Piloting global payments

The new prix fixe system for health care reimbursement is getting a try-out in Lowell, but key details are still murky

Gerri Vaughan, the executive director of the Lowell General Physicians Hospital Organization, answers a question about the state’s rush to em­brace a global payment system with a question. “If Pat the patient comes, how do we deal with Pat?” she asks. Dr. David Pickul, seated across from Vaughan in a conference room at Lowell General, offers a choice. “We could pull out a pen and in 30 seconds order a long list of expensive inconsistencies and redundancies. Or we could own Pat’s problem and deploy clinical integration.”

To an observer, the exchange between Pickul and Vaughan comes across as a parody on doctoring from the hospital sitcom Scrubs. But this is no joke. Pickul says the global payment approach is an overdue attempt to change the way health care is delivered. “We’re attempting to fix a system that is broken, unsustainable, and can’t continue on the path it’s on,” he says.

Massachusetts led the way on expanding health care coverage through the 2006 law signed by then-Gov. Mitt Romney. The state is now trying to lead the way on cost containment. Pickul, Vaughan, and Lowell General are in year two of a Blue Cross Blue Shield of Massachusetts experiment to change the way health care providers are paid for their services. The state’s largest health plan is working with a total of 12 hospital systems and 7,000 doctors that are providing care to 500,000 patients. Instead of paying for each test or office visit provided, Blue Cross is now paying a lump sum per patient. It’s like ordering a prix fixe meal instead of a la carte.

Blue Cross says the new approach is promoting more coordinated patient care and has the potential to reduce costs, although it hasn’t resulted in any savings yet. Massa­chusetts, a major medical center where health care costs are among the highest in the nation, is an ideal laboratory for the global payment experiment. But no one is quite sure who will be the winners and losers among doctors, hospitals, community health centers, insurers, and consumers if this experiment in delivering health care services takes off.

To explain how the global payment approach differs from the current fee-for-service system, Pickul returns to his hypothetical crash-test patient Pat. “Three years ago,” he says, “Pat comes to me. I don’t know her. She just shifted insurers, and I’m her third primary care doctor in about nine months. Because of the system, her medical history hasn’t been passed along from her last doctor. The effort to retrieve it would take forever. Her opening line is: ‘Doc, I need a MRI.’ My response? An MRI for what?’”

When he learns Pat is struggling with head­aches, Pickul says he would basically start from scratch, ordering a battery of tests to find out if she actually needs a MRI. After all the tests, the need for an expensive MRI test may still be un­clear. “Because she wants it and because I’m an internist, not a neurologist, I do the paperwork for the MRI because under that system, the easiest way to get her to a head doc is with the MRI results,” he says.  After weeks of tests for which Pat makes copayments, the MRI results are compelling enough to convince Pickul to send her to a neurologist. After that, she’s largely the neurologist’s responsibility.

The compassion-filled teamwork seen on TV dramas like Grey’s Anatomy rarely happens with the fee-for-service system. But Pickul says it’s beginning to gain traction with global payments. “It’s freeing us to do consults with each other, to get away from endless and often pointless tests,” says Pickul.

Under a global payment system, insurers work with frontline providers and administrators to pre­determine a fixed payment with monthly adjustments that applies to the age, gender, health history, and health status of every patient. Setting those individual rates correctly is the key to the success of the system, but it’s also the part that none of the parties will talk about. What, for example, is the correct rate for a person in their 20s with relatively few health issues? How does that compare to an obese patient with chronic health problems?

One thing Blue Cross, Pickul, and Vaughan will talk about—often—is how global payment is not capitation. That’s the term for the 1990s attempt to control health care costs by capping how much health care providers were paid for patients. Capitation, however, provided little incentive for doctors to do anything other than hold costs down by ordering fewer services. Pickul says global payment offers incentives to provide quality care as well as avoid costly medical procedures unless they are necessary.

If the cost of Pat’s care is less than predicted in the flat-rate global payment, the Lowell group gets to pocket the difference, and each doctor receives 10 percent of the budget’s total savings. Since the contract began, the Lowell network has earned substantial bonuses, meaning the cost of care has been less than the payments, but those overseeing the project declined to divulge any specifics.

The physician bonuses that are part of a global payment system have been flagged by some policy experts as a potential cause for concern. Could an evil Dr. No pad his pocket by giving Pat the patient Advil instead of angioplasty?


Vaughan says global payment systems are designed specifically to avoid that sort of scenario. She says health care providers have to prove their patients’ health is authentically better, or at least improving. “We’re not talking random surveys and phone calls to patients,” says Vaughan. It’s now a score-driven team sport in which the higher the score, the higher the income. The scores are based on 64 measurements established by the US Department of Health and Human Services covering the quality and results of the care a patient receives out of the hospital in the form of office visits and things like preventive care screenings and what happens during and after hospitalization. Now, Dr. Pickul’s financial incentive comes directly from delivering good care, not excessive services.

When it’s documented that a patient is regularly given the preventive care recommended for their age group, such as mammograms or colonoscopies, that translates as points. If a diabetic is receiving regular outpatient blood-sugar and cholesterol screening from a nurse practitioner and isn’t having any problems, that nets a maximum score of five. Scores can also be lowered by incompetency or accidents. If Pat the patient was readmitted to the hospital because she got a bacterial infection after her brain biopsy, that brings down a group’s entire score. “If I actually lower Pat’s high blood pressure? That’s a shot-score!” says Pickul, sounding like a hockey announcer calling a goal. “If I haven’t called Pat in for a mammogram for three years? That’s bad.”

Dana Safran, senior vice president at Blue Cross Blue Shield of Massachusetts, says the global payment approach offers health care providers the right incentives. “What we have to understand is that there are perverse incentives in the current system,” she says. “We created an ‘if-you’re-paying-I’ll-have-the-lobster’ mentality.”

Safran says the outcomes after one year under global payment are where Blue Cross expected to be in three or four years. “The amount of money being spent hasn’t changed yet, but the outcomes are serious testimony to the fact that more—in tests and doctors and visits—isn’t always better,” she says. “We’re getting a lot more for our money than we expected.”

Safran says Blue Cross padded first-year global payment budgets to entice hospitals and doctors to sign on. She stressed that the current goal is not to actually reduce costs, but to cut in half the rate of growth in medical costs after five years.

Gov. Deval Patrick has filed legislation to move state government’s payments for health care services in the global payment direction and to encourage the rest of the health care industry to follow. He’s also addressing the cost issue more directly by proposing that state regulators be given the power to reject health plan premium increases based on a review of their underlying costs, essentially what hospitals and doctors are charging for their services. Patrick says he’s seen waste in the health care system up close. “When my mother was suffering from cancer and hepatitis, the lack of coordination between the hospital, the primary care physician, the long-term facility, and then hospice was profound,” he says.

The biggest blunder so far under global payment at Lowell General is that health care consumers were not briefed on the changes. “Poor Pat doesn’t have a clue what’s going on,” Vaughn says. “The beginning was incredibly bumpy,” adds Pickul. “In the HMO world, patients were trained to pick their doctor for this and that. Need a referral? Just call my office and I’ll give you one. In this huge redesign, the consumers, patients, and businesses were seriously left out of the fact that we’re not doing it like that anymore.” ‘What’s happening here is so logical and simple.’Vaughn and Pickul attribute any first-year bumps to patients feeling “locked-down” after decades of buffet-style medical care. “They’re the buyers,” Vaughn says of patients, “and Blue Cross Blue Shield forgot to explain what they’re buying.”

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Blue Cross officials say they didn’t get a chance to do much public outreach on global payment because the program was developed on a short timetable and received such an overwhelming response from providers. Even so, they say patient care experience measures they tabulate haven’t shown much change, indicating patients haven’t reacted negatively. Officials at the health plan say coverage discussions are better left to patients and their physicians. In fact, the Blue Cross customer service line says: “Your primary care doctor knows what’s best for you.”

Lots of kinks in the system are still being worked out and new technologies and copayment incentives are being deployed to steer patients to lower-cost providers. But Blue Cross executives and many of the health care providers involved in the project say enormous progress is being made. Pickul leans forward to make a point with the intensity of Dr. House having a diagnostic epiphany. “What’s happening in this hospital for doctors and patients is so logical and simple, it’s shocking it’s taken this long.”