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Carney Hospital in Boston, part of Steward Health Care System, is participating in the quality incentive payment experiment.
Carney Hospital in Boston, part of Steward Health Care System, is participating in the quality incentive payment experiment.

Healthcare Market Profile: Boston-Cambridge-Quincy

Another experiment: Quality incentive pay model under way in Boston

By Melanie Evans
Posted: July 25, 2011 - 12:01 am ET

Boston's healthcare market, already known for its high concentration of prominent hospitals, has gained recognition for other notable reasons in recent years.

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Massachusetts health policy moved ahead of the nation when the state adopted an ambitious plan to overhaul healthcare delivery. More recently, Boston's formerly Catholic health system was acquired by for-profit owners with an apparent acquisition streak.

And health policymakers are closely watching one private effort in Boston and across Massachusetts to pay doctors and hospitals for how well they care for patients, not how often.

That experiment began more than two years ago between the state's Blue Cross and Blue Shield health plans and primary-care doctors, specialists or hospitals (or some combination) at eight locations. Among those that signed five-year contracts to test the model were a primary-care practice with 75 doctors and the for-profit Steward Health Care System (formerly Caritas Christi Health System, sold by the Archdiocese of Boston to the private-equity firm Cerberus Capital Management last year).

The experiment, a combination of quality incentives and lump-sum payments for each patient, is seeking to slow the rate of healthcare spending by one half within five years. The contracts are also similar in a few ways to proposals for accountable care organizations under Medicare, though on some critical points the payment models diverge.

“It's effective,” Mark Rich, Steward's executive vice president of corporate strategy and management, says of the focus the contracts place on quality and closer financial ties between hospitals and doctors. Steward agreed to manage medical costs for roughly 50,000 patients covered by Blue Cross and Blue Shield.

The Boston-based system did not make radical changes and has seen quality gains and reduced medical costs thanks to the heightened focus and measurement improvements. Steward has invested $100 million in healthcare information technology and developed software to monitor performance for its Blues contracts, he says. The system employs more than 400 doctors and, through its contract network, reached agreements with another 1,350 physicians who accept financial risks under the Blue Cross and Blue Shield payment model.

The Massachusetts Blues set budgets for each contract based on monthly lump-sum payments per enrollee. Doctors and hospitals that come in under budget share the surplus; those that go over budget are liable for excess costs. In the first year, all eight locations met their budgets, according to the insurer.

Medicare's proposed ACOs would also require providers to cover costs that exceed projections, though some could opt to be exempt during the first two years of a three-year contract.

Blue Cross and Blue Shield also included quality bonuses based on 64 measures (half ambulatory, half hospital) that could total 10% of total monthly payments, a formula more generous than most, wrote Michael Chernew, a Harvard Medical School healthcare policy professor, and three co-authors in January's Health Affairs. Chernew wrote that every group under contract reportedly “earned significant quality bonuses.”

For the providers under incentive contracts, Massachusetts Blue Cross and Blue Shield says the insurer spent roughly $1.8 million less during the first year for patients readmitted to hospitals. Meanwhile, quality improved more rapidly than in prior years for measures of chronic disease management.

Dr. Gene Lindsey, president and CEO of the alliance Atrius Health and also of Harvard Vanguard Medical Associates, one of the not-for-profit's five member medical groups, said Atrius entered into the contracts as a pre-emptive move. “We live in fear” that Medicare and Medicaid rates will drop significantly and private insurance rates will stall, he says. That primarily motivated Atrius to search for ways to shift its payment away from fee-for-service toward global payments.

Atrius did not see costs slow significantly during the first year of its Blues incentive contract, but spending grew less than 1% during the second year, compared with 7% to 8% in prior years, he says. Efforts to improve operating efficiency contributed to the slowdown, he says, as did spillover from quality gains. Meanwhile, physicians have more leeway under global payments to offer services that improve health but are not typically paid for by fee-for-service. “It's quite freeing really,” Lindsey says.

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