO's accounting department. Her digestive issues have resolved, a new medication has improved her breathing and an antidepressant has lifted her spirits. "If you'd seen me a couple of months ago, you wouldn't think I was the same person," she says.

The tab for her care so far this year has been less than one-sixth of 2012's. Cutting costs of patients like her is one reason Mount Sinai's officials say its ACO's costs are averaging 3.5% below its Medicare benchmark.

Other ACOs are also finding savings in high utilizers. "I don't think it's rocket science—the biggest bang for your buck is this high-utilizer category," says James McMillen, physician administrator for the Medicare ACO at Heartland Health in St. Joseph, Mo.

Heartland ranked its 10,000 ACO patients by cost and targeted the top 500 for attention, which helped bring costs down 5% this year, he says. "The other 9,500 patients don't spend an awful lot. They're taking care of themselves."

If Mount Sinai's ACO savings continue through the first year, it says it would receive about $3 million from Medicare.

But it is hard to project savings, in part because of patients like the 65-year-old who has frustrated Mount Sinai's attempts to improve her care.

The Manhattan resident had two surgeries this winter but skipped 10 follow-up visits. She went to the emergency department five times in severe pain and had two costly readmissions that could have been avoided if she had kept her outpatient appointments, Dr. Farber says.

"She doesn't seem to think her health care is important until she's in a dire situation," says Meghan Mitchell, her care coordinator. She has phoned her repeatedly, but "the phone just rings and rings."

The patient's visits to other hospitals not only add costs the ACO can't control, they also frustrate her doctors, who can't discuss her case with outside doctors without her permission.

ACOs, especially in cities like New York with many hospitals to choose from, have trouble with "leakage," as they call it when patients stray from the fold.

Even cooperative patients like Mrs. Johnson can frustrate efforts. Her stubborn ailment is diabetes. "At this point, it's the worst it's been," says Lauren Dickerson, her primary-care provider.

She increased Mrs. Johnson's insulin dose and urges better habits: Eat breakfast and lunch every day; don't take insulin without eating. "You're telling me to eat more. Other doctors tell me I have to lose weight," says Mrs. Johnson, fighting tears. "I get really frustrated, to the point where I don't care."

Programs that target high utilizers "have a real potential to improve lives and get better value for these precious health dollars," says Susan Mende, a senior program officer at the Robert Wood Johnson Foundation, which has given $2.1 million to six programs testing the approach. "It's actually quite hard to implement," she says, because "these are really complex patients."

Then there are bills Medicare won't pay. Mount Sinai says it spent $1.5 million the first year on hiring 16 care coordinators and improving data systems—both vital to running an ACO, but not covered by Medicare payments.

But even if Mount Sinai gets no share of savings after its Medicare ACO's first year, Dr. Farber says, it won't be deterred.

"We'll be out a couple of million dollars," he says. "But we are gaining experience in managing population health, and we're living in a fee-for-service world that doesn't work."

Write to Melinda Beck at HealthJournal@wsj.com