Capitation advances in Massachusetts

Today’s Managing Health Care Cost Indicator is 1.2 million

Click image to enlarge.  Source 

Yesterday’s Boston Globe reviews the advance of capitation in Masachusetts, pointing out that 1.2 million residents are now in “cost controlled” health coverage. Strikingly, the word “capitation” appears nowhere in the story.

The initial evaluation of the largest capitation arrangement, Blue Cross Blue Shield of Massachusetts’ “Alternative Quality Contract,” showed improvement in quality measures and a net increase in cost in year one.  This is no surprise given that BCBSMA has had to induce reluctant providers to join.  Capitated Medicare Advantage plans have been in place for almost two decades, and have been successful at lowering health care resource costs while maintaining high rates of patient satisfaction.

Governor Deval Patrick has called for a transition away from fee for service payment.   It looks like this is happening even absent legislative action. Hopefully, other payers will be as diligent as BCBSMA at reporting the results of this payment reform.

2-2-12 Addendum: Nathan Punwani has pointed out that Medicare Advantage plans have not generally saved money.  I should have said that groups accepting capitation in Medicare Advantage plans have been able to save money and lower costs.  See this post for an example. 

Good News Day Three: The Return of Provider Risk

Today’s Managing Health Care Costs Indicator is $1.1 billion

The Centers for Medicare and Medicaid Services recently announced that the Pioneer ACOs could save $1.1 billion over the next five years.   Blue Cross Blue Shield of Massachusetts has declared its Alternative Quality Contract a big success.  Physicians and hospitals across the country are at least asking the question “Can we deliver excellent health care and use fewer resources?”

Do I believe that the Pioneer ACO will save $1.1 billion?  I do not.

Did the AQC in Massachusetts save any money in its first year?  No

Still, this is great news!  Physicians and hospitals determine the resources that will be used in delivering health care.  The combination of the Affordable Care Act, state government shortfalls, and pressure from employers unable to tolerate continuing increases in health care expenses is driving the provider community to consider global budgeting – which was known in a different bygone age as capitation. 

Providers have shown that they can lower costs and improve quality when the incentives are aligned. See this post on Caremore earlier this fall.  Providers also can make health care a fertile environment for disruptive innovation – just as our current fee-for-service system only encourages accretive innovation.

Increased provider risk-sharing is highly likely to lead to improvements in the value delivered by our health care system.  And this year there seems to be substantial movement toward more provider risk sharing.

Who says I can’t be optimistic?

Hospital-Health Plan Contractual Feud Goes Public

Today’s Managing Health Care Costs Indicator is 3%.

Dear Business Partner:

Tufts Medical Center and NEQCA Are Terminating from Our Network
The single biggest piece of health care spending is what doctors and hospitals are paid to care for patients. About 90 cents of each premium dollar goes toward medical services. When these costs increase, premiums go up. In our meetings with hospitals and doctors over the past several months, we made it clear that we want to pay them the reasonable costs of caring for our members, while being responsive to the community's expectations about affordability.

Regrettably, both Tufts Medical Center (TMC) and the New England Quality Care Alliance (NEQCA), an organization that represents doctors, have told us they do not want to participate in our provider network at the rates we offered to pay. We still hope to reach an agreement with these providers. However, if we do not, these providers will be terminating their HMO Blue^®, HMO Blue New England^SM, and PPO contracts with Blue Cross Blue Shield of Massachusetts, effective January 17, 2012. These providers will be terminating their Indemnity contracts effective March 31, 2012.

With these words, Blue Cross of Massachusetts set in motion the latest salvo in provider-health plan contractual wars. Tufts Medical Center and its affiliated physicians care for  somewhere between 88,000 (WBUR) and 200,000 (Boston Herald) Blue Cross Blue Shield members – so this is a big deal. 

It’s a good opportunity to review some of the underlying issues in the intricate dance of health plan - provider contracting.  

1. Why do these contract disputes become public in the fall?

Fall is open enrollment season – when many patients have the option to change their insurance plan.   Providers in general feel that they have a higher amount of leverage at the time when health plans worry that members will switch to competitors.

However, many members now have only a single insurance health plan available through their employer, so the opportunity to shift from BCBSMA to a competitor is much lower than a decade ago. 

2. If Tufts Medical Center leaves the Blue Cross Blue Shield network, will that lower health care costs?

Click image to enlarge 

Not likely.  Tufts Medical Center is paid substantially less than other academic medical centers, and even less than some community hospitals.   See this graphic from the recent Attorney General Report.  (Find Tufts under “New England Quality Care Alliance” about 1/3 from the left on the graphic below).  Here’s a link to my post from June when this report was released, which shows Tufts (as NECQA) always below the middle of the pack in terms of expense. Here’s a link to the AG report. Ironically, this type of transparency might have encouraged Tufts Medical Center to demand higher rate increases. CEO Eric Beyer says Tufts asked for a 3% increase.

However, BCBSMA wants to send a signal that it is serious about not offering large rate increases – so this public negotiation could strengthen the health plan’s hand in private negotiations with other delivery systems.

3. Who goes public with a contractual dispute?

Usually, parties go to the public when they feel they have more leverage.  On the other hand, BCBSMA states that it was legally obligated to go public because it must inform clients and members 60 days before a provider leaves its network.

4. Who has more leverage in this negotiation?

I have no inside information.   Generally, asymmetry of influence determines leverage.  BCBSMA could easily represent a fifth of Tufts Medical Center’s income (if Medicare represents about half, and considering that BCBSMA represents almost half of the commercial market), while Tufts Medical Center represents only about 2% of hospital discharges for the state – so is unlikely to represent more than 3-4% of total BCBSMA business.  (Data from 2006 – most recent I could quickly find)

Provider leverage is diminished by the movement from HMOs (where patients have no coverage outside the network) to PPOs (where patients can go outside the network but must pay deductible and coinsurance).  There is increasing acceptance of narrow networks – which also diminishes provider leverage.  The demand for all-inclusive provider networks in the 1990s helped gain many hospital systems large increases during that decade.

The total amount of the disagreement is reported by the Boston Globe as $11 million in a $1.2 billion contract.   That’s not much – so I’m guessing that 88,000 (or 200,000) patients will not have to scramble for new providers in January.

Uwe Reinhardt has a commentary this month in Health Affairs suggesting that we should do all-payer rate negotiation, which would mean that each provider would be paid the same for similar services.  I'll be talking about that idea in a future post. 

Steward Shops for Docs

Today's Managing Health Care Costs Indicator is $3 million

It's no surprise and no secret that hospitals are buying up and affiliating with physician practices.

This could lead to some social benefits.  Hospitals have the capital and expertise to make the big IT investments necessary to bring physician practices into the 21st century.   Organizations that bring together hospitals and their associated physicians can better accept bundled payment, and even capitation.  More integration could certainly lead to better coordination of care.  Some even suggest it could lead to cost savings. 

Today's Boston Globe highlights a northeastern Massachusetts group of 150 physicians, who represent most of the medical staff of Anna Jacques Hospital of Newburyport.  The physician group just announced it would sever its ties to Beth Israel and affiliate with Steward, the for-profit hospital system which has promised to be the low cost high value delivery system in the state.   Steward is also seeking to purchase delivery systems in Rhode Island and other states.

Both sides have lawyered up, and The Incidental Economist suggests that Steward is likely to prevail, and I agree. 

What will this do to the cost of health care?

Steward said that the physicians could earn $3 million more through their contract compared to their potential earnings through the Beth Israel contract.   Steward is also said to have promised to cover any losses under a large global budget (capitation) contract with Blue Cross of Massachusetts. 

If any delivery system is promising higher physician income, and no “downside” risk without new processes to decrease resource use in the system, this will lead to either dashed physician hopes or increased health care costs.

Dueling Estimates of Cost Saving From New Massachusetts Blue Cross Global Payment Contract

Today’s Managing Health Care Costs Indicator is $15.51. 

Or Maybe it’s -$70.20

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The New England Journal of Medicine published an financial assessment of the first year of the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract last night. It’s been making the headlines for showing that groups in this contract, which includes provider responsibility for overall financial costs, had lower overall increase in medical claims spending than groups that were not in this contract.

The headlines have been clear.  “It saves money”  You have to read well into the coverage  to see that this isn’t accurate.

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.

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.  

Unit Cost vs. Utilization As Reason for Health Care Cost Increases

The Massachusetts Attorney General published a final report about two weeks ago showing the impact of unit price increases compared to utilization increases for the three major regional health plans in Eastern Massachusetts.    As you can see, over recent years the overwhelming reason for increased overall health care costs was increase in unit cost - not increase in utilization.  

You can click any of these to enlarge - or go to the full report