Vital Signs Blog

Bay State savings test produces positive results: NEJM

(This article has been updated with a correction.)

The cost of healthcare grew more slowly and quality improved more rapidly among hospitals and doctors in the Massachusetts Blues' ongoing and expanding test of global budgets, when compared with health spending and quality performance across the Northeast, research shows.

The global budget contracts, introduced nearly six years ago by Blue Cross and Blue Shield of Massachusetts, were among the first to enter the increasingly crowded field of attempts to rein in U.S. healthcare spending with incentives for quality and efficiency. The results for the first four years suggest some promise for global budgets, which allot providers an annual budget for patients' medical bills and leave providers liable for spending that exceeds that budget.

The design of the Massachusetts Blues' budgets, known as alternative quality contracts, could help inform efforts elsewhere as hospitals, medical groups and health plans negotiate risks and incentives that will determine their success. But the design may not be one that works everywhere, said Dr. Zirui Song, a clinical fellow at Harvard University Medical School and one of the researchers who authored the latest look at the contracts.

“We are not claiming it is the one-size-fits all solution,” said Song, who also is a resident at Massachusetts General Hospital.

In Massachusetts, however, results from the first four years as the contracts expanded show consistent and favorable results. Notably, the contracts produced net savings in the fourth year, after taking into account the expense of bonuses paid to hospitals and doctors. That was not the case in the prior years, when savings were eclipsed by bonus awards for performance on cost control and quality, researchers wrote in the New England Journal of Medicine.

For hospitals and medical groups with the most experience—four years—under the global budgets, slower growth in healthcare spending saved 6.8% compared with commercially insured patients in eight states during the same four-year period. Spending per person increased $62 each quarter, on average, among those not in global budgets.

More providers entered global budget agreements, known as alternative quality contracts, each subsequent year; 85% of physicians in the Massachusetts' Blues network now operate under global budgets. Each incoming class in 2010, 2011 and 2012 also reduced health spending growth when compared with providers across the Northeast.

Providers largely squeezed spending from the costs of outpatient facilities, expenses that do not include the fees charged by providers in outpatient settings.

With results that now span four years, researchers noted a shift in how providers achieved savings. In early years, hospitals and doctors under the global budgets largely slashed spending by steering patients who needed referrals away from high-priced hospitals, clinics and laboratories. But after four years, about 40% of savings came from less use of medical services such as procedures, tests and imaging. Song said that shift was expected as providers continually sought ways to reduce expenses.

The quality improvement among Massachusetts providers in the alternative quality contracts, which tie bonus payouts to quality performance, also outstripped those gains made by Northeastern U.S. providers, for the most part.

A growing number of providers have entered into global contracts, including the notable recent agreement in California between Anthem Blue Cross and seven competing health systems in Los Angeles.

Dana Gelb Safran, the Massachusetts Blues senior vice president for performance measurement and improvement, said the state's market is similar in many ways to markets across the U.S., which suggests global budgets could take hold elsewhere. Massachusetts has its share of doctors in small group practices, she said. That's not an obstacle where organizations such as independent physician associations can provide support. Consolidation is not a necessity, she said. “Most of these practices are part of something larger, in a virtual sense.”

Follow Melanie Evans on Twitter: @MHmevans

(This article has been updated to correct the spelling of Dr. Zirui Song's name.)


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