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Blue Cross Blue Shield of MA and Caritas Christi Healthcare Aim to Alter Healthcare Fee Model


The Wall Street Journal

Insurer Aims to Alter Health-Care Fee Model

November 27, 2009 - Blue Cross Blue Shield of Massachusetts Inc. is expected to announce Friday a deal covering 60,000 members of the Caritas Christi Health Care system, marking one of the country's largest experiments in fundamentally changing the way doctors and hospitals are paid.

In most of the U.S. health-care system, doctors and hospitals generally earn money when people get sick, under a reimbursement system known as "fee for service." But Blue Cross is trying to change the payment model to a system in which doctors and hospitals earn more by keeping patients healthy and out of doctors' offices and hospitals.

If successful, the approach offers a potential model for the rest of the U.S. Legislation to overhaul the health-care system pending in the Senate calls for Medicare to set up small experiments to change reimbursement in ways similar to what Blue Cross is attempting.

Massachusetts's first-in-the-nation initiative to provide near-universal health coverage is saddled with rapidly escalating costs. Some blame the fee-for-service system, under which doctors and hospitals are paid for each test and procedure they perform.

That is why Blue Cross of Massachusetts is moving toward a radically different system, said chief executive Cleve Killingsworth. He said he thinks current proposals in Washington don't do much to reduce the estimated 30% of care many experts say is unnecessary. He said those unwarranted costs are driven in part by the ubiquitous fee-for-service system.

Without a different approach, he said, "then we just take the 30%...and extend it across a whole new set of Americans. That's not sustainable."

Blue Cross Blue Shield of Massachusetts, an independent licensee of the Blue Cross Blue Shield Association, is a nonprofit health insurer covering more than three million people.

Under the deal expected to be announced Friday, Caritas, a nonprofit system of six hospitals and 1,100 employed or affiliated physicians, said it will be paid to take care of about 60,000 Blue Cross members in its new program -- whether or not they get sick. Caritas will use some of the payments for preventive services to help keep patients healthy. If Caritas can keep health-care costs under a certain budget, it can make a profit. But if health-care costs go over the agreed-on amount, Caritas is on the hook.

Caritas said the arrangement is valued at $1.5 billion over four years, and that most of that amount is for caring for patients under this new payment system.

The deal with Caritas is one of the biggest for Blue Cross, which started signing similar agreements this year with other hospital systems and physicians in the state. Now, more than 20% of its provider network has signed on to this type of payment system, which it calls the "alternative quality contract."

Blue Cross is adding a carrot: If doctors and hospitals can meet certain quality targets, they can earn a bonus of as much as 10% on the value of the deal. Among the targets: keeping certain patients' cholesterol levels low and lowering the rate of blood clots and pneumonia after surgery.

"It's a bet," said Caritas Chief Executive Ralph de la Torre.

The agreement harkens back to a reimbursement system known as capitation that helped trigger a backlash against managed-care cost-containment strategies in the 1990s. In capitation models, doctors and hospitals received a monthly allotment for patients regardless of whether they got sick. Critics charged that the payments discouraged doctors from sending people for needed tests because the doctors bore the risks for the costs. Eventually, insurers retreated from many such arrangements.

The bonus for meeting quality-of-care targets is one way the insurers and care providers hope to address concerns that patients will be denied needed procedures. Caritas's Dr. de la Torre also said he thinks patients will see better collaboration in their care than under fee-for-service, because physicians and hospitals will be using electronic medical records and coordinating care so patients are neither subjected to unnecessary tests nor undertreated.

But patients may have to make concessions for the strategy to work. For now, the Blue Cross plans using this system are health-maintenance organizations, in which patients agree to seek care only within specific networks of doctors and hospitals. Patients must "understand that if they want cost control, then going in and out of network will cause the system to fail," said Ellen Zane, the chief executive of Tufts Medical Center in Boston.

Tufts also signed up with Blue Cross, having enrolled 47,000 patients in an initiative that starts next year. A large physician practice connected to Tufts is splitting payments with the hospital, as well as the risk of providing care for the patients.

In some markets, capitation has thrived for decades. Kaiser Permanente, the big nonprofit HMO based in Oakland, Calif., collects fees to provide care for more than eight million people. It is both a health plan and a hospital owner, and its doctors are salaried. While Kaiser has critics, it is often cited as a model for how to provide quality care at lower costs. But replicating Kaiser, which traces its roots to 1945, has been difficult in most U.S. markets, where fee-for-service is entrenched.

In the 1990s, some providers lost millions of dollars using capitation because it took months to determine if patients were going outside of the network or being prescribed expensive drugs. Said Ms. Zane: "We were flying blind."

Proponents say this time will be different, in part because improved information systems will enable hospitals and doctors to better track the amount of care they are providing and make quick adjustments if costs head out of control.

Write to Barbara Martinez at 

Printed in The Wall Street Journal, page A4

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