Health Care Reform Center

Robert Steinbrook, M.D.

Health care reform has multiple goals, including expanding insurance coverage, improving quality and access to care, and controlling costs. Since Massachusetts enacted reforms in 2006, the proportion of residents lacking health insurance has decreased to an estimated 2.6% — the lowest of any state. However, there are continuing concerns about quality and access, and health care costs per capita remain among the highest in the United States.¹ A special commission has therefore proposed that Massachusetts effectively end fee-for-service medicine, the predominant form of payment for health care services, and replace it with a system of global payments that combines the approaches of risk-adjusted capitation and pay for performance with a strong focus on primary care.²

Whereas fee-for-service medicine can be lucrative for providers because of financial incentives to deliver more (and more costly) services, it typically does not offer incentives to improve quality or efficiency or to deliver care that has a low profit margin, such as preventive services or patient education. The Massachusetts commission recommended that within 5 years “global payments with adjustments to reward provision of accessible and high quality care become the predominant form of payment to providers.” The use of such payments would be linked to the formation of “accountable care organizations” (ACOs). It also recommended that government, payers, and providers “share responsibility” for the transition by providing the necessary infrastructure and legal and technical support. Although a new independent state board would guide the transition and formulate the methods for determining payment amounts, the board would not have the authority to set the payments. The “market . . . consistent with the methodology established by the oversight entity” would determine the amounts.²

The recommendations apply to all payers (including the state and federal governments). They resemble recent proposals for reforming Medicare through the formation of ACOs^3,4 as well as pilot programs that are being considered for inclusion in national health care reform. According to the Massachusetts commission, ACOs would be “composed of hospitals, physicians and/or other clinician and non-clinician providers working as a team” and would “accept responsibility for all or most of the care that enrollees need.”² They could be incorporated entities or merely contractual networks. The changes, however, could not take place without new legislation and a waiver of current federal payment rules. And there is no certainty that the desired improvements in care, cost savings, and patient satisfaction would actually materialize.

Global payments are not new; Kaiser Permanente and other highly integrated group- or staff-model health plans have used them for years. However, they have never been the predominant payment system in a state, and physicians and patients may have little or no experience with them. In Massachusetts, perhaps 20% of physician payments from commercial insurers now come through some form of global payment.² The Tufts Health Plan uses them for all 83,000 members in its Medicare Advantage plans. Blue Cross Blue Shield of Massachusetts, the state’s largest carrier, is offering a global payment product called the alternative quality contract for patients enrolled in health maintenance organizations (HMOs). The insurer anticipates that by the end of 2009 about 210,000 patients (representing about 20% of its HMO patients), who are cared for by about 2300 physicians, will be covered by such contracts. The company asserts that the contracts will improve care and save money through means such as a “reduction in duplicative services, use of more cost-effective services and providers, and the elimination of potentially preventable costly services, such as certain hospital complications and readmissions.”

Although global payments are a form of capitation (payments are per patient), the Massachusetts commission sought to distinguish its model from previous capitation models. In the commission’s view, global payments would benefit from health information technology, a “careful transition period,” and monitoring to prevent “unintended consequences,” such as poor access to physicians or denial of needed care. The new model “would focus strongly on primary and preventive care, be linked to quality improvement and the delivery of evidence-based care, and allow patient choice of providers.” Global payments would “compensate providers for all or most of the care that their patients require over a contract period, such as a month or year,” and “cover physician, ancillary and hospital services as well as prescription drugs.”² The payments would be risk-adjusted, with standardized methods, for clinical factors, relevant socioeconomic characteristics, and if necessary, geography. Pay-for-performance incentives would be based on “reliable and tested metrics” that would be publicly available. Because providers would have a financial stake in reducing costs and improving quality, the commission reasoned that they would “have an incentive to deliver the most effective care possible (e.g., to provide lower-cost care when it is as effective as higher-cost alternatives) and integrate and coordinate services efficiently.” For instance, patients might pay a smaller copayment or no copayment “for use of appropriate primary and preventive care.”²

It is often easier to diagnose problems than to solve them; despite decades of proposed alternatives, fee-for-service medicine has thrived, and per capita health care spending has relentlessly increased. The Medicare Payment Advisory Commission concluded that “the current unrestrained [fee-for-service] payment system has created a rate of volume growth that is unsustainable” but cautioned that for Medicare “any projections of savings from the formation of ACOs are subject to a high degree of uncertainty.”³ The Congressional Budget Office found the evidence for cost savings from such approaches to be “mixed,” concluding that “several rounds of successive and significant changes and refinements in Medicare’s rules would probably be necessary to yield substantial budgetary savings.”⁵

Global payments would save money only if ACOs lived within their budgets, changed practice patterns, limited the volume of services, and denied certain requests from patients and providers. In short, it would be unreasonable to hold such organizations accountable for costs and quality without giving them sufficient control over them.

Under the proposed Massachusetts reforms, all health plans would “require the selection of a primary care physician.” Insurer payments would then be directed to the care organization with which the physician is affiliated. Although patients in some plans already obtain their care under such arrangements, many others have greater flexibility in choosing doctors and seeing specialists. If all patients were restricted in this way — with limited exceptions, such as for patients who are away from home or for certain highly specialized care — it would be a huge change. Even with extensive education, considerable pushback is likely. However, allowing a greater choice of physicians, hospitals, and medicines for patients who were willing (and able) to pay more would undermine the cost-control, quality-improvement, and care-coordination purposes of global payments. Since patient choice is such a sensitive issue, the commission waffled, recommending that patients “not be restricted (unless as a condition of their insurance contract) to providers in their primary care physician’s ACO” and that carriers “might continue to pay providers that patients might select from another ACO on a fee-for-service basis.”

Proposals for a global payment system in Massachusetts and ACOs within Medicare may be first steps toward ending or limiting the scope of fee-for-service medicine. It is likely that an increasing number of health care organizations will voluntarily adopt global payment systems, and the Massachusetts report may well spur such efforts. It is too soon to say, however, whether a mandatory transition to global payments is ready for prime time.

See published correspondence about this article.

Source Information

Dr. Steinbrook (rsteinbrook@attglobal.net) is a national correspondent for the Journal.

This article (10.1056/NEJMp0906556) was published on July 29, 2009, at NEJM.org.

References

1. Steinbrook R. Health care reform in Massachusetts — expanding coverage, escalating costs. N Engl J Med 2008;358:2757-2760. [Free Full Text]
2. Commonwealth of Massachusetts. Recommendations of the Special Commission on the Health Care Payment System. July 16, 2009. (Accessed July 27, 2009, at http://www.mass.gov/dhcfp/paymentcommission.)
3. Medicare Payment Advisory Commission (MedPAC). Report to the Congress: Improving incentives in the Medicare program. June 2009. (Accessed July 27, 2009, at http://www.medpac.gov/documents/Jun09_EntireReport.pdf.)
4. Fisher ES, McClellan MB, Bertko J, et al. Fostering accountable health care: moving forward in Medicare. Health Aff (Millwood) 2009;28:w219-w231. [Free Full Text]
5. Elmendorf DW. Letter to Honorable Kent Conrad, Chairman, Committee on the Budget, United States Senate. Washington, DC: Congressional Budget Office, June 16, 2009. (Accessed July 27, 2009, at http://budget.senate.gov/democratic/documents/2009/CBO%20Letter%20HealthReformAndFederalBudget_061609.pdf.)