Blue Cross sets sights on lower health costs

Mount Auburn Hospital in Cambridge and its affiliated doctors and Hampden County Physician Associates of Springfield signed the so-called Alternative Quality Contract, which offers the possibility of higher payments over five years if doctors meet quality and efficiency targets.

Blue Cross said the new approach could change the way medical payments are made and cut annual increases in payments in half, to about 5 percent, by reducing hospital expenses for care and procedures.

"We hope this is the beginning of a movement in Massachusetts in which health plans, hospitals, and physicians work together on a shared agenda to improve care and lower costs," said Andrew Dreyfus, a Blue Cross senior vice president.

The contracts come at a crucial time for Blue Cross and the state. The insurer, which has about 3 million members in Massachusetts, has come under criticism in recent weeks for its role in enabling Partners HealthCare System to attain some of the state's highest medical payment rates.

In the meantime, Governor Deval Patrick on Monday convened some of his top advisers to investigate how to control runaway healthcare costs. At the meeting, called in response to a recent series of articles by the Globe Spotlight Team, the governor told health insurance executives, including Blue Cross chairman Cleve L. Killingsworth, that they must take quick action to hold down healthcare costs or face new government regulation.

At the same time, Blue Cross's contract talks with Tufts Medical Center in Boston have broken down, in part because the two sides couldn't agree on payment terms for a quality-focused contract. Tufts last week told patients its doctors will not treat patients with Blue Cross insurance starting Feb. 1. Tufts said it wants to be paid commensurately with the high quality its physicians deliver. In response, Blue Cross has said Tufts' physicians do not perform better than their peers, despite quality commendations from Blue Cross.

Most doctors and hospitals are paid under a system called fee-for-service: A doctor provides treatment, and the insurance company pays for it. But the system is under scrutiny nationwide because it creates an incentive for doctors and hospitals to prescribe more treatment than patients need.

Blue Cross's new program instead gives providers a flat payment based on the number of patients they treat. The payment increases annually based on inflation. Physicians and hospitals can earn more over time by cutting costs - in part by restricting treatment - and by earning bonuses if they meet targets for better care. For instance, hospitals will be evaluated in part based on how many patients get infections during their stay.

And as part of the new system, doctors who do not meet strict quality standards will receive less money.

"This contract really rewards people for performing effective care and gives an incentive to generate better numbers on the quality," said Dr. Barbara Spivak, president of the Mount Auburn Cambridge Independent Practice Association, which includes more than 300 Mount Auburn Hospital doctors.

Blue Cross introduced the Alternative Quality Contract a year ago, but it has had a hard time winning over healthcare providers. Last February, Dreyfus said Blue Cross would soon sign contracts with Mount Auburn and Atrius Health, the largest physician group in the state that is not associated with a hospital. Only one has signed on so far.

As is typical in the healthcare industry, neither Mount Auburn nor Blue Cross would disclose how payments will change under the contract, or how much doctors will earn. Dreyfus said total payments to Mount Auburn doctors will initially go up, but over the course of the contract, the rate of increase will be lower than it is today. Individual physicians could earn two or three times as much as they do now for treating Blue Cross members, he said.

Some healthcare quality experts praised Blue Cross.

"They're taking steps to shift attention from the event - the drug, the operation, the hospital bed - to the outcome for the patient," said Dr. Donald M. Berwick, chief executive of the Institute for Healthcare Improvement.

"It's the right thing to do," he said. "This kind of pay-for-performance is getting more and more common."

The difficulty, Berwick said, is that Blue Cross and other companies that make the payments don't actually treat patients. Changing incentives to doctors and hospitals can be a clumsy way to implement fundamental changes in medicine, he said.

Stuart Altman, a professor of healthcare economics at Brandeis University, said:

"They are moving in the right direction. Where they're going to run into trouble is that as long as this is voluntary, you put the people who sign up for this at a potential disadvantage. This will only really work if it becomes the dominant way of paying for healthcare."

Jeffrey Krasner can be reached at krasner@globe.com.