Thinking globally an attempt to lower health costs

With the country now spending more on health care than any other industry – including defense, according to Medicare’s latest statistics – reform has assumed top priority among state and federal officials. And initiatives being undertaken in the region are starting to show that there is hope in the battle to get health care spending under control.
The first large-scale experiment with a new payment regime began in May 2011, when Blue Cross & Blue Shield of Rhode Island and South County Hospital contracted for a global payment system, in which the hospital received a per-capita budget to tend to its patients, instead of payments based on whatever services were provided.
This approach requires the provider to assume accountability for efficiency, cost control and preventive care. As a result, the provider focuses on keeping its patients healthy through good primary care while at the same time relying less on costly medical specialists. If the hospital is successful, its profit would increase.
So far, the South County-Blue Cross deal has been successful. According to Lou Giancola, president and CEO of the hospital, both parties like the system. “We wanted to be able to implement changes in practice that might lead to reductions in volume,” he said. “We tried to improve the transition of care from the hospital back to the primary care physician, to avoid readmission.”
On the cost side, at least part of the success of the program is a result of the initial budget being based on the previous year’s costs plus a safety factor so as not to shortchange the hospital
In the future, however, the difficulty will be renegotiating the initial budget, as both insurer and hospital fight to maximize profits.
When asked to comment on the deal’s success or failure, Blue Cross Director of Public Relations Kimberly Reingold declined, due to contract negotiations. But it is clear that the old way of structuring contracts is not part of the discussion.
“[We are also] looking at other incentives, such as shared-savings contracts, such as our recent announcement with Coastal Medical, where providers become eligible for additional financial compensation when meeting quality measure. If met, the organization then becomes eligible to share a percentage of any meaningful medical cost savings experienced by their group of patients,” she said.
Reingold was referring to the March 19 announcement that Blue Cross and Coastal Medical, the state’s largest primary care provider, entered into a two-year contract in which a fee per visit remains in place, but the focus is on primary and preventive care through the creation of patient-centered medical homes for its clients. Should Coastal meet certain health care standards, it can share a percentage of the medical cost savings. While these efforts in Rhode Island are new, Massachusetts has significant experience, especially with reform based on a global payment system.
In 2009, Blue Cross Blue Shield of Massachusetts began paying seven provider groups differently under “alternative quality contracts,” a new global payment system.
The payment model came under the scrutiny of Mass. Attorney General Martha Coakley last summer, resulting in a June 2011 report that indicated global payments were not delivering the expected cost savings, since powerful providers could negotiate a larger budget. It was clear that regulators must ensure that the savings are shared through lower premiums.
At the same time, researchers at Harvard Medical School found the new model had met its goals of slowing the growth in health care costs while improving the quality of patient care. Published in the New England Journal of Medicine, a study of 2009 costs indicated medical spending was nearly 2 percent less than the traditional payment system. Savings were the result of referring care to lower-cost facilities, according to Michael Chernew, professor of health care policy for Harvard Medical School.
“[The project] demonstrated the ability to change the behavior of the health care system. Over time it should translate to a more efficient and cost-effective system,” he said. “They weren’t designed to save a lot of money in the first year. That’s what the attorney general’s report said, and we agree. From my experience, I’m more optimistic that it can work than when I started.”
He also believes that the players in the health care system have incentives to control costs, too. “It’s not only in the interest of Blue Cross to make it work, it’s in the interest of the providers, because the alternative is a lot worse. The health care system simply can’t, or won’t pay more, especially in the case of Medicare.”
In February, Children’s Hospital Boston agreed to operate under a new, patient-centered contract with Massachusetts Blue Cross, while Partners HealthCare, the parent of Massachusetts General Hospital and Brigham and Women’s Hospital, agreed to work under a global fee contract with Tufts Health Plan. According to Partners, it expects to receive $105 million less from Tufts during the next four years than it would have under its traditional contract. The Children’s Hospital contract will save about $83 million for consumers over the next two years, the hospital said.
The plans cover about 613,000 people, or roughly two-thirds of Blue Cross members in health maintenance organizations, but none of those in preferred-provider organizations.
According to Allen Maltz, chief financial officer at Massachusetts Blue Cross, its 2011 premium increase was the smallest since 2005, and he credited the new contracts for the improvement.
HealthLeaders-InterStudy, a provider of health care market intelligence, reports that the health care market is moving rapidly toward global payments. “We are hearing anecdotal evidence all across the country that this system shows some savings and that theoretically more will happen over time,” said Lyda Phillips, a market analyst for HealthLeaders. “Blue Cross of Massachusetts is way ahead of the field on this.”
“Michigan has a fairly advanced version of this although they call it by a different name. It’s just starting out using incentives to improve quality. For example, if you have a diabetic population and you keep their blood sugar between certain ranges, and you can improve those numbers, then you get a bonus,” Phillips said.
“I think this is the way it is going to go. … People are experimenting with it from California to Utah and all across the country, and they are commercial plans, completely voluntary, no one is being forced to do it,” Phillips said.
As of Feb. 1, Cigna is piloting 16 accountable-care programs in 10 states, covering 235,000 patients. The company has 18 additional sites scheduled for 2012 and intends to implement 100 collaborative accountable care systems by 2014. Aetna is attempting a new precursor to the system, as is Humana. “UnitedHealth also has some very aggressive pilot programs,” Phillips added.
John Rother, president and CEO of the National Coalition on Health Care, a nonprofit alliance of more than 80 organizations supporting health care reform, referred to it simply as payment reform. “Most health care policy people believe that global payments are an essential step to making better use of our health care dollar,” he said. “It has a lot of potential.” •

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