Fairview, Medica make a deal to cut costs

Fairview Health Services could receive tens of millions of dollars if it manages to control costs and hit certain quality measures, under a new three-year contract with Medica, the two organizations announced Thursday.

Officials say the contract represents a dramatic change in how health care is paid for, and will encourage clinics to experiment with less costly types of patient care, such as nurse-only visits and group appointments.

"We concluded that the old approaches had pretty much run their course, that it was time for a new direction," said David Tilford, CEO of Medica, which covers health care for 1.5 million members, including 300,000 Fairview patients.

The contract with Fairview will shift the emphasis away from paying doctors for seeing patients and running tests, and more toward practices that result in healthy outcomes, said Mark Eustis, Fairview's CEO. "We can redesign care to be more efficient and effective," he said, by changing the financial incentives. "The cost of care, we believe, will go down because you're not doing unnecessary stuff."

Both executives called it an example of health-care reform from within the system. "Health care needs to be improved," said Tilford. "And rather than wait for other's efforts, we initiated our own."

Tilford said the idea began over a dinner conversation last year, when he and Eustis started talking about the problems facing health care. Usually adversaries across a negotiating table; this time, they agreed that something had to change.

Over the next few months, "we did something that most of our organizations are loathe to do," Tilford said: They shared data and hammered out a plan "that allows Fairview to change the way it delivers care."

Last year, Medica spent "several million dollars" on a pilot project at Fairview's Eagan clinic to study ways to streamline care. The clinic is experimenting with a team approach that allows patients to use e-mail, phone calls, nurse-only visits and other ways to access care, when a doctor visit isn't needed.

Eustis said the new contract will encourage more of that kind of experimentation. "If we do that in today's environment, we get paid less," he said. But under the new arrangement, Fairview would share in any costs savings.

Neither Medica nor Fairview would disclose the financial details, citing proprietary interests. But Eustis said that Fairview accepted a lower across-the-board fee hike in exchange for the chance to earn millions more down the line. "We're basically saying that that's OK, because we're going to be able to demonstrate better clinical outcomes," he said. "If we do that and do it well, we should get savings."

Fairview's share of the savings could amount to tens of millions over the three-year contract, officials at both companies said. The rest of the savings would be returned to Medica customers as premium cuts, Tilford said.

At the same time, some of Fairview's incentive pay will be tied to how it scores on a series of quality measures. This kind of plan, known as pay for performance, already is common in the Twin Cities, and rewards doctors and clinics for how well they perform on a tracking system such as Minnesota Community Measurements. It tracks how well patients with chronic conditions, such as diabetes or depression, keep symptoms under control.

"It's a little bit different now," Eustis said. "Most people realize you have to improve clinical care at the same time you're reducing cost."

Both said they expect to work out similar agreements in the future.