Taking Sides On Global Payments

Is there a line in the sand emerging on global payments?

Who would have thought that the wonky issue of global payments could generate such heat?

But indeed, hard-core health policy types are riled up over the question: can such a system of paying hospitals and doctors under a global budget per patient, rather than in a piecemeal fee-for-service manner actually save money while improving care?

There seems to be a line in the sand emerging: on one side, there are those who embrace global payments as a panacea for our current fragmented and pricey system; on the other side, there are folks saying ‘Whoa,’ let’s re-evaluate and look at whether these contracts will really provide enough consumer choice and payment equitability to make them viable.

Leading the global payment skeptics is Attorney General Martha Coakley, who last month issued a bombshell of a report saying global payments so far have generated no real savings. Moreover, the attorney general found that these global contracts, particularly Blue Cross Blue Shield of Massachusetts’ Alternative Quality Contracts, have put different doctor groups on different budgets which means some, like Atrius Health and Mount Auburn Cambridge Independent Practice Association, have been paid far more than others.

On the pro-global payment side, there’s Blue Cross Blue Shield of Massachusetts. The state’s largest insurer was the subject of a financial analysis published last week in The New England Journal of Medicine which reviewed the first year of Blue Cross’s Alternative Quality Contracts. It concluded with a pretty upbeat analysis by Harvard health economist Michael Chernew and others (at least one Blue Cross executive was also listed as a study author) which said that these “alternative” contracts generated “modest” savings as well as improvements in the quality of patient care. Much of the media coverage of the study latched onto the “modest savings” quote in the headline.  That assessment, however, seemed to undercut the attorney general’s findings.

But hold on, says Jeff Levin-Scherz on his blog Managing Healthcare Costs. In a post published last week called “Dueling Estimates of Cost Saving From New Massachusetts Blue Cross Global Payment Contract” he argues that if you actually read past the headlines, “the authors of the NEJM article are very clear that the AQC did not save money in the first year, which is consistent with last month’s report from the Massachusetts Attorney General. In fact, the authors state: Total BCBS payments to AQC groups, including bonuses for quality, are likely to have exceeded the estimated savings in year 1.”

Levin-Scherz, an assistant professor at Harvard Medical School and Harvard School of Public Health, so delightfully cuts to the chase here, I’ll include the rest of his post in full (and thanks to Harvard’s Nancy Turnbull for pointing it out to us):

The combination of bonuses for being below budget (~3%) and bonuses for achieving quality thresholds (3-5%) and extra BCBSMA administrative costs (0-2%) made the AQC groups substantially more expensive than non-AQC groups. The AG report showed clearly that early adopter AQC groups had surprisingly high total costs in the Blue Cross plan – probably because of these additional expenses. (The $70.20 above is multiplying the AG medical inflation differential by the calculated quarterly cost from the NEJM article referenced above)

Another surprise is that in the medical claims costs, we aren’t seeing evidence of better quality of care such as fewer admissions or emergency department visits. Utilization changes are not different between AQC and non-AQC groups. Rather, the AQC groups referred patients to less expensive providers – so the lower claims cost was entirely from lower unit costs.

Note also that the analysis excluded pharmacy. The AQC groups might well have had higher pharmacy costs, since the physicians received bonuses based on hitting some quality measures that require prescription medications.

It’s not a surprise that BCBSMA had to pay a lot to entice groups to join this capitated program – and no one should have expected lower costs in year one . I’m hopeful that over time this program will yield lower costs – because physicians in a global payment arrangement figure out how to save resources.

However, the AQC is like many other medical management interventions in that right now BCBSMA can only claim that its AQC has improved quality – not that it has lowered cost.

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  • richard01983

    Not surprised that BC is having difficulty with global payments.  Their primary business is collecting premiums and paying bills.  I suspect they are conflicted with their new role of trying to derail the runaway costs of the system they created.  Additional costs of hospital re-admissions?  Why would you pay for that?  Where is the incentive to do the job right the first time?  Bonus for quality?  Are you saying the regular fee is for sub-standard care?  BC is part of the problem and is unlikely to succeed by grafting things onto their current system.  
    The VA gets one global payment a year and they don’t have endless unnecessary appointments and overflowing waiting rooms.  The private system pays by the procedure so you get lots of procedures.  A few contract provisions will only change the way the game is played and the costs will go round and round.  
    You don’t need any analysis to figure out what is wrong with the system, you just have to be willing to see the obvious.  Waste is someone’s income and there’s the rub.