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A better tool to fight rising health costs?

Blue Cross to double its spending on incentives tied to performance by doctors and hospitals, raising fears patient care could suffer

Blue Cross Blue Shield of Massachusetts is pressuring doctors and hospitals to provide better, lower-cost healthcare by doubling to $189 million the amount it will spend on performance incentives this year.

The move puts the state's largest health insurer at the forefront of a nationwide effort by insurance companies, which want to move away from a long-used reimbursement model: automatic payments to doctors for the care delivered.

Blue Cross and other insurers say shifting to contracts that make some portion of payments contingent on quality and efficiency will help make healthcare more cost-effective.

The nonprofit company said the steps, which are generating criticism from some doctors and hospitals, are needed to address skyrocketing health premiums, which have risen more than 10 percent annually for five consecutive years.

''The best, most promising route to slowing the rate of increase is by investing in quality and performance. That's everyone's best hope," said Andrew Dreyfus, executive vice president at Blue Cross Blue Shield of Massachusetts.

''Physicians and hospital leaders we work with acknowledge that today's reimbursement system provides incentives for more care, and not necessarily the right care," he said.

Nationwide, such ''pay for performance" programs are still largely experimental. Under such programs, doctors are graded by insurance companies on factors like the number of patients who receive cholesterol testing or who regularly get pap smears and mammograms. Providers who meet certain standards are eligible for bonuses. Blue Cross says it may also tie how much it adjusts payments annually for inflation to performance.

Although the programs are voluntary, failing to meet the standards will put physicians and hospitals at an increasing financial disadvantage because more of their potential compensation will be based on performance incentives. Blue Cross says as much as 13 percent of its payments to about 5,200 primary-care physicians in the state will be in the form of incentives -- over $10,000 for an individual doctor -- compared with the current 10 percent devoted to incentives.

The company, which says it has among the most aggressive performance-based programs in the nation, is earmarking for incentives the equivalent of nearly 4 percent of its $4.9 billion in 2005 provider payouts.

It also will use performance-based programs in more expensive areas of healthcare and is developing ways to grade 9,100 cardiologists, oncologists, and other specialists. Under the plan, 5 percent to 10 percent of their payments could hinge on how they score.

And as much as 2 percent of 60 hospitals' reimbursements from Blue Cross could come from incentive payments, up from 29 hospitals last year.

Primary care doctors will be particularly affected by the shifting pay structure, said Meredith Rosenthal, a professor of healthcare economics at Harvard School of Public Health who also serves on a Blue Cross advisory panel. When incentives account for only small portion of their potential payments, she said, some doctors choose instead to concentrate on boosting their income by increasing their business volume.

But ''once you start talking about 10 percent or more, its moving out of the realm of pilot programs," she said.

While representatives for doctors and hospitals said they support linking a portion of compensation to quality improvement, they believe the Blue Cross changes could be disruptive for some providers and patients. Even the industry's label for such programs -- ''pay for performance" -- is under attack.

''It's a cute marketing term," said Dr. Alan Harvey, president of the Massachusetts Medical Society, which represents the state's doctors.

''It's almost like managed care coming all over again. What's the newest wave? What's the newest experiment?" he said. ''We would urge that everyone not get caught in the hysteria, the rush to come up with new measuring systems."

Harvey said insurance companies should delay aggressive performance-based programs like Blue Cross's until nationally accepted standards to measure healthcare quality are developed and more doctors adopt computerized record-keeping. The state's largest physicians groups have computer systems, but most smaller practices do not.

To assess how those doctors' patients are faring, Blue Cross ranks smaller practices by billing data, which Harvey said is unfair because it lacks sufficient detail. Physicians also are being bombarded with differing measurement demands from other insurers, which can be confusing and time-consuming, he said.

Also, if doctors are penalized financially because a patient's health does not improve, they may begin rejecting some chronically ill patients for care, Harvey said.

Hospital executives worry that incentives will replace annual inflation adjustments, said James T. Kirkpatrick, vice president of healthcare finance at the Massachusetts Hospital Association.

''What we're very concerned about is that a payer would adopt pay for performance measurements while at the same time substantially reducing the payment updates," he said.

Without providing specifics, Blue Cross executives said they may begin to replace automatic inflation increases with quality and efficiency incentives. The company said it that even though national standards to rate healthcare performance have not been adopted and billing data is an imperfect measuring tool, changes are necessary now to slow cost increases.

''We cannot send the message that status quo is acceptable to the employers," said Deborah Devaux, Blue Cross senior vice president for healthcare contract management.

The two other large insurers in the Boston market, Harvard Pilgrim Health Care and Tufts Health Plan, also feature some form of incentive payments. Harvard Pilgrim offers doctors 10 percent incentives, while Tufts offers doctors and hospitals the potential to earn 5 to 10 percent payments.

James Roosevelt, chief executive of Tufts Health Plan, said he has spoken with the other health plans about developing common measures in the Massachusetts market ''so the providers know what they need to be aiming for and are not driven crazy by having two dozen different measures applied to them by different payers."

Asked to respond to Blue Cross's plans, Roosevelt said, ''I think there's a better way to do it."

For primary-care physicians, Blue Cross has chosen quality performance measures like the number of patients who receive cholesterol screenings and diabetics whose blood sugar is carefully monitored, which are widely viewed as sound indicators of a physician performance, it said.

But there is little agreement about the best performance measures for specialists, short of measuring patient outcomes, including how many live or die, a step that Blue Cross is so far unwilling to take. For now, it will measure how specialists' adopt programs to reduce medical errors, Blue Cross executives said. Hospitals will be graded on five standards they can choose from a list of 14. They also will be evaluated based on patient satisfaction surveys.

The state's largest physician network, Partners Community Healthcare Inc. -- an affiliate of the largest teaching hospitals in the state, with 1,000 primary-care doctors and 3,500 specialists -- embraces pay for performance efforts, said chief executive Dr. Thomas Lee. But Lee added that measuring performance in specialty areas can be difficult.

''I don't know of great quality measures for dermatology, so it might be a while before we get to measures for them," he said. ''And the dermatologists might be happy about that."

Christopher Rowland can be reached at

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