Tufts Medical-Blue Cross Ceasefire: A Grand Bargain on Quality and Cost?

The big standoff between Tufts Medical Center and Blue Cross Blue Shield of Massachusetts, in which Tufts threatened to cut off patients insured by the Blue unless the health-insurance outfit agreed to pay it more, is over. While the two sides have agreed not to disclose terms of the deal (PDF link), hospital consultant Marc Bard told the Boston Globe that Tufts may have won fee increases of up to 20 percent over the next three years — still short of the nine percent annual increases it had reportedly sought, but higher than the five percent bump Blue Cross was apparently offering.

The deal, however, isn’t a slam-dunk victory for Tufts. In turn, Blue Cross got the hospital to agree to an “alternative quality contract” that limits per-patient payments but offers incentives for meeting various quality-of-care goals. The Blue — by far the dominant insurer in Massachusetts — has apparently been pushing this alternative contract fairly heavily, so far without a whole lot of success. In addition to Tufts, Mount Auburn Hospital in Cambridge and a doctors’ group in Springfield recently agreed to sign up for the program.

This alternative contract is an interesting idea, not least because it offers a potential way out of the dilemma created by such hospital-insurer tussles. Normally, higher reimbursement for hospitals simply means greater costs for an insurance company, which in turn usually passes along those costs to members and employers in the form of higher premiums — which are already unaffordable for many individuals and small businesses.

Here, however, the notion is to give hospitals incentives to find ways to cut costs on their own without compromising patient care. Blue Cross outlined the plan last April in a Capitol Hill briefing; here is its “alternative quality contract” PowerPoint presentation (h/t Paul Levy).

The quick summary is this: Blue Cross offers an initial “global payment level” apparently based on capped per-patient costs (adjusted for patient health) and increases that each year by the rate of general inflation — not the much higher medical-inflation rate. In addition, it offers incentives ranging up to 10 percent of that global payment for meeting various process and outcome goals — the latter being a key point, because it ties the bonuses to actual improvements in patient care. Meanwhile, hospitals are encouraged to find and correct their own inefficiencies — not least among them avoidable medical errors, which are not only bad for patients, but costly to boot.

So in theory, at least, hospitals could make more money while also improving care and holding down insurance premiums. Lots of healthcare types take a dim view of this sort of plan, though, which probably helps explain the chilly reception it’s had so far in Massachusetts. Healthblawg’s David Harlow, for instance, calls the Blue Cross plan “the latest euphemism for capitation,” even though he suggests the alternative contract is “not an unreasonable system.”

Capitation, of course, is the technical term for fixed patient payments. Bare-bones capitation plans have in the past had a number of unpleasant consequences, such as creating incentives for hospitals to withhold expensive treatments even if they were medically necessary. (That’s the flip side of the overtreatment encouraged by today’s common fee-for-service arrangements.) Whether the gussied-up Blue Cross alternative can avoid them may emerge as one of the next big issues for health-insurance companies and hospitals — particularly if Medicare and a potential federal health program for non-seniors grab the ball and run with it.

Around the blogs: Over at Running a Hospital, Beth Israel Deaconess Medical Center CEO Paul Levy explains his wariness of the Blue Cross plan. In a related post, Levy and a number of commenters — including reform specialists such as Don Berwick — wage a spirited discussion over the effectiveness of error-prevention guidelines such a pre-surgical checklists. My BNET Healthcare colleague Ken Terry and I should have more to say on that subject soon.

BNET Healthcare on medical errors, overtreatment and insurers versus hospitals:

• Five Major Challenges For a $2 Trillion Industry
• Insurers Take on Botched Medical Work With Their Checkbooks
• Medicare Ups the Ante on Medical Mistakes — But Risks Going Too Far
• “Never Events” and Hospital Infections — An Impossible Goal?
• Why Hospitals Are Suddenly in the Doghouse
• Tenet vs. HCA in El Paso: How Hospitals Go To War
• A Sea Change in Insurer Thinking
• Debunking Five Myths About U.S. Healthcare
• Shorter Boston Globe: How Elite Hospitals Rake in the Bucks
• The End-of-Year Health Insurance/Hospital Follies
• Tufts Medical Vs. Blue Cross: The Hospital/Health Insurance Wars Get Nasty