Insurers embrace ways to cut spending

  • Article by: CHEN MAY YEE , Star Tribune
  • Updated: November 29, 2010 - 9:11 PM

Blue Cross and other health insurers are pursuing new approaches to paying doctors, clinics and hospitals for care.

Minnesota's major health insurers are ramping up incentive payments to hospitals and clinics that succeed in cutting waste and keeping patients well. The goal is to slow the growth of overall medical spending and eventually reverse it.

On Tuesday, Blue Cross and Blue Shield of Minnesota plans to announce new contracts with four big health systems -- Allina Hospitals and Clinics, Essentia Health, Fairview Health Services and HealthEast Care System. Under the new model, incentive payments could eventually make up about a third of total payments to these systems, up from about 10 percent currently.

The idea is to overcome a problem that's bedeviled previous efforts to improve efficiency. Because health care providers get paid every time they do a procedure, the incentive in health care has been to do more procedures, whether or not they are useful.

In the past, "they've said that if they become more efficient, they're taking money out of their own pockets," said Patrick Geraghty, chief executive of Blue Cross, the state's biggest health insurer with 2.7 million members. "Going forward, as the system generates lower costs, they will share savings."

Federal health reform has given new impetus to the efforts, with the Centers for Medicare and Medicaid Services moving toward such a system of "shared savings" for certain integrated health systems in 2012.

At Blue Cross, the ultimate goal is to contain health care expenses so they don't rise any faster than overall inflation, Geraghty said. To make sure quality doesn't suffer as hospitals and clinics search for savings, there also will be bonus payments if providers hit certain quality measures.

While insurers have paid such performance bonuses to doctors for several years, the amounts have been too small to make a significant difference and have concentrated on doctors rather than hospitals and clinics.

The new model doesn't completely overhaul the fee-for-service payment system. It replaces the idea of guaranteed rate increases with incentive payments if health providers achieve cost savings or hit certain quality measures.

Medica and HealthPartners, Minnesota's second- and third-biggest health insurers respectively, are also going down this route.

Medica signed its first such contract with Fairview in 2008 and has since signed similar contracts with almost every health system in the metro, as traditional contracts come up for renewal. HealthPartners signed similar contracts in 2010 with Allina, Park Nicollet Health Services and its own HealthPartners medical group.

The new contracts shift the emphasis away from piecemeal payments, which have made the system resistant to change, to so-called "total cost of care" or global payments, which may be defined as per patient and or per episode of care.

For several years now, Minnesota insurers have paid bonuses to physicians who follow recommended practices in areas such as diabetes care and breast cancer screening. The new Blue Cross payment model expands on this. For example, it rewards doctors for ensuring that their patients have advance directives, legal documents in which patients convey their wishes on end-of-life care.

"A lot of money can be spent, in the absence of advance directives, to nobody's benefit," said Jim Eppel, senior vice president of health management and commercial markets at Blue Cross.

In a prepared release, Allina chief executive Ken Paulus called the new model "a big step in the right direction" while Fairview chief executive Mark Eustis called it "the work of the future."

Both Medica and HealthPartners said they've already had some success with the approach, though it's too early to offer specific numbers.

Since Medica signed its deal with Fairview in 2008, Fairview "has made significant investments in care redesign that are resulting in both lower cost and higher-quality care," Medica spokesman Larry Bussey said. "We believe the overall market will function best when these types of agreements become common across all payers."

Chen May Yee • 612-673-7434

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