Adventures in reimbursement

Is Massachusetts taking a giant step into the future, or traveling back in time?

Opinions are fiercely divided, but most people agree that the commonwealth is attempting big changes to an unsustainable provider payment system, and as one observer noted: “Drive a stake in the heart of fee-for-service once and for all.”

As Congress grapples over the details of healthcare reform, the commonwealth is on the fast-track of a massive payment experiment. What’s unclear is whether it will succeed in that state—and what the rest of the nation can learn from it.

Still to be hammered out are many, many details, including new risk burdens on hospitals, what employers’ role is in paying for it, and quelling skepticism that this is just a fancy way of selling capitation back to an unsuspecting public.

Despite the uncertainties, the move represents the growing push by providers and payers to try new healthcare financing mechanisms that may do a better job of slowing the growth of spending on healthcare services.

On July 16, a 10-member state commission on the healthcare payment system issued a 77-page report unanimously recommending major changes to the way physicians and hospitals are paid.

In what the commission called “a bold but achievable path to a better healthcare system,” it recommended that within five years, all providers in the state be part of a global payment system, which they said will encourage care coordination and quality while curtailing skyrocketing costs.

Global payments are not new. Essentially, providers receive a payment per person, risk-adjusted for patient health status and other factors, such as age. Payments, either on a monthly or annual basis, would be tied to pay-for-performance, where providers meet agreed-upon quality measures.

In addition, physicians and other providers would work together to coordinate care in a medical-home model.

During the transition to global payments, state providers would participate in “shared savings” to help them become more familiar with this type of structure, according to the commission. Providers would get unspecified technical assistance, information technology and training to help them make the switch.

Two of the commission members, state Sen. Richard Moore and state Rep. Harriett Stanley, both Democrats, said that they will hold hearings this fall on the details and move forward with legislation to implement global payments.

Dolores Mitchell, a commission member and executive director of the Group Insurance Commission, which provides health benefits to state employees, retirees and dependents, said global payments are a proven model.

She noted that 20% of providers in Massachusetts are already using global payments. “It’s not going to happen overnight, nor should it,” Mitchell said. “But that’s where I think we ought to be going.”

Atrius Health, an alliance of five not-for-profit physician groups in Massachusetts representing about 800 physicians, has been doing global payments since 1969.

Today, about half of Atrius payers use this system, while the other half use traditional fee-for-service.

Global payments have allowed the medical groups to invest in infrastructure and diagnostics, said Gene Lindsey, president and CEO of Atrius Health and president and CEO of the affiliated Harvard Vanguard Medical Associates.

“Global payment can work, and it can work beautifully,” Lindsey said. “We have enough resources to do a better job and it gives us the ability to do better quality care.”

In contrast to fee-for-service, which Lindsey calls “an abomination,” global payments help align the motives of physician and patient with a focus on outcomes instead of volume, he says.

Last week, Atrius Health signed a new five-year contract with Blue Cross and Blue Shield of Massachusetts involving 106,000 patients that is built on global payments. Called an Alternative Quality Contract, or AQC, the agreement includes global, fixed payments that rise annually with inflation.

The contract offers performance incentives tied to national quality and effectiveness measures as well as patient experience. The incentives are up to 10% on top of the total medical expenses per patient.

The global payments under the contract include all services received by the Blues members, including primary, specialty and hospital care as well as pharmacy and behavioral health. Physicians and hospitals are jointly accountable for the total quality and costs associated with each Blues member covered by the contract.

So far, four hospitals in the state have signed AQC contracts with the Blues plan, and others are considering it. A total of 225,000 Blues members are receiving care under AQC contracts.

“It gives us the ability to create teams,” Lindsey said. “Think about taking care of people in an environment that doesn’t require them to come to the doctor’s office if they don’t need to. It’s a totally different world. It allows us to invest in the infrastructure to communicate with specialists instantly instead of sending letters back and forth over days and weeks.”

With premium rates rising between 9% and 11% annually, the Massachusetts Blues is hoping to bring down the rate of increase to about 3% to 4% per year, according to Deb Devaux, executive director of community transformation for the insurer. AQCs, though in their first year, are on track to achieve this goal, she says.

“We think the big impact of payment reform is aligning incentives,” Devaux said. “Blue Cross is very humble and realistic about the fact that even if we move all members into this model, we are still just one-third of the market in the state.”

If done correctly, global payments show great promise, some hospital executives say.

“It’s a change in the power structure of the care delivery,” said Paul Levy, CEO of 585-bed Beth Israel Deaconess Medical Center, Boston. “It would be a shift in emphasis over who controls the patient experience to the primary-care doctor. The days of each part of the healthcare system being a free agent are over.”

These changes bring lots of unanswered questions, Levy said. For instance, how much would care be restricted? “The dangerous side of it is people could get undertreated,” he says.

Another question is the insurance risk to providers, said Lynn Nicholas, president and CEO of the Massachusetts Hospital Association, who served on the commission and voted for the recommendations.

Under global payments, providers take on more risk. But would inadequate risk adjustment doom the system and lead to underreimbursements? “There’s not going to be a one-size-fits-all approach,” Nicholas said.

But Levy, who is considering participating in the Massachusetts Blues AQC contract, wonders if ultimately insurance companies would be unnecessary if providers took all the risk. And if they were, would that lead to conflicts of interest for providers as they balance care decisions and risk?

Indeed, the Massachusetts Blues requires providers with AQCs to buy re-insurance. Most purchase it through the Blues as part of the contract, Devaux said.

“They all need re-insurance and stop-loss to protect against the risk,” Devaux said. “Like a car accident—you can’t predict or manage that.”

Levy wonders if this is too much risk for hospitals. “And I say to Blue Cross, ‘I thought your job was insurance.’ ”

Another looming question is what this would mean for benefit design. Today, AQCs are only offered through HMOs, though Devaux said that the Massachusetts Blues are working on how to make the global payment model function in a PPO. Also, small provider practices cannot participate in these contracts because they don’t have the volume or benchmarks necessary, she added.

The special commission recommended that no changes be made to insurance benefit design, but some think leaving this alone is simply impossible under global payments.

“There’s a great deal of bunk in that part of the report,” Nicholas said. “You have to have changes to benefit design. People would be more restricted in terms of options, but you could go out of your corridor if you are willing to pay for it. That’s the American way.”

The commission’s report seems to try to soften the blow to patients.

“Politically, it was said there will be no changes to benefit design, but healthcare will cost less,” Nicholas said. “The provider community is incredibly skeptical that would be the case.”

So are others.

“The last time I checked, the majority of citizens in this country rejected this form of organization,” said Francois de Brantes, CEO of Bridges to Excellence, a not-for-profit provider payment reform group. “Do we force every resident in Massachusetts to go into a gatekeeper scenario?”

De Brantes has been developing an episode care payment model called Prometheus, now being piloted in several markets. The special commission praised Prometheus in its report, but ultimately concluded that episode payments are not ready for prime time. De Brantes disagrees.

“If this wasn’t ready for prime time, we wouldn’t be doing it,” de Brantes says. “Behaviors are starting to be modified, and costs are starting to be controlled.”

He sees global payments as a throwback to the managed-care days of the 1980s. “The last time, it blew up in everyone’s faces,” he said. “Is this really the best we can come up with?”

Large self-insured employers are another puzzle when it comes to implementing global payments. The Employee Retirement Income Security Act of 1974, a federal employment law, protects employers from any state or local schemes that restrict their ability to provide similar benefits to workers across state lines.

“Do you go to Verizon or AT&T and say: ‘You can’t spend more than X dollars per employee in Massachusetts?’ ” de Brantes said, noting that would violate ERISA.

Nicholas of the Massachusetts Hospital Association agrees this is an issue. “That’s a big question,” she said. The commission recognized it “as a big barrier.”

Indeed, until 1999, Atrius Health had a system entirely of global payments, but then employers began demanding a fee-for-service option, Lindsey said.

Despite all these issues to be worked out, many in the commonwealth believe they can do something substantial to change the current payment model and bring down costs while keeping quality and efficiency.

Can other states do the same?

“There’s a great sense of responsibility to take care of each other here. I’ve never

seen anything like it,” said Nicholas, who moved to the state from New Jersey two years ago. “People talk about and understand healthcare more than in other parts of the country.”

What do you think?