Health Affairs Patients With Diabetes Medical Groups Can Reduce Costs By Investing In Improved Quality Of Care For

A major feature of many new contracts between providers and payers is shared savings programs, in which providers can earn a percentage of the savings if the cost of the care they provide is lower than the projected cost. Unless providers are also held accountable for meeting quality benchmarks, some observers fear that these programs could erode quality of care by rewarding only cost savings. We estimated the effects on Medicare expenditures of improving the quality of care for patients with diabetes. Analyzing 234 practices that provided care for 133,703 diabetic patients, we found a net savings of $51 per patient with diabetes per year for every one-percentage-point increase in a score of the quality of care. Cholesterol testing for all versus none of a practice’s patients with diabetes, for example, was associated with a dramatic drop in avoidable hospitalizations. These results show that improving the quality of care for patients with diabetes does save money. T he effectivemanagementof chronic illnesses, such as diabetes, is a central feature of the accountable care organization concept and other shared savings models. It is argued that these organizations will have the capacity to implement disease management programs and will benefit financially by doing so. Shared savings payment programs are being developed based on pay-for-performance arrangements in which quality of care and total patient-level costs are the main measures by which practices are judged. Consequently, the economic incentives formedical group practices that participate in these programswill shift from maximizing fee schedules to providing highquality care at comparatively lower costs. Although disease management programs are an important dimension of pay-for-performance health care and have been shown to have considerable potential to improve care outcomes for patients with diabetes, the cost savings are uncertain. The challenge in documenting cost savings is that although the potential exists for some immediate savings—for example, through reducing the number of inappropriate emergency department visits—these savings might be offset by the increased costs of the disease management program.Moreover, themajor savings may be a result of preventing complications in the distant future, when the patient may no longer be enrolled in the same health plan. Even the near-term savings may be suspect unless differences in characteristics of the participating providers are taken into account. We know, for example, that risk-adjusted costs of care, especially those of emergency department use, vary considerably among medical group practices that are potential partners in shared savings programs. Consequently, medical group practices are concerned about shared savings proposals that do not adequately account or risk-adjust for patient characteristics for both costs and quality of care. In this article, we report the findings from a study designed to estimate the near-term savings doi: 10.1377/hlthaff.2011.0887