WASHINGTON – An analysis of Medicare by the Department of Health and Human Services shows changes implemented under the Patient Protection and Affordable Care Act will save more than $120 billion over the next five years.

“Just a year after passage, we are seeing savings in Medicare begin to materialize from provisions in the Affordable Care Act,” said Donald Berwick, MD, administrator for the Centers for Medicare and Medicaid Services. “This work is laying the groundwork for a larger transformation of Medicare and our healthcare delivery system, from simply paying for the volume of services provided to rewarding the quality of care delivered. We remain committed to achieving a healthcare system that pursues better care, better health, and lower cost through improvement.”

In addition to the projected savings, the insurance program for seniors is also on track to improve the quality of care members receive under the program. CMS has implemented a wide array of quality improvements and delivery system efficiencies including providing new preventive benefits, tying payment to quality standards, investing in patient safety and offering new incentives for providers who deliver high-quality, coordinated care.

Reforming provider payments to reward quality and efficiency will yield the largest savings, about $55 billion over the next five years, according to the analysis. CMS recently finalized new payment rules to establish a value-based purchasing program for inpatient hospital services that ties hospital payment to their performance on measures. CMS has also proposed to adopt quality measures as part of a transition to a more value-based payment system. To further curb the growth of healthcare costs, Medicare payment updates for hospitals, skilled nursing facilities, home health agencies, medical labs, clinics, ambulatory surgical centers, dialysis centers, ambulance services and most other types of healthcare providers will be tied to the rate of growth in productivity in the economy at large.

[See also: CMS proposes new Medicare hospital inpatient value-based purchasing program; Medicare to debut quality bonus payment demonstration for Medicare Advantage]

“These actions will produce savings, create incentives for greater efficiency in care delivery and lay the groundwork for a long-term transformation of our healthcare system as well to make it safer and prevent injuries and unnecessary readmissions to hospitals which not only harm patients but increase overall healthcare costs,” the analysis noted.

HHS also expects to save about $50 billion over the same time via its program of reducing excessive payments to the insurance companies who provide Medicare Advantage plans. It will accomplish these savings by eliminating, over time, payments to private insurers who run Medicare Advantage plans that are in excess Medicare’s costs. These reforms began January 1, and in 2012 they will include incentives for quality improvements.

CMS also expects to reap $10 billion in savings as a result of programs aimed at improving patient safety – specifically lowering hospital readmissions and reducing hospital-acquired conditions. To foster these initiatives CMS recently announced it was making up to $1 billion of ACA funding available for the Partnership for Patients, which will support public-private partnerships to improve the quality, safety and affordability of healthcare.

CMS has set a goal of reducing preventable hospital-acquired conditions by 40 percent, preventing 1.8 million injuries and averting 60,000 deaths of hospital inpatients over the next three years. CMS is also targeting a 20 percent reduction in hospital readmissions, which would result in eliminating 1.6 million unnecessary rehospitalizations.

“Using the tools provided in the Affordable Care Act and by taking other proactive steps to improve the quality of care for people on Medicare, we have generated substantial savings for Medicare. And initiatives that have been launched hold the promise of further reducing costs for beneficiaries and the Medicare program,” the analysis concluded.