Global payment gains traction in Massachusetts

Children's Hospital Boston and Partners HealthCare reached restructured contracts with insurers in an effort to control costs.

By Emily Berry — Posted Feb. 8, 2012

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Two large hospital systems in Massachusetts have reached agreements with health plans to scrap their fee-for-service contracts in favor of global payments in an effort to control the growth of spending in the next few years.

Children's Hospital Boston agreed to operate under Blue Cross Blue Shield of Massachusetts' Alternative Quality Contract (AQC), and Partners HealthCare, the parent organization of Massachusetts General Hospital and Brigham and Women's Hospital, agreed to work under a global fee contract with Tufts Health Plan. Both new contracts, which were announced in January, are part of a wave of change in the state as it moves from a fee-for-service health care payment system to a new type of capitation, or "global payment" system.

Under a global payment arrangement, a hospital or a physician group agrees to accept a flat fee for caring for a patient over a month or year, and generally has an opportunity to earn more if their care meets quality thresholds. Advocates say linking quality of care to a flat fee makes the arrangement different from older forms of capitation, which fell out of favor because of concerns that hospitals and doctors were denying care to avoid losing money.

The parties involved in the latest renegotiated contracts said they worked out the new deals in an effort to control the growth of premiums for insured patients.

Partners said in a statement that it expected to receive $105 million less from Tufts during the next four years than it would have under its traditional contract. Combined with savings from a new arrangement with Blue Cross Blue Shield in October 2011, its shift away from fee-for-service payments would mean about $345 million in savings for patients during the next four years, the hospital system said.

The Children's Hospital contract with the Massachusetts Blues will save about $83 million for consumers during the next two years, the hospital said. The contract will bring 1,238 new physicians under the payment system, according to the joint statement from the insurer and hospital. Some of what the Massachusetts Blues pays Children's Hospital and its physicians will depend on clinical outcomes for patients, such as how well they can prevent post-surgical infections.

The Partners and Children's Hospital contracts are a sign of hospitals and health plans' getting on board with global payments at the urging of state officials, particularly Gov. Deval Patrick, who has demanded that hospitals and insurers work to reduce cost disparities and scale back the price of insurance coverage.

The move to a new type of payment system followed the state's adoption of a near-universal coverage requirement.

In February 2011, the governor proposed health care cost-cutting legislation that would rely in part on moving all state-sponsored health coverage to a global fee payment system, including Medicaid enrollees. That follows what a panel of health experts, including a representative from the Massachusetts Medical Society, recommended in 2009.

Massachusetts physicians have urged a gradual shift to global payments, but a rapidly growing list of hospital systems and physician groups have signed on to Blue Cross Blue Shield's Alternative Quality Contract, even without any legislative action pushing them to do so.

"I think there's a spreading realization among providers in a lot of places that we can't continue on the course we're on," said Stuart Guterman, vice president of payment and system reform and executive director of the Commission on a High Performance Health System at the Commonwealth Fund, a private foundation that advocates better health care access and quality.

"Some of the more enlightened [doctors] realize there's a connection between the way things operate under the fee-for-service health care financing system and many of the things that make them unhappiest professionally -- the things that make them feel like hamsters on a wheel," he said.

The Commonwealth Fund is helping to pay for an assessment of the Massachusetts Blues' AQC. There are signs that the arrangements have saved money, and no sign that the new system is making physicians or patients unhappy, Guterman said.

The Massachusetts Blues wants to see the rest of the state's health care system adopt the same kind of payment system, and the company is calling on the government to require public payers to make the change.

"The private market is already moving in this direction, but the single biggest step the state and federal government can take is to direct Medicaid and Medicare to move to global payments," the Blues' statement said.

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