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Global Payments to Health Providers

Global Payments to Health Providers - Health Cost Containment


Updated October 2014

Cost Containment header


The following NCSL Issue brief has been distributed to legislators and legislative staff across the country.

Global Payments to Health Providers -  PDF File
Colorado Supplement: Global Payments to Health ProvidersPDF File
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Cost Containment Strategy and Logic

A global payment—a fixed prepayment made to a group of providers or a health care system (as opposed to a health care plan)—covers most or all of a patient’s care during a specified time period. Global payments are usually paid monthly per patient over a year, unlike fee-for service, which pays separately for each service (Figure 1). In most cases, a global payment encompasses physician and hospital services, diagnostic tests, prescription drugs and often other services, such as hospice and home health care. Under a global fee arrangement, a large multispecialty physician practice or hospital-physician system receives a global payment from a payer (e.g., health plan, Medicare or Medicaid) for a group of enrollees. It is then responsible for ensuring that enrollees receive all required health services. Global payments usually are adjusted to reflect the health status of the group on whose behalf the payments are made. Entities that receive global payments sometimes are known as accountable care organizations (discussed in a separate brief ) and can include both formally and loosely organized health care systems. Global payment provides an incentive for providers to coordinate and deliver care efficiently and effectively to hold down expenses.

Summary of Health Cost Containment and Efficiency Strategies - Brief #2- Global Payments
 
State/Private Sector Examples  Strategy Description Target of Cost Containment Evidence of Effect on Costs
Massachusetts, PACE programs, Patient Choice Car System,
CMS State Innovation Model (SIM)
A fixed prepayment made to a group of providers or health care system (as opposed to a health care plan) for all care for all conditions for a population of patients. Lack of financial incentives for providers to hold down total care costs for a population of patients.
Inefficient, uncoordinated care.
Insufficient attention to management of chronic conditions.
Need for greater focus on prevention and early diagnosis and treatment.
Research indicates global payments can result in lower costs without affecting quality or access where providers are organized and have the data and systems to manage global payments.

In the NewsReports
  • End to Global Payments a 'Nightmare,' Surgeons Say- November 2014, 
    "The CMS final rule, released with the 2015 Physician Fee Schedule on Oct. 31, 2014 eliminates 10-day global surgical payments as of Jan. 1, 2017 and 90-day global surgical payments on Jan. 1, 2018." Surgeons fear patients with complex comorbidities, whose time in the hospital may be measured in weeks rather than days, will see "a shocking increase" in their bills.

  • Massachusetts, in the past four years, has taken the lead in a broad statewide experiment in cost containment.  Their 2012 health cost law integrates multiple strategies including global payments, with an ambitious goal of limiting total health spending within the boundaries of the state to the rate of inflation. There are several resources and analyses that examine the results so far.
  • Mass. Sees Decline in Use of Alternative Payments, Increase in Overall Health Costs- October 2014 - A C O News
    Massachusetts, where state law specifically encourages value-based provider payment, saw the percentage of state residents covered under alternative payment methodologies (APMs) decline slightly last year as overall costs ran well above the rate of inflation, according to Massachusetts’ annual report on health care spending.

    The trend reflects an overall decline in commercial HMO enrollment more than it does a resurgence in fee-for-service payment, according to the report. But it indicates the difficulty that value-based payment can have gaining a foothold, even in markets where it’s specifically encouraged and supported.  The report from the Massachusetts Center for Health Information and Analysis (CHIA) found that APMs — mainly global payment contracting — accounted for 34% of the commercial market in 2013, compared to 35% in 2012.  “Adoption rates of global payment contracts — contracts in which medical providers assume a portion of the risk of the cost of caring for a patient population — in Massachusetts have been above national adoption rates,” the CHIA report said. “However, proportionately fewer commercial members were enrolled with primary care providers paid under all APMs in 2013 than in 2012.” APMs are used mainly for patient care within HMO-type insurance plans, and the proportion of commercial members enrolled in HMO-type products decreased by 10.8 percentage points between 2010 and 2013. “This trend was concurrent with a slow but continuing shift toward enrollment in self-insured coverage, in which HMO plan designs are used much less regularly than in fully-insured coverage.”

    Of course, not all HMOs involve value-based payment or accountable care, but the state views alternative payment methodologies — almost all HMO-based — as the most effective way to implement and measure value-based payment. For example, Blue Cross Blue Shield of Massachusetts’ Alternative Quality Contract, which has served as a model for ACOs at the national level, currently applies only to providers in the Blues plan’s HMO plans, spokesperson Kathleen Makela tells ABN. The alternative quality contract uses a global budget with a strong quality performance component. Szabo’s analysis of the report shows “continued growth in self-insured accounts, which tend to have PPO designs.” He adds, “contracts like the Blue Cross quality contract are much easier to implement in an HMO.” Until payers develop alternative payment methodology contracts that work well under a PPO umbrella, they’re going to find it more difficult to bend the cost curve substantially, he says.

    The Massachusetts Blues plan “has the biggest market share, so they have a big effect on what happens in the market,” Szabo says. In addition, that insurer is a major player in the administrative services only space, he says. Makela says the insurer plans to expand the alternative quality contract to the PPO market “in the near future.”

    ACOs Proliferate in Massachusetts.  Massachusetts providers remain committed to ACOs and to risk more generally; the major health care systems in Massachusetts “all have some kind of ACO,” Szabo says. At the same time, the smaller providers are considering whether to consolidate with a large health care system or affiliate with other providers to form their own ACO, he says.  The Massachusetts cost control legislation includes benchmarks intended to encourage providers in the state Medicaid program and other programs to move into accountable care.  Specifically, MassHealth, the state’s Medicaid program, must transition 80% of beneficiaries to value-based payment methodologies, including ACOs, by July 1, 2015.

  • State Innovation Model (SIM) Awards Announced. The Center for Medicare and Medicaid Innovation (CMMI) at the Centers for Medicare and Medicaid Services (CMS) announced its selection of states to participate in the State Innovation Model (SIM) Initiative.  Under this initiative, CMMI is providing up to $300 million to 25 states to design and test innovative multi-payer payment and delivery models for Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).   SHADAC is part of a team led by NORC at the University of Chicago that was selected by CMMI to provide consultation and technical assistance to states under the SIM Initiative.  Learn more about individual state awards.  Released March 2013.
  •  Examination of Health Cost Trends and Cost Drivers (Pursuant to G.L. c. 118G, § 6½(b))- Massachusetts Attorneys General Report for Annual Public Meeting, 6/22/11. This report reference the global payment structure in Massachusetts and findings that the Massachusetts system does not cut health care costs.

About this NCSL project


NCSL’s Health Cost Containment and Efficiency Series will describe two dozen alternative policy approaches, with an emphasis on documented and fiscally calculated results. The project is housed at the NCSL Health Program in Denver, Colorado. It is led by Richard Cauchi (Program Director) and Martha King (Group Director) with Barbara Yondorf of Colorado as lead researcher.

NCSL gratefully acknowledges the financial support for this publication series from The Colorado Health Foundation and Rose Community Foundation of Denver, Colorado

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