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New Payment Model Lowers Healthcare Spending

Price transparency photo via piperreport.

Price transparency photo via PiperReport.

American healthcare is expensive. With patient costs skyrocketing and insurance companies collecting high premiums, many healthcare activists have taken up the payment reform cause, looking at different areas of the system for solutions.

In a new study from Harvard Medical School (HMS), researchers looked at the attempt to reduce health care spending through an alternative payment model known as the Alternative Quality Contract (AQC). The researchers analyzed claims payments and quality data from the first four years of the payment model, which is run through Blue Cross Blue Shield of Massachusetts.

Our current model of healthcare payment requires patients to pay for each individual test, visit and treatment they receive, which promotes the overuse of services and tests. Under the AQC, providers receive risk-adjusted global budgets to allocate for these services. This global budget is based on previous years’ medical expenses and is a lump sum given to providers to cover the healthcare costs of all patients in a defined group.

The AQC model links financial incentives to clinical quality and patient outcomes. This linkage is designed to reduce the overall costs of healthcare, while increasing the quality of care patients receive. Providers earn incentives for how well they score in performance outcomes with patients based on a range of nationally set guidelines. In addition, at the end of each year, expenses are compiled against the global budget given for that year. If providers spend amounts that exceed the budget, they must compensate for it with Blue Cross Blue Shield. If providers come in under budget, they share in those savings. Blue Cross Blue Shield provides each AQC group with the data it needs to succeed under the model.

“The healthcare system has struggled with how to control spending growth,” says Michael Chernew, Professor of Health Care Policy at HMS and lead researcher on the study. “Moving to new payment models transforms incentives in the system and helps create fiscally sustainable models.”

The HMS study analyzed those on the AQC plan from 2009-2012 and compared them to patients with similar demographic characteristics that did not use global payment models to pay for healthcare. Specifically, the study examined spending changes each year, category of service, as well as pricing patterns. What did they find? Spending on healthcare grew more slowly under the AQC plan, with savings that averaged 6.8%. In addition, AQC patients experienced a higher quality of care, especially in pediatrics, diabetes, blood pressure and chronic disease management. If these results continue, healthcare spending could be looking at a more sustainable path.

This model suggests that risk-adjusted global budgets could help us save healthcare costs and improve quality of care. “We know our current system is not working as well as it could,” says Chernew. “We want to shift to alternative payment models that help the system meet fiscal and clinical goals.”

Soniya Shah

Soniya Shah

    Soniya Shah is an on-staff contributing writer at MedTech Boston. She's a senior at Carnegie Mellon University pursuing a BS in technical writing. She has experience as a ghost writer and medical writer, and in developing software documentation.

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