THCB

The Inspector General Observes

A recent report by the Massachusetts Inspector General raises a thoughtful concern about the implementation of global payments in the state.

In the effort to contain health care costs, much discourse has centered on moving from a predominantly fee-for-service system to one based mainly on global payments to providers organized as Accountable Care Organizations (“ACO”). There is little doubt that fee-for-service reimbursements create incentives for providers to increase utilization of health care services, with obvious inflationary consequences. But moving to an ACO global payment system, if not done properly, also has the potential to inflate health care costs dramatically.

There is nothing inherent in the current marketplace that would cause an ACO-based global payment system to contain health care costs. The evidence, in fact, suggests the opposite conclusion. For the past two years, the primary experiment with global payments in the private insurance market in Massachusetts has been the Alternative Quality Contract (“AQC”) popularized by Blue Cross Blue Shield of Massachusetts (“Blue Cross”). The payments to providers under this contract are made on a global capitated basis. The capitated amounts are determined by starting with the previous year’s experience of the population of lives covered by the specific AQC. That entire amount becomes the base year from which all future payments are derived. Therefore, the AQC embraces and adopts any excessive or wasteful payments in that base year, including all overutilization resulting from over a decade’s worth of fee-for-service provider contracts. Implicitly, the premium increases of that decade, which overall were well in excess of 100%, are made a permanent part of our health care system’s cost structure.

Once the base year is determined, any excessive provider costs from that year are trended into the future. And the rate of the trend is alarmingly high. While specific details of individual AQCs are kept confidential by Blue Cross and the contracting providers, the OIG estimates that increases in reimbursements to providers over the five-year term of an AQC could be in the 50% range.

The IG’s remarks are especially apt in that the first global contracts contained very good deals for those providers who signed on, as rewards for being early adopters. The big problem he identifies, as I have mentioned before, is the lack of transparency surrounding this issue. Absent an open presentation of rates and practice patterns, we will never know how effective this payment regime really is. Meanwhile, the Governor and other policymakers have chosen to proceed, blindly trusting a path that has huge ramifications for patients.

I know of no other arena in public policy in which so many decisions are being made with so little substantive support and so little data-driven debate. Reporters, too, seem willing to accept relatively unsupported and undocumented assertions that global payments are working — parroting statements made by stakeholders who have tremendous financial interests — while demanding no independent verification.

Paul Levy is the former President and CEO of Beth Israel Deconess Medical Center in Boston. For the past five years he blogged about his experiences in an online journal, Running a Hospital. He now writes as an advocate for patient-centered care, eliminating preventable harm, transparency of clinical outcomes, and front-line driven process improvement at Not Running a Hospital.

Livongo’s Post Ad Banner 728*90

5
Leave a Reply

5 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
3 Comment authors
pcpnate ogdenMargalit Gur-Arie Recent comment authors
newest oldest most voted
pcp
Guest
pcp

” the bytes are here to save the day?”

Well, it sure means more aggressive rationing!

nate ogden
Guest
nate ogden

so the trick is moving from the PMR to the EMR, does that mean the bytes are here to save the day?

pcp
Guest
pcp

ACO = HMO+EMR

nate ogden
Guest
nate ogden

Wasn’t the main complaint with HMOs that providers were rationing care to pocket more of their captitation payment which is global payment with a different name.

The first question we should ask is what is different from HMOs circa 1995 to ACO 2012? Haven’t seen anything yet that would make be believe the outcome will be any different.

How many billions did the federal government drop on HMOs? More then they are promising for ACOs?

Margalit Gur-Arie
Guest

“The capitated amounts are determined by starting with the previous year’s experience of the population of lives covered by the specific AQC.” Yes, but it’s not necessarily the fee-for-service baseline that is at fault. If this is anything like Medicare Advantage payments, then providers will have every incentive to diagnose all sorts of things this year, to increase the appearance of risk for next year’s capitation amount, whether fee-for-service or not. Not to mention the larger than life temptation to cut needed services. I’m sure there is an algorithm somewhere that determines the optimal amount of necessary services that can… Read more »