Massachusetts Blues' alternative quality contracts signal hospitals' risk-based future

All signs point to global payments in most hospitals' future. The national health system will likely follow Massachusetts' lead and inch toward global payments, said Craig Schneider, director of healthcare policy for the Massachusetts Health Data Consortium, reports Healthcare Finance News. But that doesn't mean hospitals won't be able to make money--especially if they take on some risk. New York private equity firm Cerberus Capital Management appears to believe risk can bring reward, tying its purchase of Caritas Christi Health Care to the negotiation of a successor agreement to an alternative quality contract (AQC) that the Boston-based nonprofit hospital chain signed last year with Blue Cross Blue Shield of Massachusetts (BCBSMA), reports the Boston Globe.

The Boston-based health insurer's website describes the AQC as "an innovative global payment model that uses a budget-based methodology, which combines a fixed per-patient payment ... with substantial performance incentive payments."

The global budget "is based on each organization's historical costs and is health status adjusted," BCBSMA spokeswoman Jenna McPhee told FierceHealthFinance. "The budget is also adjusted annually, in line with 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."

BCBSMA launched the AQCs as a contract option in January 2009 for provider groups that have primary care physicians who care for at least 5,000 to 10,000 BCBSMA HMO members. With the addition of a new AQC this past May, the insurer now has AQCs with nine provider groups. That means almost one-quarter of the BCBSMA provider network participates in an AQC, said McPhee. Further, 31 percent of BCBSMA's Massachusetts-based HMO members--a total of 317,309 members--receive care under an AQC. (BCBSMA is currently looking at how to apply the AQC system to PPO members.)

The AQC offers hospitals and physicians "the opportunity to increase their total payment (on top of global payment) by up to 10 percent based on their performance toward nationally accepted quality measures and improvements in the efficiency of the care delivered," said McPhee. All eight provider organizations that qualified for AQC contracts in 2009 "achieved their efficiency targets, managing within the initial budgets set, and experienced a surplus [in the first contract year]," she pointed out.

As for BCBSMA, its goal is two-fold: (1) to improve quality and outcomes and (2) to cut participants' medical expense trends by half over the life of each five-year contract. "It is too early to quantify progress or impact to cost and medical expense trend at this point," said McPhee. "However, in the initial year of the five-year contract, the AQC organizations have made substantial improvements on a broad set of clinical quality measures--more substantial in a one-year period than anything we have seen previously and far greater than what occurred in the non-AQC network."

To learn more:
- read this Healthcare Finance News report
- read this Boston Globe article
- read BCBSMA's discussion of how AQCs work
- read this BCBSMA press release
- take a look at this blog post on BNET
- read this Quality Matters article

Related Articles:
Quality-based reimbursement deal gives hope for real reform 
Caritas sale to make for largest for-profit switch in Massachusetts history