Dueling Estimates of Cost Saving From New Massachusetts Blue Cross Global Payment Contract

Today’s Managing Health Care Costs Indicator is $15.51. 
Or Maybe it’s -$70.20

Click to enlarge

The New England Journal of Medicine published an financial assessment of the first year of the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract last night. It’s been making the headlines for showing that groups in this contract, which includes provider responsibility for overall financial costs, had lower overall increase in medical claims spending than groups that were not in this contract.

The headlines have been clear.  “It saves money”  You have to read well into the coverage  to see that this isn’t accurate.

The authors of the NEJM article are very clear that the AQC did not save money in the first year, which is consistent with last month’s report from the Massachusetts Attorney General.  In fact, the authors state:

Total BCBS payments to AQC groups, including bonuses for quality, are likely to have exceeded the estimated savings in year 1.

The combination of bonuses for being below budget (~3%) and bonuses for achieving quality thresholds (3-5%) and extra BCBSMA administrative costs (0-2%) made the AQC groups substantially more expensive than non-AQC groups.  The AG report showed clearly that early adopter AQC groups had surprisingly high total costs in the Blue Cross plan – probably because of these additional expenses.  (The $70.20 above is multiplying the AG medical inflation differential by the calculated quarterly cost from the NEJM article referenced above)

Another surprise is that in the medical claims costs, we aren’t seeing evidence of better quality of care such as fewer admissions or emergency department visits. Utilization changes are not different between AQC and non-AQC groups. Rather, the AQC groups referred patients to less expensive providers – so the lower claims cost was entirely from lower unit costs.   

Note also that the analysis excluded pharmacy. The AQC groups might well have had higher pharmacy costs, since the physicians received bonuses based on hitting some quality measures that require prescription medications.

It’s not a surprise that BCBSMA had to pay a lot to entice groups to join this capitated program – and no one should have expected lower costs in year one .  I’m hopeful that over time this program will yield lower costs – because physicians in a global payment arrangement figure out how to save resources.  

However, the AQC is like many other medical management interventions in that right now BCBSMA can only claim that its AQC has improved quality – not that it has lowered cost.