Hospitals Divided Over New Blue Cross Deal | Will pay for performance lower costs, or drive hospitals into debt?
When Blue Cross Blue Shield of Massachusetts announced earlier this year that a hospital and two physicians groups had signed on to its new “alternative quality contract,” people outside of the industry may have dismissed the news as just another expensive insurance deal.
For those in the world of health care finance, though, the new contract has stirred up a big controversy.
Supporters say it could represent a way forward out of constantly escalating health care costs. Opponents worry it may lead to untenable burdens for hospitals and other providers.
The new Blue Cross Blue Shield plan falls into a broad range of initiatives called “pay for performance” that reward hospitals and doctors for meeting certain benchmarks for care — helping diabetics keep their blood sugar within a certain range, making sure women over the age of 40 get mammograms and so on.
But while most insurers tack the performance incentives on to a baseline plan that pays a particular fee for each procedure a patient receives, the new contract tears that basic framework down.
The new system, referred to by its acronym AQC, starts by paying providers a set fee depending on the number of patients they see and their age, sex and health status. That dollar number goes up every year, but only as much as inflation—not the much higher annual jump usually seen for medical costs. Providers get more money through the quality incentives, and they can also save money by treating patients more efficiently and reducing unnecessary care.
Mount Auburn Hospital, the affiliated Mount Auburn Cambridge Independent Practice Association and Hampden County Physician Associates, signed onto the contract in mid-January. Tufts Medical Center and its New England Quality Care Alliance physicians’ group quickly followed suit as did Brockton Hospital and its physicians’ group. The Caritas Christi system has said it plans to join as well.
John Fallon, chief physician executive at Blue Cross/Blue Shield said the insurer is in discussions about the AQC with other hospitals and doctors’ groups all over the state, including in Central Massachusetts, though he declined to give specifics.
Fallon said the contract depends on a real sense of partnerships between the insurer and providers, reflected in the fact that it is a five-year agreement, not a typical one- or two-year contract.
“We’re joined at the hip as we try to do everything we can do here to make it successful,” he said. “This is hugely important, to them and to us, that this is successful, that they achieve the quality goals and the efficiency goals.”
“This is a very, very positive development,” said Paul Swoboda, an expert in health care payment systems for the University of Massachusetts Medical School’s Commonwealth Medicine division office in Charlestown.
Against Overtreatment
Swoboda said the AQC takes a consensus that has been emerging in recent years among health finance experts and turns it into a coherent policy. It fights the incentives toward overtreatment that come with paying big money for complex invasive procedures and much less for simple preventative care.
But to some hospital executives, the contract sounds like a partial return to a policy of per-patient cost calculations that insurers tried in the 1990s and backed away from after it drove many hospitals into the red.
Joe Kirkpatrick, vice president of health care finance at the Massachusetts Hospital Association, said hospitals are “intrigued” at the idea of the new contract. But he said many worry that it could mean facing the same negative operating margins that plagued many of them for much of the 90s.
“It was only when hospitals got out of these contracts and got into better contracts that they were able to thrive,” he said.
The concern is that, when insurers pay based on total number of patients, a bad epidemic or a handful of terrifically expensive individual cases could make a hospital lose its financial footing.
Edward J. Kelly, president of Milford Regional Medical Center, said his hospital is in the middle of a multi-year contract with Blue Cross/Blue Shield, and that he hasn’t discussed the AQC with the insurance company. But he said he’s very concerned that a plan like it could pass too much risk from insurers to hospitals.
“We’d like the insurance companies to stay in the insurance business,” he said. “We’re a provider, and we’d like to stay in that business.”
To Fallon, though, the concern over risk is misplaced. He said the contract includes provisions allowing providers to adjust how the insurer defines its patient population’s level of health on a regular basis. In extreme cases – for example, if a patient needed to travel out of state for a complex procedure – he said the provider would probably have a reinsurance plan to take care of the excessive cost.
“Reinsurance would blunt that insult, if you will, to the overall cost of the provider group,” he said.
Change For The Better
At Grove Medical Associates, an independent primary care group in Worcester, office manager and nurse Gail Cetto said pay for performance systems have been a good thing for patients and for the practice.
Cetto said she wasn’t familiar with the AQC, but the practice’s contract with Blue Cross/Blue Shield, like most of its insurer contracts, does include incentives for quality care.
With those incentives in place, she said, the office has changed the way it does business, implementing an electronic medical record system and keeping careful track of which patients have had important preventative care like pap tests and colonoscopies. The office uses the same system for all patients, whether their insurance offers extra funds for good results or not.
“It doesn’t matter to us,” she said. “And I think that’s what they’re trying to achieve, or should be.”
Along with broad differences of opinion on the value of the AQC come similar disagreements about how common a model it is likely to become. Swoboda said the contract would work better if other insurers came up with similar plans, giving providers an incentive to make good policies universal.
He said a new state payment commission is looking at cost containment and may well come up with ideas that would encourage the spread of AQC-style plans.n
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