Insurer Expands Global Payment System in Massachusetts

Commentary by Devon Herrick

Source: The Heartland Institute

Blue Cross Blue Shield in Massachusetts (BCBSMA) is greatly expanding its capitated, also referred to as “global payment,” form of medical reimbursement.

Although this payment arrangement is common for health maintenance organizations, it is not common for preferred provider networks.

Under the traditional system, known as fee-for-service, doctors are paid for every office visit, test, and procedure. Under the new payment system, Blue Cross will essentially pay doctors a set fee. Doctors will profit based on how little care patients use instead of the number they see and volume of services they provide.

The move will cover more than one million health plan members in Massachusetts, making it the biggest rollout of its kind in the state and possibly the nation.


Awaiting Details of Plan

Although BCBSMA is proceeding with the initiative, many doctors are unhappy with the move. Joshua Archambault, a senior fellow at the Foundation for Government Accountability and formerly a senior fellow in health care policy at the Pioneer Institute in Boston, Massachusetts, says BCBSMA has not been very forthcoming with its metrics necessary to judge the merits of the new system and are leaving some very important questions unanswered.

“In Massachusetts, we already have a lot of high-cost providers—big hospital systems, which on average are significantly more expensive—so you don’t want to bake this into the cake when you move to a global payment system,” Archambault said. “We need to know how these providers will control their prices. Will they limit their network or perhaps provide a financial incentive to patients when they find a better value?”

Archambault says every payment system has strengths and weaknesses, but in this one there’s also a fear providers will underprovide services.

“This is something the patient needs to be fully aware of and doctors need to be up front about,” Archambault said.


Smoothing the Rough Edges

Barbara Anthony, a senior fellow in health care at the Pioneer Institute and a senior fellow at Harvard’s Kennedy School of Government in Cambridge, Massachusetts, says the jury is still out on global payment systems because there is simply not enough empirical data to show they work.

“Also, Boston is very hospital-centric, and they tend to overcharge,” Anthony said. “Maybe we need to coordinate care so the right medical hand knows what the left medical hand is doing.”

She suggests making sure care is delivered in the right setting. Boston has a number of teaching and academic hospitals, and community hospitals and clinics in the suburbs feed patients back into the Boston teaching hospitals whenever patients need more than primary care.

“Unfortunately, even if you see a nurse practitioner or a physician assistant, the hospitals still bill everything at M.D. levels, which is very expensive,” Anthony said. “If my kid has a fractured arm, why should he have to go to a teaching and academic hospital? We should be trying to get the patients treated in an appropriate setting, but the devil is always in the details.”


More Power for Insurer

Merrill Matthews, a resident scholar with the Institute for Policy Innovation, says Blue Cross will not release its data because it is proprietary information.

“The whole goal of Blue Cross is to go to a global budget with fixed prices,” Matthews said.

Matthews says there is nothing wrong with a global budget as long as the prices are being set by the provider, but in this case the prices are being set by Blue Cross and the hospitals.

One example of a global payment system that does work is cosmetic surgery, says Matthews.

“They come up with global payments all the time,” Matthews said. “The patient comes in and knows what the cost of a tummy tuck is going to be, the cost of the anesthesiologist if there is one, the cost of the room, etc., and if the patient is not satisfied, they can go down the street and talk to another plastic surgeon if they want to.”

Matthews says BCBSMA and the hospitals are selling ways to manipulate the price, provide the appropriate level of care, and pocket the difference.


Disadvantages Best Specialists

Under this system, providers will want to avoid taking on the most difficult cases because they might exceed their budget treating them and then would be liable for the difference, Matthews says. In effect, global payment systems hurt the best specialists out there.

“For instance, if you were the top specialist, would you want to take on difficult cases under this system?” Matthews said. “It’s very predictable for insurers because they can plan their budgets. In fact, it’s like the old capitated model on steroids, with more incentive to take the patient with the least complicated form of the illness you are treating, or limiting the number of patients you treat, or simply ‘upcoding’ [billing for services they don’t provide].”

Massachusetts was the first place to implement Romneycare and Obamacare, and during the debate over implementation, critics said the insurers would find a way to implement price controls. That’s what they’re doing with these global budgets, Matthews says.

“All we’re seeing here is a way to implement price controls without having to call them price controls,” Matthews said.

Devon M. Herrick, Ph.D. ( is a health economist and senior fellow at the National Center for Policy Analysis.

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