Alternative Quality Contract as Cost-Cutting Payment Reform Model: Blue Cross Blue Shield of Massachusetts

Rationale / Objectives

Blue Cross Blue Shield Massachusetts wanted to reduce healthcare spending growth while increasing quality by changing the risk structure of their payment model.4

Project/Program Description & Major Achievements

Blue Cross Blue Shield created a global budget-based payment model that involved fixed per-patient payments and performance incentive payments. Additional revenue was earned based on how well the provider performed against national measures which were broken down into targets specifying the level of performance, such as “good” or “great”. There were also efficiency incentives that involved tying performance on the quality measures to the surplus (or deficit) at the end of the year once claims were reconciled against the budget. Cost savings of 6.8% were realized over the four years of the project. 1 4


Lessons Learned

Using facilities with lower cost facilities for imaging and testing contributed to cost savings of 6.8% over 4 years. Net savings were realized in spite of incentive payments. Long-term contracts created an investment-oriented mindset and reduced the need for frequent renegotiations between provider groups. AQC budgets must not be restrictive and must be derived with respect to regional trends to take into account external factors that could affect a provider’s spending, such as pandemics. 1 3 4

Further Description

Fee-for-service payment structures reward quantity of medical procedures versus quality of care provided. Medicare-style payment arrangements typically involve a one-sided risk structure that allows providers to keep savings they generate in the course of the year by cutting costs. In light of increasing healthcare spending and higher healthcare expectations, a two-sided risk structure in which both gains and losses could be incurred by the provider was seen as a greater motivation to curtail spending.3 The Alternative Quality Contract (AQC), a payment reform model, was presented by Blue Cross Blue Shield of Massachusetts (BCBSMA) in 2009. The main goal of this model is to reduce health care costs while improving health quality outcomes by merging provider support tools and payment incentives. After four years of AQC implementation, the studies showed that the AQC provider groups have improved the quality of care, and decreased health care spending growth by becoming more accountable for the full range of patient care costs. The AQC is one of the largest commercial reforms introduced in the USA, and earned experience from it could also apply to payment reform (locally and nationally), health plans, as well as other payers and markets. 1 4 In determining the global budget, the provider’s patient population was considered, taking into account that chronically ill patients may require more resources. All medical expenses for the patient population were covered, from primary care to pharmacy expenses. For each year of participation in the AQC, annual inflation amounts were determined from regional network averages. Compared with other groups, the rate of spending growth in AQC participants of all cohorts decreased progressively over the four-year period. Significant changes in organizational culture is crucial. A primary example is a shift in the roles of physicians to more team-oriented roles, and a corresponding shift for other practitioners to take on more decision-making responsibilities. Support by Blue Cross Blue Shield in providing high quality real-time frequent data and analytics services to AQC participants helped them to monitor and improve their performance.  1 3 4

Major Achievements

Metric Result Detail
Savings per patient (2nd year of program) Increased ($107) Health Affairs (2012) 1
Cost savings during 4 years Increased (6.8%) New England Journal of medicine (2014) 1