A working experiment: replacing the fee-for-service model for providers

by Torsten Bernewitz

At the beginning of this year, Andrew Dreyfus, CEO of Blue Cross Blue Shield of Massachusetts (BCBSMA) had an important message to providers:  work with payers in a collaborative way to improve quality of care and contain the growth in healthcare costs – or else (http://articles.boston.com/2011-01-23/business/29346724_1_payment-system-global-payment-care-providers).

In this context he was also talking about a new payment model – BCBSMA call it Alternative Quality Contracting (AQC) – that replaces traditional fee-for-service contracts. BCBSMA is really pushing for this approach as the preferred model for the future – and warns that those insisting on fee-for-service will have to reduce their costs or at least freeze them.

Alternative Quality Contracting (AQC) is a global payment model that uses a budget-based methodology, combining a fixed per-patient payment with performance incentive payments.

The global budget is based on each organization's historical costs and is adjusted annually to reflect inflation. It includes a global payment for all services received by a BCBSMA member, including primary, specialty, and hospital care, as well as ancillary, behavioral health, and pharmacy services.

AQC offers hospitals and physicians the opportunity to increase their total payment by up to 10 percent based on their performance toward nationally accepted quality measures and improvements in the efficiency of the care delivered.

It seems to be working:

During a Healthcare Information and Management Systems (HIMSS) webinar last week, Dana Safran, SVP Performance Measurement & Mmprovement at BCBSMA, presented the results the program has been able to achieve so far:

• In the first year, a reduction of medical spending by 2 percent. This is well in line with BCMSMA’s goal to cut spending growth by half (historically annual growth has been in the range of 8-12 percent.
• All AQC reported budget surpluses, giving them the opportunity to make additional infrastructure investments.
• Each AQC organization showed improvement of clinical quality measures. More than half approached or met the maximum performance target on diabetes and cardiovascular care.
• AQC groups could reduce hospital re-admissions – one group by 15%.
• For some preventive care metrics, like cancer screening and well-child visits, AQC group’s performance were three times that of non-AQC groups and more than twice the performance before joining the program.
• Network participation rose to 44 percent in 2011 (up from 26% in 2009).

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com