Blue Cross Blue Shield of Massachusetts signs Innovative Contract with a Hospital and Two Physicians Groups

Sometimes health plan innovation comes from the product people, sometimes it comes from technology, but sometimes it comes out of the provider contracting group. This is one of those times. Blue Cross Blue Shield of Massachusetts has signed an innovative contract with a hospital and two physicians groups that they say will slow the rate of medical cost increases while rewarding top-performing doctors with bigger paychecks.

The Boston Globe reported that Mount Auburn Hospital in Cambridge, MA, and its affiliated doctors and Hampden County Physician Associates of Springfield, MA, signed the so-called Alternative Quality Contract, which offers the possibility of higher payments over five years if doctors meet quality and efficiency targets.

According to the Globe, Blue Cross’s new program gives providers a flat payment based on the number of patients they treat. The payment increases annually based on inflation. Physicians and hospitals can earn more over time by cutting costs – in part by restricting treatment – and by earning bonuses if they meet targets for better care. For instance, the Globe says, hospitals will be evaluated in part based on how many patients get infections during their stay.

The Globe reports that Blue Cross expects the new approach could change the way medical payments are made and cut annual increases in payments in half, to about 5 percent, by reducing hospital expenses for care and procedures.

Health Plan Innovation Take: While this provider contracting approach may be touted as new, it sounds to me a lot like the capitation system that was used by many managed care plans at least a decade ago. That system worked because plan members had to select a primary care physician (PCP) who managed that member’s care and controlled access to specialists and hospitals. In turn, the physician received a monthly payment for each member who had selected them. Individual physicians could also usually also earn bonuses if they met certain cost and quality standards set by the health plan.

The “pay for performance” system put in place by this Blues plan appears to be a bit different than the PCP-based capitation systems of the past, but the anticipated cost savings is huge – cut the trend line in half and improve quality.

It will be interesting to see if the results match expectations and if the health plan will be successful in extending this type of contract to other physician groups and hospitals in their service area. So far, this has been a problem for the plan. In fact, a number of New England Quality Care Alliance (NEQCA) physicians affiliated with Tufts Medical Center have notified the plan that they will no longer participate in the HMO and PPO provider networks, effective February 1, 2009. (Click here for more details.)