Global Payments to Health Providers - Health Cost Containment


Updated March 2017

Cost Containment header


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

Global Payments to Health Providers -  PDF File

Colorado Supplement: Global Payments to Health ProvidersPDF File  | To read portable document format (.pdf) files, use  Adobe Acrobat Reader.

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)

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Vermont - "All Payer Model"- 2016

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
  • Taming Health Care Spending: Could State Rate Setting Work?-   
    "For more than three and a half decades health care expenditures in the United States have grown at a much higher rate than those in other wealthy nations..... State rate setting in the United States, when properly designed and implemented, has a strong track record, particularly in Maryland. Rate setting works because it consolidates the demand-side, thereby enabling the assertion of collective bargaining power and control of expenditures. Properly designed, rate setting can control health care prices and the volume and intensity of services."
    Posted in Health Affairs by David Frankford and Sara RosenbaumMarch 20, 2017

  • 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 five 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.
  • Performance of the Massachusetts Health Care System Series: Adoption of Alternative Payment Methods in Massachusetts, 2012-2013. Report, 8 pp, PDF by the Center for Health Information and Analysis (CHIA)  To monitor the adoption of APMs, CHIA has collected two years (calendar years 2012and 2013) of APM data from 13 commercial payers. January 2015.
  • 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.

VERMONT: 2016 NEW ‘ALL PAYER MODEL’ PROPOSED BY GOV. SHUMLIN TO SHIFT HEALTH CARE SYSTEM

Vermont Governor Peter Shumlin announced the state wants to transform its health care system under the All Payer Model. According to the governor’s office, the All Payer Model moves away from fee-for-service and toward quality-based care that focuses on keeping Vermonters healthy. The model changes three main payers of healthcare in Vermont including Medicaid, Medicare, and private insurance, to pay doctors and hospitals differently than they do today. The governor’s office says instead of paying for each test or procedure, doctors and hospitals will receive a set of payment for each patient attributed to them. “For Vermonters, our innovation will mean not only a health care system that is more affordable but one that better meets their needs,” Gov. Shumlin said. “We will restore the family physician’s rightful place in Vermonters lives, ensuring they have someone to turn to when they get sick and a partner in keeping them healthy.”
       Vermonters will still be able to see the doctor or healthcare provider of their choice. Vermonters on Medicaid and Medicare will not see any changes to their benefits. The state is currently finalizing negotiations of the terms of the All Payer Model with the federal government. If approved, Vermont will become the first state to adopt this model.

About this NCSL project


NCSL’s Health Cost Containment and Efficiency Series describes 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. Ashley Noble (Policy Specialist) joined the research effort in 2014.

NCSL gratefully acknowledges the financial support for this publication series from 2009-2011 by The Colorado Health Foundation and Rose Community Foundation of Denver, Colorado