The Massachusetts Special Commission on Payment Reform recently issued its  recommendations for shifting the state’s health care system from Fee-For-Service (FFS) to Global Payments over a 5 year period.  The Special Commission’s report lays out a good case for making this change, describing why it needs to be adopted by all payers, (although each payer would still pay different rates, they would all use the same fundamental global payment structure), and some of the challenges for successfully navigating a 5 year transition period from the current mostly FFS system to one dominated by global payments.

The report summarizes its recommendations into 9 areas:

1. The development of Accountable Care Organizations (ACOs). (Health delivery entities that can work as a team to manage the provision and coordination of care so that they are accepting responsibility for all – or most – of the care for their enrollees.)
2. Patient choice. Patients will be able to choose their primary care physician, and will not be restricted to only clinicians in their ACO – but may have to pay more for services outside of their ACO.
3. Patient-centered care and a strong focus on primary care. Each patient’s selection of a primary care provider will direct their insurer’s payments to their ACO, which will receive technical support to help develop/create medical homes.
4. Widespread adoption of the medical home model. (The Special Commission concluded that “medical homes overlaid on the current FFS system cannot achieve its vision for a high-value health care system.”)
5. Pay-for-performance (P4P) incentives to ensure appropriate access to care, and encourage quality improvement, evidence-based care, and coordination of care.
6. Sharing of financial risk between ACOs and insurers. ACOs will be held responsible for performance risk—including cost performance and meeting access and quality standards. Insurance companies, (and self-insured companies), will retain the insurance risk for the insurance contracts written to groups and individuals.
7. Strong and consistent risk adjustment. Global payments will be adjusted to reflect providers’ clinical and socioeconomic case mix, and, as appropriate, geography, so that ACOs will not be financially harmed by accepting high-risk patients with complex or chronic health care needs.
8. Cost and quality transparency. ACOs will report performance against common metrics measuring health care quality and access to appropriate care.
9. Participation by both private and public payers to ensure consistent alignment of care delivery incentives and to minimize administrative complexity and costs.

These changes would have tremendous implications for improving quality and controlling costs, and be much more significant than the coverage expansion the state started in 2006 – which could be viewed as the first part of health reform in Massachusetts, with the movement to global payments as the second part.  Specifically, the Special Commission’s recommendations could largely accomplish the somewhat wonkishly termed goal of “bending the curve” in health costs that is being bantered about in DC these days.  These changes would achieve that aim by shifting the financial incentives for clinicians and provider organizations from providing more care, to providing higher quality and more cost effective care – which should include more preventive services and interventions.

Incentives Need to Be Translated to Small Groups
However, those goals will only be achieved if the incentives created at the ACO level by global payments and P4P are translated to much smaller groups of clinicians and others within each ACO.  If clinicians are still compensated based upon a modified FFS system within the ACOs, then their incentives will still be mostly for volume over quality.  Similarly, if they are told that their compensation will be based upon the overall performance of the ACO, then they won’t feel that their actions will be significant enough to effect the ACO’s or their own financial success or failure.  (This is the reason why Medicare’s Sustainable Growth Rate formula hasn’t constrained the growth in Medicare’s spending for physician services, i.e. why would physicians feel that their individual actions matter when they are pooled in with hundreds of thousands of other physicians across the country?)  In contrast, if the incentives and data monitoring are done at the level of the individual clinician, (or small clinical entity), then each individual can understand how that their actions will influence their own success or failure.

Just as creating granular incentives depends upon monitoring the clinical decisions and activities at the same level, there is also a need to monitor the overall operations and quality performance of the ACOs to be able to adjust global payment amounts and methodologies.   This is why analyzing data to support individual and ACO decisions, and monitoring the success of movement toward global payments, are two of the major functions (see #3 & #5 below) for the entity the Special Commission recommends be empowered to oversee the transition to global payments across the state.

Special Commission’s Recommended Functions for Transition Oversight Entity:

1. Establish the methodology for global payments
2. Establish the parameters defining an ACO
3. Analyze health system data to support providers, patients, and employers in making coverage and care choices
4. Recommend the necessary infrastructure support for providers
5. Establish transition milestones and monitor progress towards those goals
6. Identify and implement mid-course adjustments as needed

Implications for National Actions and Health Reform Advocates
Up here in my area of neon-blue Massachusetts, the focus has been on how it is essential to have a “strong public plan option” because that will lead to a single payer system.  Many community activists have held onto this position despite Massachusetts making significant improvements in coverage without a public plan option, (or single payer), but if the state of Massachusetts can implement the Special Commission’s recommendations for an all-payer global payment system in ways that transform healthcare delivery, it will be the most significant health reform initiative in the United States since the creation of Medicare and Medicaid in 1965.

Yes, that’s my opinion, but I can defend it for several reasons.  First, implementing an all-payer global payment system really can’t be watered down too much.  Certainly, for example, the large teaching hospitals – which the report indicates are doing financially better than community hospitals – may continue to do better under a global payment system, but fundamentally global payments, (with associated incentives for quality), will transform FFS incentives for volume of care into incentives for efficiency and quality.

And second, shifting the healthcare delivery system’s fuel source from FFS to global payments should cause clinicians and health providing institutions and organizations to reorganize themselves into forms, (i.e. ACOs and their subsiadary building blocks), that can accept global payments and effectively manage care. (If they don’t then they will likely find that their global payments aren’t covering their costs, or their quality of care falls behind those who do effectively reorganize their care delivery structures and incentives.)

The Commission uses the term Accountable Care Organizations (ACOs) to describe these types of conglomerations, but each ACO will certainly have its own unique structure derived from the components that were woven together to form it.  (I like to call these Multiform Accountable Care Organizations or MACOs.)

While health reform is often talked about as if it would create the same structures and options across the country, this variety will be good a thing since it will reflect local cultures, as well as the unique characteristics of the local providers, clinicians, payers, and community leaders, and their relationships.

While Massachusetts has been pointed to as a model for national health reform – and the state should be proud of achieving near universal coverage – shifting the health system’s fuel source from volume to quality will be a much more profound achievement with longer lasting implications. After taking significant steps to increase insurance coverage to >97%, payment reform and delivery system transformation are the next logical tandem steps. Nothing else being discussed at the Federal level or in other states would have as sweeping an impact as going to an all-payer global payment system. (Yes, there are Federal and state demonstrations and pilot programs for medical homes and other more focused types of bundled payments, but they are toe-dipping rather than diving-in initiatives.)

Next Steps
The state legislature is expected to start hearings on the Special Commission’s recommendations in September.  At this point the major stakeholders – including insurers, doctors, and hospitals – are supporting the recommendations. Health reform advocates should start paying attention and figuring out how to mobilize support for the legislature to implement these recommendations so that no matter what happens with Federal reform, Massachusetts will be ahead of the curve in taking real steps to bend the spending growth curve. And if there is no Federal legislation this year, Massachusetts will be even farther ahead of the curve and positioned to lead the rest of the nation as well as create a more economically attractive environment for starting businesses and creating jobs – while improving the quality of healthcare.