Backers Think ‘Global Payment System’ for Doctors Could Cut Medical Costs

A proposal to overhaul the way doctors and hospitals are paid in Massachusetts, a pioneer in healthcare, could help hold down spiraling costs and may have lessons for Washington as it grapples with reforming the U.S. health system.

A state-appointed panel of experts has endorsed the proposed “global payment system,” which would make Massachusetts the first state in the nation to end the practice of paying healthcare providers for individual procedures.

The proposed system instead attaches a fixed price to the routine healthcare costs incurred by a patient for a given time period, such as a year.

The proposal was unanimously endorsed last week by the Special Commission on the Health Care Payment System, a panel established by Massachusetts state law to evaluate healthcare costs and suggest reform.

It comes as President Barack Obama and lawmakers in Washington work to reform U.S. healthcare to expand coverage to most of the 46 million uninsured while holding down costs.

Controlling costs is seen as essential in Massachusetts, the only U.S. state that provides near-universal healthcare coverage and whose system has been looked at as a template for revamping the national healthcare system.

Advocates see the Massachusetts idea, which has yet to be included in legislation, as a way to curb costs, but they also are concerned about how long it would take to realize those savings.

Proponents say it will eliminate unnecessary medical procedures that the current system encourages by paying doctors for each test or treatment they administer. Requiring doctors to treat patients under a set-fee system would give them a financial incentive to not perform unneeded treatments or tests, the panel said.

“If well-executed, this will result in better care and will be less costly in the long run,” said Lynn Nicholas, president and chief executive officer of the Massachusetts Hospital Association, a non-profit advocacy organization comprised of hospitals and health systems.

“It will be very shortsighted to think this is about saving money in the next few years.”

Much of the start-up costs reflect new technology such as electronic medical records, and risk management measures such as insurance to protect doctors and hospitals against costs incurred when patients are hurt in accidents or have unpreventable diseases, which are not accounted for in the budget provided to doctors under the system.

Insurer Blue Cross Blue Shield of Massachusetts instituted a global payment system in January, involving 2,300 physicians and 210,000 members.

Under the Massachusetts proposal, healthcare providers and insurance companies would create a common system for evaluating quality of care and setting budgets. Blue Cross Blue Shield is seen as a possible model, said Deb Devaux, the company’s executive director of community transformation.

Costs for patients and insurers would vary according to healthcare plans, much as it does now, said Nicholas, who called herself “guardedly optimistic” that the proposal would reduce costs.

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Healthcare providers would have greater financial responsibilities but also get incentives for a job well done.

Insurers would set a budget for doctors, Devaux said. If they are under budget, doctors receive a portion of the savings. Budgets would be bigger for doctors caring for people with higher rates of health problems.

Insurers would also pocket some of the savings, as would healthcare sponsors such as employers who could also lower their premiums. Costs associated with going over budget would be split between healthcare providers and insurance companies.

Critics say that unanticipated patient healthcare costs could pose a huge financial burden on doctors and hospitals.

They have also expressed fear that the budget structure of the global payment system would limit patient access to care, but Nicholas said that problem would be managed in a similar manner to the current system.

In global payment, individual patients would not be denied treatment if they already have reached their spending quota, with the budget allotted for other patients helping offset those costs, she said.

But patients would face restrictions if they sought a procedure from doctors outside Massachusetts or outside the system of healthcare providers that are designated as responsible for their care.

Some specialty physicians may also remain under the fee-for-service system, said Dr Alice Coombs, president-elect of the Massachusetts Medical Society and the sole physician on the commission that proposed the changes.

Nicholas projected that spending would slow under the system, but those savings would be offset by an aging population that needs more healthcare.

“To the extent that hospitals are judged as being successful by volume and growth and revenue, we need a new paradigm as to the definition of success,” Nicholas said. “It shouldn’t necessarily be larger is better. It should be driven by measures of quality.”

(Editing by Jason Szep and Eric Beech)