Changing the cost of healthcare

THE RECENT report by The Boston Globe Spotlight team raised important questions about the cost and quality of healthcare in Massachusetts. Some hospitals and physicians receive higher rates of reimbursement from insurers compared with their peers. As the Globe observes, this imbalance is often the result of a hospital's reputation, brand, or geographical advantage. The most effective way to address this imbalance and level the playing field among providers is to pay doctors and hospitals on the basis of patient outcomes.

Some context might be helpful. Approximately 90 percent of Blue Cross premiums is spent on members' medical expenses, with the rest used to run the company and to ensure an adequate level of financial reserves. These medical expenses have been rising at a rapid rate for two reasons: the increase in both the unit cost of services (e.g., the prices charged by doctors and hospitals) but also because of the use and intensity of these services. Increased utilization is being driven by an aging population, the practice of defensive medicine to avoid medical malpractice lawsuits, and the availability of costly new medications, procedures, and technologies.

Unfortunately, some of this increased use of services does not improve quality and can actually cause harm. Years of research tell us that as much as 30 percent of all healthcare spending could be eliminated without reducing quality. A new analysis by the New England Health Care Institute reveals hundreds of specific examples of the overuse, underuse, and misuse of healthcare services that don't improve quality but add hundreds of billions of dollars in costs.

None of this should be surprising given the current fee-for-service system used for paying doctors and hospitals. Right now, insurers like Blue Cross mostly pay for the quantity, not quality, of the care patients receive. In other words, the more visits, tests, and procedures a patient receives, the higher the payment. At the same time, we undervalue primary care, which can prevent and manage acute and chronic illness. This needs to change. As the science of measuring healthcare quality continues to improve, doctors and hospitals should be paid and rewarded on the basis of a patient's clinical outcomes.

Earlier this year, Blue Cross introduced a new contract option for providers known as the "alternative quality contract." This contract combines two forms of payment. The first is a global, or fixed, payment per patient adjusted for health status, which increases annually in line with inflation. The second payment includes substantial performance incentives tied to the latest nationally accepted measures of quality, effectiveness, and patient experience. The contract's global payment covers all services received by a patient including primary, specialty, and hospital care. So, when a doctor spends more time with a patient and helps the patient avoid an unnecessary hospitalization, the patient receives better care, the doctor receives a higher payment, but the overall costs are less. Employers benefit as the new system moderates cost increases through better care. In fact, the alternative quality contract could - over time - cut in half the current cost trend.

The reaction to this contract has been overwhelmingly positive. Two physicians' groups - Atrius Health and the Mount Auburn Cambridge Independent Physicians Association - are in the first phase of the new contract. Blue Cross expects to have additional groups signed up in the next several months.

Recently, the Commonwealth Fund's Commission for High Performance Health Care made an urgent plea for comprehensive national health reform: "Our open-ended, fee-for-service payment system must be overhauled to reduce . . . wasteful and ineffective care, and spur innovations . . . We need fundamental reform . . . that will reward high-quality and prudent stewardship of resources, move toward shared provider accountability for the total care of patients, and correct the imbalance in payment whereby the provision of specialty care is rewarded more than primary and preventive care."

Massachusetts has made extraordinary progress on expanding insurance coverage. Now, we need to improve the quality and affordability of healthcare. To do so, we must fundamentally change the way we pay for healthcare.

Cleve L. Killingsworth is chairman and CEO of Blue Cross Blue Shield of Massachusetts.