Managed Care


Global Payment System No Massachusetts Miracle

MANAGED CARE November 2009. © MediMedia USA
Legislation & Regulation

Global Payment System No Massachusetts Miracle

The state’s experience is that providers are unwilling or unable to buy into the process
John Carroll
MANAGED CARE November 2009. ©MediMedia USA

The state’s experience is that providers are unwilling or unable to buy into the process

John Carroll

Over the coming year, the 800 physicians working at Atrius Health will be in charge of managing the welfare of about 700,000 patients. They already have a clear idea of what they will be called on to do.

Atrius uses software to assess the health of its patients, says Gene Lindsey, MD, the president and CEO of the not-for-profit alliance of five community-based medical groups based in Newton, Mass. Based on a set of well established actuarial equations, he says, you can expect that there will be “x number of broken arms, x number of babies born, x number of diabetics needing vascular surgery.”

The cost, including doctor pay, for all that gives him the “y” that he needs to calculate a set of global payments that he negotiates with insurers, a fee that he relies on to maintain the 2 percent margin that is needed to keep ratcheting up the quality — and managing the cost— of care.

“If we practice willy-nilly, the cost is higher,” says Lindsey. “We use management techniques, examine where the costs are, where the duplicative steps are. Where are the things we can do differently that lead to better outcomes at lower costs? The estimates are that 30 to 40 percent of health care is waste. I believe that. I see it every day.”

The health care reform debate roiling Washington these days keeps coming back to one key question: Can you add incentives and mandates to encourage people, or require them, to buy insurance coverage without finding some effective way to rein in costs?

After two years of expanding coverage, the answer in Massachusetts is an emphatic no, and an influential group charged with finding a way to deal with that problem believes the Atrius Health provider model offers a solution.

Two years ago, Massachusetts found itself a trendsetter, pushing new subsidies for coverage while making it painful — to varying degrees — to go without coverage. Now that it has reaped the reward of broader coverage, adding hundreds of thousands to the rolls of insurance plans, the state has to confront an ugly reality: It can’t afford all the medical bills associated with universal coverage. The fee-for-service approach to care, the state found, is far too expensive and rising far too quickly.

Last summer, a 10-member commission that included prominent Massachusetts legislators and policy mavens from the governor’s office triggered a tempest with a proposal that over the next five years the state should scrap the fee-for-service payment system in favor of global payments. Instead of handing private and public insurers a bill every time they performed a service, the commission concluded, doctors and hospitals should negotiate an annual fee per person. That’s how Atrius handles much of its business.

Global payment

“It’s a sophisticated process that weaves together information from claims payment data and also information from the medical record,” says Lindsey. “We are equipped to do that. We have invested in sophisticated data warehouses.”

A decade ago, the prototype of this approach was dubbed capitation, and it is no more popular with the majority of physicians in Massachusetts now than it was in the 1990s, when it was common to hear horror stories about unprepared medical practices forced into bankruptcy after shouldering risks that they never really understood. Some Massachusetts physicians have responded to the commission’s recommendation with forecasts of a health care apocalypse.

Force a global payment system on unprepared doctors in small practices, says Mario Motta, MD, president of the Massachusetts Medical Society, and you will force them out of business.

Ellen Zane, chairwoman of the Massachusetts Hospital Association, says hospitals have some big questions about the global payment plan. The wrong answers, she says, “could kill the industry.’’

Those big questions revolve around some complex issues, says Lynn Nicholas, president and CEO of the hospital association. How would the state transfer financial risk from payers to providers? What kind of benefit design would people have?

“Payers built up large reserves from premium dollars,” says Nicholas, who adds that most hospitals are very willing to try to make payment reform work. The state’s health care reform legislation, which took effect in 2007, worked beautifully, says Marylou Buyse, MD, president and CEO of the Massachusetts Association of Health Plans.

The law did just what it was intended to do, with mandates and subsidies bringing 406,000 under the umbrella of insurance coverage.

“We purposely split the two,” says Buyse. “Controlling cost is far more complex and far more difficult. Tackling costs is what we are focused on now.

“Fee-for-service hasn’t worked for us,” Buyse adds. “The challenge is to find the model that will work. This one [global payments] is a good one, but it does need some fleshing out.” The legislature has to spell out exactly what it means by global payments as well as “the level of risk-sharing that it is comfortable with. There is a lot of work to be done here.”

One task, she says, is convincing providers that global payments don’t herald a second coming of 1990s-style capitation.

“Capitation in the ’90s clearly was not risk-adjusted,” says Buyse. “This would be risk-adjusted. The way I see global payments working, there will be a sharing of savings, a gradual sharing of risk, and different entities may have different approaches.”

No need for public option

Buyse says that the state has the real-world experience needed with global payments to get started. But Massachusetts’s experience also shows that you don’t need a public option to control costs, she adds.

“We manage to have almost universal access without using a public option,” says Buyse. “But Massachusetts is also unique in that most plans are not-for-profit. We had a high rate of insurance to begin with, and many of the insurance reforms that are being accomplished with federal reform are already in place in Massachusetts.”

For Further Reading

Steinbrook R. The end of fee-for-service medicine? Proposals for payment reform in Massachusetts. N Engl J Med. 2009 Sep 10;361(11):1036-8.

Fournier, AM. Primary care remuneration — a simple fix. N Engl J Med; 2009 Sep 3;361(10):e102.

Robinson JC, Shortell SM, Rittenhouse DR, Fernandes-Taylor S, Gillies RR, Casalino LP. Quality-based payment for medical groups and individual physicians. Inquiry. 2009 Summer; 46(2):172-81.

Contributing editor John Carroll can be reached at

Physicians may finally be ready to give up fee-for-service medicine, but they will need to be assured of a fair replacement.


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