Nearly half of the 114 hospitals and doctor groups that began Accountable Care Organizations under the health law in 2012 managed to slow Medicare spending in their first year, but only 29 of them saved enough money to qualify for bonus payments, the Centers for Medicare and Medicaid Services said Thursday.

CMS called the results "very promising"—particularly for the first year of a program that involved significant changes in the delivery of health care. But the fact that more than half the ACOs didn't achieve savings underscores the challenges that remain in curbing health-care costs this way.

First-Year Results

CMS preliminary results for the initial wave of Accountable Care Organizations begun in 2012.

  • 114 ACOs formed in 2012
  • 54 cut Medicare costs for their patients
  • 29 saved enough to split savings with Medicare
  • $126 million in savings divided by those 29 ACOs
  • $128 million net savings to Medicare Trust Fund

ACOs are a closely watched initiative within the Affordable Care Act meant to incentivize health-care providers to reduce the cost of caring for a group of Medicare patients while delivering high-quality services. Some are run by hospitals, some by groups of physicians.

While they can devise their own approaches, most emphasize preventive care and help patients manage their chronic conditions to avoid costly hospitalizations and ER visits.

Those ACOs that cut Medicare bills significantly for their patient group get to split the savings with the government. The 29 ACOs that met that goal during the first 12 months divided $126 million in savings while generating an additional $128 million in net savings for the Medicare Trust Fund—the accounts that pay for beneficiaries' hospital, doctor and drug coverage. Total Medicare expenditures were $574 billion in 2012.

An additional 54 ACOs slowed Medicare costs for their patient group somewhat, but not enough to qualify for savings. In the remaining 60 ACOs, Medicare costs were the same or higher than in previous years. CMS didn't indicate which of the 114 achieved savings and which didn't, but said it would release additional information later this year.

"It's impressive that so many organizations did save in their first year," said Jonathan Blum, CMS's principal deputy administrator. "It takes time to transform your system and achieve results."

The ACOs also are required to report on 33 quality measures, including patient satisfaction and rates of hospital readmissions. The agency said all but five of the 114 "satisfactorily reported" on those quality standards during 2012. Two of the five were among the 29 that generated shared savings but weren't eligible to receive their portion of the savings, CMS said.

The results released Thursday covered only the first two groups of ACOs that started in the Medicare Shared Savings Program in 2012, its first year. In all, more than 360 hospital and physician groups have formed ACOs under the Medicare program, covering a total of 5.3 million Medicare beneficiaries, about 12% of those in the federal health-insuranceprogram for the elderly and disabled, CMS said.

CMS also released a revised report on the 32 ACOs in its Pioneer program, an accelerated plan for health-care organizations that already had experience in delivering ACO-style coordinated care.

Of the 32, nine had significantly lower spending growth compared with traditional Medicare fee-for-service, according to an independent analysis. In all, the Pioneer ACOs generated a combined savings of $147 million in their first year, CMS said.

In an earlier report last July, CMS said 13 of the Pioneers saved enough to split savings with Medicare, generating gross savings of $87.6 million in 2012. At the time, nine of the ACOs that didn't generate savings opted to leave the Pioneer program. Six of them have since joined the regular ACO program, which carries less financial risk.

The 114 ACOs whose results were released Thursday faced a steeper learning curve than the Pioneers, and many had to invest in new personnel and electronic data systems needed to deliver ACO-type care.

"This first year was a learning year for many of these," said David Muhlestein, director of research for Leavitt Partners, a consulting firm.

"I thought it was going to be worse," said Farzad Mostashari, former national coordinator for Health Information Technology who now studies ACOs at the Brookings Institution,. He noted that the growth of Medicare costs in general have slowed in the past year, "so it was a tough benchmark they had to beat."

Mr. Muhlestein added that while these results may be encouraging for CMS, hospital and doctor groups contemplating forming ACOs might be more cautious seeing that less than half of the ACOs achieved any savings at all.

"It will be interesting to see whether it was principally hospitals that saved money or physician groups—that's what we want to find out," Mr. Muhlestein said.

One of the 29 ACOs eligible to share savings was Palm Beach Accountable Care Organization, which saved $22 million, netting it and Medicare $11 million each. Unlike like ACOs that are hospital-based, Palm Beach is entirely owned and operated by physicians, 78% of whom are solo practitioners.

CEO Kelly Conroy said the ACO, which includes 200 primary-care physicians and specialists, and about 30,000 Medicare patients, "did a lot of simple things to save money." One was encouraging more patients to get annual checkups.

When the ACO began, only 13% of its patients made such visits. Now, about 45% do, compared with a national average of 10%, Ms. Conroy said. That means more Medicare bills up front, but you can set up a treatment plan for the rest of the year and save a lot of money down the road," she added.

Write to Melinda Beck at