A federal experiment meant to reward hospitals for saving money on Medicare patients ended with two of the three Twin Cities participants dropping out when they instead both lost millions providing that care.

The uneven outcome showed that Minnesota has a long way to go to achieve the promise of better health care for less money.

Three Twin Cities hospital and clinic systems participated in the federal Next Generation Accountable Care Organization program, known as Next Gen — the latest of many efforts to make the nation’s health care system more accountable. Medicare paid them fixed sums to care for a population of elderly patients and gave them incentives to keep whatever money they didn’t spend on patient care.

Only one of the three reported savings in 2017, according to results released last month.

Park Nicollet saved $3.6 million, using the program’s flexibility to improve treatment of kidney disease and expedite the transition of patients from hospitals to nursing homes.

The Allina and Fairview systems lost money — $3 million and $4 million, respectively, in 2017 — and withdrew from the Medicare experiment.

“There’s a limit to how much we can afford to lose in any given program,” said Dr. Rod Christensen, Allina’s vice president for medical operations. He blamed faulty patient-cost projections in Next Gen for the losses.

Officials at Allina, Fairview and Park Nicollet remain bullish about this type of payment reform, because the U.S. health care system otherwise creates incentives for hospitals and doctors to order more tests and surgeries whether patients need them or not. Next Gen was a little-discussed but essential part of the federal Affordable Care Act, which sought to offset the rising cost of covering more Americans with health insurance by eliminating wasteful health spending.

“We need payment models that reward us for better outcomes,” Christensen said.

Fixed payments per patient increase risks for hospitals if they spend more than predicted, but they also create the flexibility to try solutions that aren’t on the typical menu of medical services. Hospitals might hire extra nurses, for example, to coordinate patients’ care by calling or visiting them at home, said Dr. Kristen Kopski, Park Nicollet’s regional medical director.

“This is something that, 10 years ago, I only dreamed about,” she said.

Kopski recalled a patient who kept turning up in the ER because he was missing appointments for dialysis, a blood-filtering procedure for patients with failing kidneys. A nurse discovered that he felt too weak in the mornings to get up and get to the clinic. A switch to afternoon appointments reduced his ER visits.

Now Park Nicollet is turning its attention toward an equally expensive condition — severe chronic obstructive pulmonary disease, or COPD.

Solutions such as home visits might seem simple, compared with new drugs or devices, but patients such as Opal Swanson, 77, said they noticed the difference. The Minnetonka woman has COPD, even though she is not a smoker.

When she had breathing problems in the past, she would call her clinic and usually be told to go the ER. Under the new approach, doctors took time to learn more about Swanson’s illness and determine what types of breathing episodes she could manage at home. They also took steps to improve her well-being, weaning her off a steroid because of the side effect of lost bone density and encouraging her to boost her energy with a higher-calorie diet.

“Eat more French fries. Have a shake once in a while,” her doctor advised.

Swanson said her doctors and nurses treat her like a friend. They even discussed the energizing benefits of getting a dog — though her doctor advised her to get a docile service dog, and Swanson chose a wiggly puppy.

“It’s what makes her happy,” said her son, Keith Swanson.

These coordinated medical arrangements are commonly referred to as accountable care organizations, or ACOs. Hospitals and clinics band together to form ACOs, which manage the overall care of patients, and insurers pay them by their predicted total costs, rather than by the number of procedures they perform. Fairview was the first locally, in 2012, to try the ACO approach through private insurance contracts with Medica and PreferredOne.

Fairview, Allina and Park Nicollet also were among the first hospital systems nationally to test the ACO approach with Medicare — first in 2012 in an experiment called Pioneer, and then in Next Gen.

The trouble with Next Gen is that it based payments for 2017 on medical costs in 2015 and allowed for no more than a 3 percent increase in the illness levels of patients, said Dan Fromm, Fairview’s senior vice president and chief financial officer. Fairview lost money because patients ended up 8 percent sicker, in aggregate, in 2017.

ACO contracts with private insurers have been more successful and have been easier to negotiate because they encourage hospitals and insurers to save money together, rather than at one another’s expense, Fromm said. “They tend to be structured so when we win, the payer wins, and the consumer wins,” he said.

Healthier patients?

Patients’ outcomes are monitored as part of ACOs, to ensure that cost savings aren’t achieved at the expense of patient care. Minnesota hospitals tend to rank highly in Medicare quality reports but have areas for improvement as well.

Fairview offered data showing that patients in its PreferredOne ACO fared better with chronic conditions such as diabetes and asthma. Clinics in Minnesota overall were able to keep 45 percent of their diabetes patients at optimal health in 2017, according to the latest quality data from MN Community Measurement. But that success rate increased to 53 percent for patients in the PreferredOne ACO.

Allina’s Christensen agreed that ACOs have improved patient outcomes. Care coordination has helped patients with multiple chronic diseases, who in the past were treated by multiple providers who didn’t know what the others were doing, he said.

Whatever savings they’ve achieved, ACOs haven’t reversed the overall trend of rising health care spending. The annual cost per person of commercially insured patients in Minnesota increased 228 percent from 2002 to 2016, and it rose every year in that period, according to the Minnesota Department of Health.

One reason could be that health systems are still getting paid largely under the traditional model — per procedure ordered. Only a sliver of Allina’s revenue is affected by the new risk-based ACO contracts. Christensen said that probably isn’t enough to motivate wholesale change.

“Until the financial risk gets to a certain size, it really doesn’t cross the tipping point where the pressure is enough for the system to fundamentally change the way it provides care,” he said. “That’s the state of American health care now. These programs have grown in number, but sometimes they’re broad and shallow.”

Opal Swanson wasn’t aware of the behind-the-scenes efforts to improve and streamline care for patients like her. She simply noticed that she started to receive more attention.

When she was hospitalized recently for pneumonia, doctors fitted her with a pump that automatically injected antibiotics into her body. This allowed her to go straight home, rather than to a short-term nursing home. A nurse called frequently for a time and still calls every few weeks, knowing that Swanson has become increasingly homebound this winter.

“She kind of keeps track of me,” Swanson said.