Off-Based Optimism: Part 2

Paul Levy

First posted 7/31/11 on Not Running a Hospital

In the post above, I present a review of a recent blog post from the head of the Commonwealth Fund that, to me, represents an all-too-common analysis of health care issues, one driven by desire rather than clear-headed thinking.  I promised a second example, and here it is, using a recent article in the New England Journal of Medicine.  It was again brought to my attention by this teaser from the Commonwealth Fund:

New Study: Innovative System for Paying Health Care Providers Slows Spending, Improves Patient Care

Findings from a Harvard University study conducted with Commonwealth Fund support reveal that a recently implemented global payment system for physicians and hospitals in the Blue Cross Blue Shield of Massachusetts network is lowering medical spending and improving the quality of patient care.

This is delicate as I offer comments, in that I know several of the authors and have the greatest respect and fondness for them.  But the fault lies not in their analysis.  I quibble more with the Commonwealth Fund’s interpretation of the results than with the study itself.  The Fund seems to be looking for a “quick win” on the issue of capitated, or global, payment contracts.  As noted above, drawing any conclusions from one year of data is problematic.

The title of the article is “Health Care Spending and Quality in Year 1 of the Alternative Quality Contract,” and the authors clearly lay out the limitations of their analysis.  Here is a section of the discussion, upon which the Commonwealth Fund seems to base its teaser:

The AQC was associated with modestly lower medical spending and improved quality in the first year after implementation. The savings derived largely from shifting outpatient care to providers who charged lower fees and were seen primarily among high-risk enrollees. Savings were larger among providers who were previously paid by BCBS in a fee-for-service system.

The improvements in quality are probably due to a combination of substantial financial incentives and BCBS data support. AQC quality bonuses are much higher than those in most pay-for-performance programs in the United States, since they apply to the entire global budget rather than to physician services alone or PCP services alone.

But, the Commonwealth Fund failed to mention this most significant finding:

The savings associated with the intervention do not imply that total payments made by BCBS declined. Total BCBS payments must take into account quality bonuses and end-of-year budget surpluses paid to the AQC groups. In 2009, quality bonuses were generally between 3% and 6% of the budgets. Additional BCBS support for information technology, staffing, and other needs was between 0% and 2% of the budgets. Moreover, all AQC groups spent less than their 2009 budget targets, earning, on average, 3% in budget surpluses (consistent with our estimates). Taken together, these first-year investments and payouts exceeded our average estimated savings of 1.9%, suggesting that total payments by BCBS to AQC groups rose for AQC groups in the first year.

I have discussed aspects of this before, citing an article in Commonwealth Magazine:

Blue Cross padded first-year global payment budgets to entice hospitals and doctors to sign on…. [T]he current goal is not to actually reduce costs, but to cut in half the rate of growth in medical costs after five years.

An insurance company has a major incentive to shift actuarial risk to providers and away from itself.  It also has an interest in price stability, for competitive and earnings reasons.  We cannot fault BCBS or otherwise for behaving in a manner consistent with its corporate goals.  But we can fault policy advocates who take incomplete results and use them in an unrigorous manner to support a policy agenda.

Paul Levy is a former CEO of a large Boston Hospital who now works as an advocate for patient-centered care and health care effectiveness.

This entry was posted in Analytics, Innovation, Market Dynamics, Medical Management, Physicians, Policy/Law/Regulation, Quality, Reform and tagged , , . Bookmark the permalink.

One Response to Off-Based Optimism: Part 2

  1. Joe says:

    So true Paul. Big healthcare chains will figure out how to leverage the rules to increase overall income and maximize their profit and not for profit surpluses. So will insurers. So will pharma and device makers. Many seem to base their belief system in the hope that people and organizations will follow a path contrary to their self interest.

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