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Show Us The Money: Global Payments As A Cost-Cutting Tool

This article is more than 12 years old.

Here's the problem: Health care costs are too high. Here's the emerging response: Put doctors and hospitals on budgets and reward them for improving patients' health. But will changing the way we pay for health care actually cut the amount we spend?

Gene Lindsey, CEO at Atrius, the alliance that includes Harvard Vanguard, says the group spent $62 million less than expected last year as a result of using a global payment system. (Martha Bebinger/WBUR)
Gene Lindsey, CEO at Atrius, the alliance that includes Harvard Vanguard, says the group spent $62 million less than expected last year as a result of using a global payment system. (Martha Bebinger/WBUR)

The Changing Health Care System

There's a lot going on behind the scenes. Physicians are joining large practices so they’ll have help managing budgets. Clinics, rehab centers and hospitals are forming new alliances that put all our care under one umbrella group. And health insurers are negotiating contracts that send nurses to patients' homes to avoid a hospital stay, but hold providers financially responsible if they don’t stick to a budget. In theory, these connections are supposed to lead to better care and lower costs.

"That makes a lot of sense in theory, but in practice, what does it mean?" asks MIT economics professor Jon Gruber. "What is the global budget?

"Who sets the global budget and for which payers? How much uprooting do you want to do, based on the limited evidence we have, that this will solve our theoretical problems?" Gruber continues. "I think it’s great we're having this conversation. I just think it’s premature to say it’s a solution."

But setting limits on what we spend on health care is a solution that health insurers are testing and is also the basis for a bill filed by Gov. Deval Patrick.

"It’s the payment trying to reform the delivery system," explains Patrick’s Health and Human Service Secretary JudyAnn Bigby.

When asked why she’s convinced this is the best way to tackle rising health care costs, Bigby points to other countries and to a health care network in Pennsylvania.

Where Global Payment Systems Are Working

Geisinger Health System, in Pennsylvania, has lowered costs and improved the health of patients by giving doctors more freedom to spend money as needed, as long as they stay within a budget. In Massachusetts, where insurers and doctors are making the shift to contracts based on a budget, the evidence is more limited, says Bigby.

"We have some early data that we don’t have in enough detail right now to definitively point to, but it certainly looks like [we're] going in the right direction," Bigby says.

So let’s look at a few groups that might be moving in the right direction:

Commonwealth Care Alliance is a Boston-based program for frail elders and patients with significant physical and emotional needs. These are the 15 percent of patients, says CEO Bob Master, who represent 70 percent of health care spending. Master says working under a budget, or global payment, gives him the freedom to send nurses, therapists and other services to patients in their home and help them stay out of hospitals and nursing homes. Master says his costs rose 2.1 percent last year, as compared with 10 percent for most health plans.

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"Extrapolating that could mean a 15-20 percent reduction in real expenses over what would have occurred for this population," Master says. "So we’ve demonstrated this for a few thousand people and the challenge is scaling this."

Master says it’s clear global payments work to lower costs for the most expensive patients. Harvard Vanguard, the state’s largest physician group, is making that case for everyone. The practice started last year with a budget of $349 a month for each patient covered through an HMO plan. It ended the year at $350 per member per month — that’s basically no increase — a rare event in the health care world. Gene Lindsey, CEO at Atrius, the alliance that includes Harvard Vanguard, says the group spent $62 million less than expected last year as a result.

"Now I don’t know if we can sustain that through another year, but I believe we can," Lindsey says. "In fact we’re challenging ourselves over the next few years to take another 20 percent out of our cost structure."

Lindsey says Harvard Vanguard spent less because patients didn’t seek as much care (possibly related to the recession) and because, managing their own budget, doctors could decide how to spend money more efficiently. Harvard Vanguard, Lindsey acknowledges, started with a cushion other providers don't have.

"If you’re fat, it’s easy to lose weight to start with," Lindsey says, chuckling. "And honestly, we’ve been well paid, no question about it. So we’re literally retooling the factory for a period of time when we know we’ll have to produce health care at a lower price."

A Global Payment System For Massachusetts

The examples of hospitals and physician groups using global payments to save significant amounts of money in Massachusetts are still few and far between. It’s not clear when or if the state Legislature will adopt this approach, but private insurers are already urging doctors and hospitals to sign contracts with spending limits.

So if this is the way to slow health care spending, when might we consumers see lower premiums? Blue Cross Blue Shield CEO Andrew Dreyfus says there's already some effect.

"Now, of course, premiums are still rising, and I know they’re rising at levels that seem too high," Dreyfus says. "But they would have been rising even faster in the absence of these new payment models."

If the Blue Cross global payment contracts are successful, Dreyfus says, we'll see premiums in a few years rising at half the rate of the recent past. That would mean 5 percent, on average, as compared with 10 percent.

This program aired on April 13, 2011.

Martha Bebinger Reporter
Martha Bebinger covers health care and other general assignments for WBUR.



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