One of Michigan's largest health systems has entered its first insurance contract to pay hospitals based on performance, not volume, a move that underscores the industry's halting progress toward financing reform that is widely cited as essential to more affordable healthcare.
Beaumont Health System, based in Royal Oak, joins a growing number of hospital operators with contracts that tie bonuses to performance on quality, health spending growth or both. Some hospitals entered risk-based contracts before the 2010 Patient Protection and Affordable Care Act, which included policies to promote financing reform. Adoption has accelerated since, but unevenly, and results so far have been mixed. Some contracts offer larger potential bonuses but also include penalties if performance falls short. The risk of failure has sidelined some hospitals, as executives wait to see how others fare.
Beaumont took a “relatively slow” approach, said Dr. David Wood, the system's chief medical officer. The new contract comes after strategic preparation for new reimbursement models, such as the system's 2013 agreement to clinically integrate with a large independent physician group.
Executives did not doubt that health reform and the marketplace would shift hospital payment toward more risk-based contracts, Wood said. But with no experience and potential financial risk, Beaumont executives decided to first work toward better coordination with physicians, which would potentially achieve the quality and savings targets that risk contracts require.
Last year, Beaumont entered into an agreement with local physicians to work more closely on quality and efficiency to prepare for new payment models.
The new risk-based contract with Blue Cross and Blue Shield of Michigan is Beaumont's initiation into payment models that will become far more common in coming years, Wood said.
Follow Melanie Evans on Twitter: @MHmevans
