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Boston Capital

Hospitals’ cost gamble

By Steven Syre
Globe Columnist / September 16, 2011

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Will the hospital of today resemble a health insurance organization in the near future?

The answer is almost certainly yes, and you don’t have to wait for it in Massachusetts. Big changes are taking place right now, blurring lines that once separated health care and insurance.

While politicians debate what they can do to tamp down the cycle of escalating health care costs in our state, providers and insurance companies are moving at what passes for lightning speed in their world to change the way the medical business works.

Here’s what is different: Health care providers are taking on increasing levels of financial risk when it comes to the cost of treating patients. That’s not new, but the pace of change is accelerating.

More hospitals and other medical organizations are accepting insurance contracts that effectively put them on budgets to care for patients, replacing the old system of billing for individuals’ tests, procedures, and office visits. In some other situations, health care providers are moving more directly into insurance-like businesses themselves.

Both of those paths lead hospitals toward the essential business activity of an insurer, making money or losing it based upon the management of risk. That has very real implications doctors and their patients. Many physicians who once managed only care are now responsible for the cost of treatment too.

Earlier this week, the Globe’s Robert Weisman reported on talks between giant Partners HealthCare System Inc. and Blue Cross Blue Shield of Massachusetts to reduce payments by as much as $240 million during three years. A key detail: The entire Partners medical complex - including Massachusetts General Hospital and Brigham and Women’s Hospital - would sign on to the Blue Cross Alternative Quality Contract.

That plan - widely known as the AQC - has been on the market for just a few years but no longer qualifies as an “alternative’’ product. It is in force at a few earlier adopters, such Mount Auburn Hospital and its physicians group in Cambridge, but also medical giants like Steward Health Care System, the physicians group at Beth Israel Deaconess Medical Center, and Atrius Health.

Assuming a deal is struck with Partners, about two thirds of Blue Cross managed care patients in Massachusetts, or 615,000 people, will be treated by providers paid under that system. About 60 percent of primary care doctors and 75 percent of specialists in the Blue Cross Massachusetts network - which covers nearly all the state’s physicians - will be compensated for the care of at least some patients under an AQC contract.

Contracts that put total patient care on a budget are meant to limit overall medical cost increases by changing financial incentives. Not everyone is convinced that will achieve big savings and it will take years to really find out.

Attorney General Martha Coakley says the Blue Cross contract isn’t saving any money at all, but no one claimed it would show quick results (Coakley and some legislators see much higher fees paid to providers like Partners with superior market clout as the real problem behind health care costs).

Meanwhile, hospitals are also beginning to examine products and services that look much more explicitly like insurance.

So far, that interest has been focused on the treatment of Medicaid patients. Hospitals hope insurance-like plans can help them manage the cost of care that typically runs at a loss. Partners agreed last month to buy Neighborhood Health Plan, a Boston insurer, and pointed specifically to the plan’s expertise in Medicaid.

The next step: Big medical groups developing their own coverage plans, limiting care mostly to their hospitals and doctors.

Steward - which emphasizes the lower cost of its network - has offered a plan like that to employees for a few years and now covers about 8,000 patients. I’m sure it would love to turn that plan into a commercial product sold by insurance companies (Steward chief Ralph de la Torre will speak this morning before the Associated Industries of Massachusetts. I wonder if it will come up in the conversation.).

One way or another, efforts to control medical costs will continue to shift financial risks to health care providers. That means doctors and hospitals will have to think more like insurers.

Steven Syre is a Globe columnist. He can be reached at