How Insurers Can Help

How Insurers Can Help

New York Times Editorial

October 1, 2012: Private insurance companies should be leading the way in the struggle to control health care costs. They know about every contact a patient has with the health care system and can see how much is wasteful or redundant. By altering the way they pay doctors and hospitals, they can potentially push providers to reduce costs, improve quality and even transform the whole culture of American medicine.

For the last three years, Blue Cross and Blue Shield of Massachusetts, a private nonprofit insurer that is the largest in the state, has been using an innovative approach that takes on traditional fee-for-service health care, which has long been the most costly way of paying for care and the least subject to budget curbs. Under a new kind of contract, the insurer puts many of the state’s largest hospitals and physician groups on fixed budgets and rewards or punishes them financially based on their performance in meeting the budget target.

The results from the first two years of a five-year contracting period are quite encouraging, and this strategy is spreading to other places. More than 225 health care provider organizations around the country have entered into agreements with public or private insurers for some form of budget-based contracts. And Medicare has started demonstration projects like the Blue Cross model with 32 organizations. Under fee-for-service, which still dominates American medicine, insurers pay doctors a separate fee for each office visit, test or procedure they perform, giving doctors incentive to do more rather than less.

Under the Blue Cross approach, groups of doctors and hospitals (the vast majority were previously paid on a fee-for-service basis) have chosen to enter “alternative quality contracts,” which pay them a negotiated total sum to provide all the care their Blue Cross patients will need over the course of a year. The groups range in size from 8,000 members to 165,000, and together cover some 640,000 Blue Cross members. The contracts do not allow the insurer to dictate what specific procedures or tests can be performed; those decisions are left to the doctors who do what they think best with the resources they have.

If the medical groups come in under budget, Blue Cross rewards them with a share of the savings. If they exceed the target, they absorb part of the loss. The goal is to cut the annual growth in spending by half in five years.

The danger in the fixed payment — also known as a “global payment” — is that doctors might be tempted to deny patients care to keep costs below the target. To alleviate that problem, the contract provides substantial bonuses for improving the quality of care by some 64 measures, like the percentage of patients who have high blood pressure under control.

The latest independent evaluation of the Blue Cross program, published online by the journal Health Affairs in July, showed that groups covered by alternative quality contracts spent 1.9 percent less on average on medical care than similar Blue Cross groups without such contracts in the first year and 3.3 percent less in the second year. The savings were achieved primarily by using lower-cost hospitals of high quality and performing laboratory tests and imaging at non-hospital outpatient facilities. Money was also saved by reducing the use of surgical stents for treatment of clogged arteries and of high-priced radiology scans, two areas where experts believe there is a lot of unnecessary treatment of no benefit to the patient.

The savings from the contracts, though modest so far, have not harmed the quality of care. In fact, initial results suggest that chronic care management, preventive care for adults and pediatric care have all improved compared with a control group of providers, almost all of which were paid on a fee-for-service basis by Blue Cross.

One hitch: for the first two years the savings in delivering medical care were offset by start-up costs, including generous bonuses and support for information technology. That will change this year when there will be net savings, which are expected to increase as time goes on. Ultimately, this approach will be judged by whether it distributes those savings to private employers, government programs and families coping with rising health care costs.

The experience with Massachusetts Blue Cross suggests that global payments can help change the culture of medical practice. If this model shaves just a few percentage points off the spending growth rate, total health care expenditures in the nation could drop by tens of billions of dollars a year, saving trillions over the next two decades.

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New York Times