Promoted as a way to move away from an outdated payment structure in Medicare, Accountable Care Organizations were expected to deliver better care at lower costs. But, two years later, like many of Obamacare’s promised savings, this experiment is falling short.

As part of the “Medicare Shared Savings” program under Obamacare, ACOs join together doctors and hospitals to manage the care of Medicare beneficiaries. If an ACO can lower spending and meet performance and quality standards, the providers share in the savings with the Medicare program.

From its inception, the ACO model mandated under Obamacare was flawed. Moreover, the financing challenges facing Medicare call for a much more significant structural reform than the ACOs ever could deliver.

Early Results Show Limited Savings.  Overall, the Department of Health and Human Services estimates $380 million in initial savings from both Medicare ACOs and “Pioneer” ACOs (a subset of the Shared Savings Program).

As of December 2013, there were 218 Medicare ACOs participating in the Medicare Shared Savings Program. Though results are not yet available for all participants, interim financial results are available for 114 ACOs that were the first to participate in the program and have generated enough data to assess savings. Of these 114 Medicare ACOs, only 29  achieved savings significant enough to qualify for a shared savings payment. According to the CMS press release, “29 generated shared savings totaling more than $126 million… In addition, these ACOs generated a total of $128 million in net savings for the Medicare Trust Funds.”

The “Pioneer” ACOs, a subset of the Shared Savings Program, were identified as some of the nation’s most experienced provider groups in terms of care coordination and expected to be the most capable of meeting the ACO targets. The Pioneer ACOs are eligible to earn a higher percentage of any shared savings payment awarded but also are at risk of owing the government money if they do not achieve savings or meet their quality benchmarks.

Initially, there were 32 Pioneer ACOs, but  concern over the proposed methodology for quality benchmarks led several to withdraw. In July 2013, CMS announced that nine Pioneer ACOs had left the program. Seven of the nine switched to the Medicare ACO Shared Savings Program, where they will not accept financial risk, only reward, and two dropped out altogether.

Citing an “independent preliminary evaluation,” CMS reports that of the 23 remaining Pioneer ACOs, only nine had significantly lower spending growth relative to traditional Medicare and exceeded quality reporting requirements, generating gross savings of $147 million. The press release states, “These savings far exceed findings from a previous analysis conducted by CMS, which used a different methodology.” It does not explain how much of those savings were retained by the Medicare program and how much was shared with the ACOs that achieved their targets.

These weak initial results for both the Medicare ACOs and the Pioneer ACOs cast growing doubt that a wide application of the ACOs throughout the rest of the health care sector will result in significant savings in Medicare.

Bigger Savings Needed for Medicare. The Medicare program has substantial financing challenges in its near future, and the Obamacare ACO model will not result in the level of savings required to extend the solvency of the Medicare program. We’re still awaiting the 2014 Medicare Trustees report, but last year’s report projected the Part A trust fund to be exhausted by 2026 and under the most realistic scenario, the whole program has a long-term unfunded obligation of $36 trillion.

These financing challenges call for a much more significant structural reform to preserve the Medicare program for future generations. The best reform option, which would benefit both taxpayers and seniors, is premium support. As the CBO estimates, it could accomplish savings ranging from $15 billion to $45 billion in 2020 alone, with greater savings over the long-term.