Fact Sheets

Lower Costs, Better Care: Reforming Our Health Care Delivery System

Lower Costs, Better Care: Reforming Our Health Care Delivery System
Updated January 30, 2014

Fixing America’s health care system doesn’t stop with guaranteeing that everyone has coverage.  To address the rising costs of health care, we must improve the way that health care is delivered, including the coordination and safety of care.

The Affordable Care Act includes tools to improve the quality of health care that can also lower costs for taxpayers and patients.  This means avoiding costly mistakes and readmissions, keeping patients healthy, rewarding quality instead of quantity, and building on the health information technology infrastructure that enables new payment and delivery models to work.   These reforms and investments will build a health care system that will ensure quality care for generations to come.  

Already we have made significant progress:

Health care spending is slowing
According to the annual Report of National Health Expenditures, total U.S. health spending grew 3.7 percent in 2012.  This marks the slowest four years on record in overall health expenditures and for the second straight year, overall health costs grew slower than the economy as a whole.  Health spending as a share of gross domestic product fell slightly from 17.3 percent in 2011 to 17.2 percent in 2012, the third consecutive year that health spending has held steady or declined as a share of the economy.  We have seen low spending growth per enrollee in 2012 for Medicare (0.7 percent), Medicaid (1.3 percent), and private health insurance premiums (2.7 percent).  By comparison, over the ten years preceding the recent slowdown (1999 to 2008), those per-enrollee spending growth figures were 7.4 percent for Medicare, 2.8 percent for Medicaid, and 7.4 percent for private health insurance.  Slowing private premium cost growth by over 60 percent means real savings for workers, their families, and employers.  The Affordable Care Act’s 80 / 20 rule (medical loss ratio policy) has led to estimated savings of $5 billion over the past two years. And the strengthened rate review program has resulted in an estimated $1.2 billion in savings in 2012 to consumers of private health insurance.

Health outcomes are improving and adverse events are decreasing
In 2012, we finalized a program that ties Medicare reimbursement for hospitals to their readmission rates, i.e. the percentage of patients have to return to the hospital within 30 days of being discharged. The 30-day, all-cause readmission rate decreased in 2012 to 18.5 percent, after averaging 19 percent for the past five years.  This decline is continuing into 2013 as readmissions rates have averaged less than 18 percent over the first eight months of the year.  This translates to about 130,000 fewer readmissions for Medicare beneficiaries. Additionally, as part of a new Affordable Care Act initiative, clinicians at some hospitals have reduced their early elective deliveries to close to zero, meaning fewer at-risk newborns and fewer admissions to the NICU.  

Providers are engaged
In 2012, Medicare Accountable Care Organizations (ACOs) began participating in the Medicare Shared Savings Program and the Pioneer Accountable Care Organization Model.  These programs encourage providers to invest in redesigning care for higher quality and more efficient service delivery, without restricting patients’ freedom to go to the Medicare provider of their choice.  

Over 360 organizations are participating in the Medicare ACOs, serving approximately 5.3 million Medicare beneficiaries.  As existing ACOs choose to add providers and more organizations join the program, participation in ACOs is expected to grow. Medicare ACOs participating in the Shared Savings Program generated $128 million in net savings for the Medicare trust fund to date.

Medicare beneficiaries are shopping for coverage according to quality
The Affordable Care Act tied payment to private Medicare Advantage plans to the quality of coverage they offer.  Since those payment changes have been in effect, more seniors are able to choose from a broader range of higher quality Medicare Advantage plans, and more seniors have enrolled in these higher quality plans as well.  Over one-third of Medicare Advantage contracts received four or more stars in 2014, which is an increase from 28 percent in 2013.  Over half of Medicare Advantage enrollees are enrolled in plans with four or more stars in 2014, a significant increase from 37 percent of enrollees in 2013. Since the health care law passed, enrollment has increased by 32.5 percent and premiums have fallen by 9.8 percent in Medicare Advantage.  In 2014, the 14.6 million Medicare beneficiaries currently enrolled in Medicare Advantage have access to 1,625 five and four-star plans, which is 473 more high-quality plans than were available in the previous year.

Below are specific examples of the reforms and investments that we are making to build a health care delivery system that will better serve all Americans.


Hospitals.  Two important programs that reward hospitals based on the quality of care they provide to patients began in 2012.  The Hospital Value-Based Purchasing Program links a portion of hospitals’ Medicare payments for impatient acute care to their performance on important quality measures.  Examples of measures include whether a patient received an antibiotic before surgery, and how well doctors and nurses communicate with patients.  The Hospital Readmissions Reduction Program reduces Medicare payments to hospitals with relatively high rates of potentially preventable readmissions, to financially encourage them to focus on this key indicator of patient safety and care quality.  

Medicare Advantage Plans.  The Centers for Medicare & Medicaid Services (CMS) strengthened the quality bonus incentives provided by the Affordable Care Act by providing additional payments for plans improving the quality of care.  

Dialysis Facilities.  The End-Stage Renal Disease (ESRD) Quality Incentive Program ties Medicare payments directly to facility performance on quality measures, resulting in better care at lower cost for over 503,000 Medicare beneficiaries with end stage renal disease.  In addition, a new comprehensive care model announced in January 2013 will test a new payment and service delivery approach to improve care for ESRD beneficiaries, by coordinating primary care with care for their special health needs.


Electronic Health Records (EHRs).  Adoption of electronic health records continues to increase among physicians, hospitals, and others serving Medicare and Medicaid beneficiaries helping to evaluate patients’ medical status, coordinate care, eliminate redundant procedures, and provide high-quality care.  More than 62 percent of health care professionals, and over 86 percent of hospitals, have already qualified for EHR incentive payments for using certified EHR technology to meet the objectives and measures established by the program, known as meaningful use. Electronic health records will help speed the adoption of many other delivery system reforms, by making it easier for hospitals and doctors to better coordinate care and achieve improvements in quality.

Partnership for Patients.  The nationwide Partnership for Patients initiative aims to save 60,000 lives by averting millions of hospital acquired conditions over three years by reducing complications and readmissions, and improving the transition from one care setting to another. At the core of this initiative are 26 Hospital Engagement Networks, which work with 3,700 hospitals, working with health care providers and institutions, to identify best practices and solutions to reducing hospital acquired conditions and readmissions.  National datasets are showing strong progress in 8 of the 10 patient safety priority areas of the Partnership for Patients.  The Hospital Engagement Networks have been actively involved in the effort to reduce the rate of early elective deliveries, in conjunction with the Strong Start for Mothers and Newborns Initiative.  

Healthy infants.  The Strong Start for Mothers and Newborns initiative aims to reduce early elective deliveries as well as test models to decrease preterm births among high-risk pregnant women in Medicaid and the Children’s Health Insurance Program (CHIP). The Strong Start initiative builds on the work of the Partnership for Patients, testing ways to support providers in reducing early elective deliveries.  It also provides over $11.7 million to 27 awardees to test enhanced prenatal care interventions to lower the risk of preterm birth among pregnant women with Medicaid or CHIP.  As part of this initiative, clinicians at some hospitals have reduced their early elective deliveries to close to zero, meaning fewer at-risk newborns and fewer admissions to the NICU.  Among 1,321 hospitals reporting common measures, early elective delivery rates have fallen (improved) by 52 percent.

Hospital-acquired conditions.  Along with other data available on Hospital Compare, beneficiaries can now find information on the incidence of serious hospital-acquired conditions (HACs) in individual hospitals.  In FY 2015, hospitals with high rates of HACs will see their Medicare payments reduced.  

Community-Based Care. As part of the Partnership for Patients, the Community-Based Care Transitions Program supports approximately 100 Community Based Organizations partnering with more than 450 hospitals in 40 states to help patients make more successful transitions from hospital to home or to another post-hospital setting. The Community-Based Care Transitions Program is a five-year program that began in 2011.  $300 million in total funding has been appropriated for the program.   


Providing states with additional flexibility and resources to enhance care.  The State Innovation Models Initiative aims to help states deliver high-quality health care, lower costs, and improve their health system performance. Nearly $300 million has been awarded to six states (Arkansas, Massachusetts, Maine, Minnesota, Vermont and Oregon) that are ready to implement their health care delivery system reforms and nineteen states to either develop or continue to work on their plans for delivery system reform.  

Integrating care for individuals enrolled in Medicare and Medicaid.  Many of the ten million Medicare-Medicaid enrollees suffer from multiple or severe chronic conditions.  Total annual spending for their care exceeds $300 billion. Nine states (California, Illinois, Massachusetts, Minnesota, New York, Ohio, South Carolina, Virginia, and Washington) have received approval for demonstrations using integrated care teams, health homes, or other interventions to coordinate care for Medicare-Medicaid beneficiaries.  The new demonstrations are designed to provide participants with a person-centered, integrated care program that provides a more easily navigable and seamless path to all covered Medicare and Medicaid services.

Greater independence for Americans with disabilities and long-term care needs.  The Affordable Care Act includes a number of policies to promote non-institutional long-term care programs that will help keep people at home and out of institutions:

o Fourteen additional states have joined the Money Follows the Person Program to help rebalance their long-term care systems to transition Medicaid beneficiaries from institutions to the community.  Forty-four states and the District of Columbia are now participating in Money Follows the Person.  Over 31,000 people with chronic conditions and disabilities have transitioned from institutions back into the community through Money Follows the Person programs as of December 2012.  

o Seventeen states are participating in the Balancing Incentive Program, which gives states incentives to increase access to non-institutional long-term services and supports and provides new ways to serve more Medicaid beneficiaries in home and community-based settings.

o Fourteen states have approved Health Home State Plan Amendments to integrate and coordinate primary, acute, behavioral health, and long term services and supports for Medicaid beneficiaries.

Promoting care at home. A new Affordable Care Act demonstration, Independence at Home, tests whether providing chronically ill beneficiaries with primary care in the home will help them stay healthy and out of the hospital.  Fifteen physician practices and three consortia of physician practices are participating in the Independence at Home Demonstration.


Center for Medicare and Medicaid Innovation. The Innovation Center is charged with testing innovative payment and service delivery models to reduce expenditures in Medicare, Medicaid, and CHIP, and at the same time, preserving or enhancing quality of care.  Already the Innovation Center is engaged in projects with more than 50,000 health care providers to improve care.

Pioneer Accountable Care Organization (ACO) Model. 23 ACOs are participating in the Pioneer ACO Model that is designed for health care organizations and providers that are already experienced in coordinating care for patients across care settings.  Preliminary iinitial results from the independent evaluation of the Pioneer ACO Model shows that Pioneer ACOs have generated gross savings of $147 million in their first year while continuing to deliver high quality care.

Bundled Payments for Care Improvement initiative. 232 organizations are testing how bundling payments for episodes of care can result in more coordinated care for Medicare beneficiaries and lower costs for Medicare.  Bundling payment for services that patients receive across a single episode of care, such as heart bypass surgery or a hip replacement, is one way to encourage doctors, hospitals and other health care providers to work together to better coordinate care for patients, both when they are in the hospital and after they are discharged.

Health Care Innovation Awards.  The Health Care Innovation Awards are funding up to $1 billion in awards to 107 organizations that are implementing the most compelling new ideas to deliver better health, improved care and lower costs to people enrolled in Medicare, Medicaid and the Children’s Health Insurance Program (CHIP). The Health Care Innovation Awards Round Two will fund up to $1 billion in awards to applicants across the country that test new payment and service delivery models.        


Lower cost health care equipment and supplies. In 100 metropolitan areas, a strong Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) competitive bidding program set new, lower payment rates for medical equipment and supplies.  This program has already saved more than $400 million for Medicare and its beneficiaries, and CMS estimates even larger savings as a result of the Round 2 expansion and the National Mail Order program for diabetic testing supplies, which both went into effect in July 2013.  Overall, the initiative is expected to save the Medicare program an estimated $25.8 billion, and beneficiaries an estimated $17.2 billion, over the next 10 years.

Fighting fraud. The Affordable Care Act’s landmark steps to improve and enhance the Administration’s ongoing efforts to prevent and detect fraud and crack down on individuals who attempt to defraud Medicare, Medicaid, and CHIP has resulted in a record level of recoveries—$4.2 billion in fiscal year 2012—and a record return on investment— $7.90 for every dollar invested.  Total recoveries over the past four years were $14.9 billion compared to $6.7 billion over the prior four years. Efforts include tough new rules and sentences for criminals; enhanced screening and enrollment requirements; increased coordination of fraud-fighting efforts; sharing data across federal agencies to fight fraud; and new tools to target high-risk providers and suppliers. We have also prioritized engaging beneficiaries in fighting fraud through providing more claims data to beneficiaries in an easy-to-read format and proposing to increase the rewards available for fraud referrals.

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