Harvard Study Shows Global Payment Approach Can Reduce Costs While Improving Quality

A bold project to reduce healthcare costs that combines global payments with quality incentives has paid off for Blue Cross Blue Shield of Massachusetts, according to a  Harvard Medical School study published in the journal Health Affairs.

The study shows that physicians and hospitals that participated in the project over two years experienced savings of 2.8 percent compared to spending in nonparticpating groups. At the same time, “quality of care also improved compared to control organizations, with chronic care management, adult preventive care, and pediatric care within the contracting groups improving more in year two than in year one,” according to the study.  

Evidence that a focus on adult preventive care can help reduce healthcare costs

At Hive Strategies, we have become interested in the potential of online wellness and disease management communities to help hospitals and health systems survive the financial challenges of healthcare reform. This study shows that a focus on adult preventive care can help reduce healthcare costs, although the effort did not incorporate online communities.

“The current fee-for-service reimbursement model has created unintended consequences, rewarding doctors and hospitals for the quantity and complexity of services provided instead of rewarding the quality and outcomes of care,” says the BCBSM document outlining the Alternative Quality Contract (AQC) concept.

Global payment mixed with a quality incentive

The AQC replaced fee-for-service with an innovative global payment model that combines a fixed per-patient payment (adjusted annually for health status and inflation) with substantial performance incentive payments (tied to the latest nationally accepted measures of quality, effectiveness, and patient experience).

The goal of this restructured model is to enable the delivery system to give the patient the best result:

  • from the most appropriate treatment (e.g. based on the best medical evidence),
  • by the right kind of provider (e.g. specialist, family doctor, nurse),
  • at the right time (when intervention is most appropriate),
  • and in the most appropriate setting (e.g. hospital, physician office, independent laboratory, home).

Five ways that AQC is different than capitation

The report also outlines the 5 key ways that AQC is different from the much-maligned capitation model HMOs implemented in the 80s and 90s – perhaps most importantly

In 2009 seven provider organizations in Massachusetts entered the Blue Cross Blue Shield AQC, followed by four more organizations in 2010. The study was based on the experience of these organizations compared to nonparticipating groups.

How did the AQC achieve savings?

Savings were accounted for by lower prices achieved through shifting procedures, imaging, and tests to facilities with lower fees, as well as reduced utilization among some groups.

Quality of care also improved compared to control organizations, with chronic care management, adult preventive care, and pediatric care within the contracting groups improving more in year two than in year one.


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Hive Strategies helps health systems create HIPAA-compliant online communities for better health, lower costs and greater loyalty.

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