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State seeks to revamp way doctors, hospitals are paid (MS)

Massachusetts soon may embark on another bold healthcare experiment, with a state commission poised to recommend this month that insurers radically change how they pay doctors and hospitals.

Commission members said they will urge Governor Deval Patrick and the Legislature to replace the current system, in which insurers typically pay doctors and hospitals a negotiated fee for each individual procedure or visit, with a set payment for each patient that covers all that person’s care for an entire year.

Massachusetts would be the first state to broadly adopt such a system, which would essentially put doctors and hospitals on a budget in an effort to restrain health spending.

A single, yearly fee is intended to discourage doctors and hospitals from providing unneeded tests and treatments, so patients could find it harder to get procedures of questionable benefit. And because doctors and hospitals would have to work together more closely to manage the budget, the hope is they will better coordinate care for patients, which could improve quality.

The "fee-for-service" system "has all the wrong incentives," said Dolores Mitchell, a member of theSpecial Commission on the Health Care Payment System and head of the state employees’ insurance program. "It encourages excessive use and does nothing to discourage waste. People know the system has been dysfunctional for years."

The10-member commission includes administration officials, key legislators, and representatives of hospitals, physicians, and insurers, boosting chances that Massachusetts will overhaul its payment system.

The Patrick administration strongly supports the change. "We need to move forward as quickly as we can," said Leslie Kirwan, the governor’s secretary of Administration and Finance and cochairwoman of the group, "but this is going to take a very thoughtful transition."

Commission members still must work out many challenging and controversial details – such as how quickly to switch systems and how to divide payments among primary care doctors, specialists and hospitals – which could derail the process. The federal government would also have to approve the payment changes for patients covered by the government’s Medicare and Medicaid programs.

Legislators created the commission last year, directing it to identify ways to slow soaring healthcare costs in Massachusetts, where spending is growing by more than 8 percent annually, driven largely by the high price and heavy use of hospitals. The members began meeting in January and said they quickly reached consensus that the best way to do this is for the state to move toward dismantling the fee-for-service system, which Massachusetts private insurers use to pay more than 80 percent of doctors and nearly all hospitals.

The system pushes up costs because it encourages doctors and hospitals to do lots of procedures, and do those that are most profitable, even if they’re not always necessary, according to health policy analysts. In addition, it results in specialists such as surgeons and cardiologists earning substantially more than primary care doctors, contributing to a shortage of these physicians. And it does not reward the type of coordinated care that is best for patients, analysts said. Commission members estimate that a new payment system could slow the growth of healthcare spending to about 5 percent annually.

"Massachusetts has recognized that its cost trends are unsustainable so something has to be done," said Paul Ginsburg, president of the Center for Studying Health System Change, a Washington, D.C.-based policy group. Buthe said the proposed changes are "very ambitious."

The commission’s work partly grows out of the state’s near-universal health insurance mandate, whichis being closely watched as President Obama and Congress draft a similar national health insurance program.The escalating cost of caring for newly insured patients could threatenthe future of the program, making state subsidies for lower-income residents and their out-of-pocket payments too expensive.Employers and workers in the private market also are struggling with soaring costs.

In January, Patrick also started pressuring hospitals and insurers to cooperate on controlling medical costs, following a Globe Spotlight series showing that some hospitals, most significantly Massachusetts General Hospital and Brigham and Women’s Hospital, are paid far more than others for providing similar services. The commission has not yet developed ways to lessen these disparities, but members said they plan to do so.

"Doctors think it’s very unfair to be paid different fees for the same services done at different institutions," said Dr. Alice Coombs, vice president of the Massachusetts Medical Societyand a commission member.

The new payment system the commission expects to recommend has been tried before; it was known as "capitation" when it initially became popular under managed care in the 1980s and early 1990s. The system broke down when many small physician practices lost millions of dollars on very sick patients with high healthcare costs, and amid widespread concern that the system encouraged doctors to deny patients necessary care so they could stay within their budgets.

But commission members said they believe the state can adopt an improved version – called "global" payments – that protects doctors by providing higher yearly payments for very sick patients or those at risk of needing high-cost treatments. The state could also help make available insurance that covers physician practices in the event of large losses. Patients would be protected from doctors’ denying them services, because the new system would monitor the quality of care doctors provide, members said.

It’s also possible the group may recommend keeping fee-for-service payments for certain unusual and expensive specialty services – such as heart transplants or the delivery of triplets – or for one-person doctors’ practices that can’t easily align with a network of specialists and hospitals.

"The devil is in the details," said Dr. James Mongan, president of Partners HealthCare, the state’s largest hospital and physician network, which includes Mass. General and the Brigham. Partners is one of a few systems that are already set up to handle global payments, which would require physician practices and hospitals to form networks to share insurers’ payments and coordinate care.

"Most of the healthcare system is not structured in a way that could really work out a very rational global payment system," Mongan said.

How long it would take to restructure doctors’ practices and hospitals is one of the major points of debate among commission members. Some, like Senator Richard Moore, an Uxbridge Democrat who cochairs the legislature’s committee on healthcare financing, believe the cost problem is urgent and are advocating having a new system in place in three years.

But other commission members who represent providers and insurers say even five years may be impossible, because most doctors and hospitals don’t have the computer systems or provider networks in place yet to fully coordinate care for patients, which would cost millions of dollars.

"These are not excuses not to change the payment system," said Lynn Nicholas, president of the Massachusetts Hospital Association. "These are infrastructure issues that have to be addressed to enable a hospital to be successful. Three to five years is unrealistic."

Members of the Patrick administration said the cost of healthcare is reaching a crisis point.

"There is urgency, but there also is a sense of realism about who can get there when," said Sarah Iselin, statecommissioner of Health Care Finance and Policy and cochairwoman of the payment commission. That the group agreed so quickly that fee-for-service "is not optimal is really encouraging and shows that we have the potential here in Massachusetts to be a model for the rest of the nation on payment reform."

Liz Kowalczyk can be reached at