Capitation, Part II

By Matthew Weinstock

Two years ago, Cleve Killingsworth, CEO of Blue Cross Blue Shield of Massachusetts, challenged his staff to come up with a new model for paying hospitals and physicians.

"Our industry has been making the point for a long time that the payers are part of the reason that the system is broken," says Deb Devaux, executive director of community transformation for the Blues plan. "We don't pay for the right incentives. We pay for back surgery, but the payment doesn't vary based on whether it was necessary or for the quality."

Working with physicians, finance experts and others, BCBSMA came up with a new formula, the Alternative Quality Contract. At first blush, it sounds eerily similar to capitation, that dreaded insurance experiment of the 1990s. Providers are given a fixed payment per patient.

Health plan and provider officials say AQC is a major advance from that failed model. For starters, it is risk adjusted. Accounting for health status wasn't something health plans could do years ago, Devaux says. Financial incentives, which could be as high as 10 percent of the total payment, are also built into the five-year contracts if providers meet quality measures.

"The targets are aggressive," says Jeff Lasker, CEO of the New England Quality Care Alliance, a physician's group affiliated with Tufts Medical Center. Tufts and the alliance signed an AQC contract earlier this year. One advantage, Lasker says, is that Blue Cross provides tons of data, including information on physician variation.

"We've never gotten data that was helpful from Blue Cross in the past," he says. "From an operational point of view, they have been trying to be very helpful to look at opportunities for cost savings."

The global payment gives providers flexibility to better manage their patients, Lasker adds. The incentives are there to do such things as e-mail consultations and other follow-ups. Not to mention looking at high-cost imaging and diagnostic procedures to make sure the tests are really appropriate.

As of late October, 20 percent of providers in BCBSMA's HMO market were in an AQC contract. Devaux says they initially expected 10 percent to sign on. She credits the success to the fact that providers were looking for payment vehicles that helped them better align financial and quality metrics. The insurer hopes to roll the concept out to its PPO market next year.

This article 1st appeared in the December 2009 issue of HHN Magazine.

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