Fairview Health Services: Fairview Health Services in Minnesota is currently working with
Target, 3M, and other large, self-insured employers to develop flat fee "care packages" around
specific chronic conditions, such as diabetes and asthma. Employers and patients can use
online tools to purchase a package that best fits their needs.
Blue Cross Blue Shield of Massachusetts (BCBSMA): The Alternative QUALITY Contract
(AQC): In 2009, BCBSMA introduced the AQC to provider and hospital groups in
Massachusetts. As of November, 2009, 20 percent of the BCBSMA provider network had
signed on to the AQC. The AQC is a global payment system tied to nationally accepted
measures of quality. The payment rate is set for all services and costs associated with a
patient’s care, is risk-adjusted for patients’ health status, sex, and age, and is updated annually
for inflation. The AQC is the most comprehensive bundled payment model to date because it
covers all conditions that a BCBSMA member may present with, includes all services that the
member may require across the continuum of care, and rates performance based on a detailed
list of process, outcome, and patient experience measures. The contract also includes a pay for
performance component where providers are eligible for an additional 10 percent of total
payment if they meet certain quality benchmarks.
1. Bundled payment could potentially reduce spending on an episode of care, so payers,
providers, and patients may benefit.
Cost reduction and quality improvement in the bundled payment system results from several
factors such as provider adherence to guidelines (ProvenCare), elimination of waste and
utilization reduction (Heart Bypass Center Demonstration), and physician-hospital alignment.
However, it is still unclear which of these factors has the greatest impact on cost reduction and
quality improvement. During the five-year Heart Bypass Center Demonstration, Medicare saved
$42.3 million, or roughly 10 percent on CABG surgery at the seven participating hospitals,
compared to expected spending. Eighty-six percent of the savings came from negotiated
discount rates for patient services. The hospital negotiated rates applied to four physician
specialties involved in bypass admission: surgeons, anesthesiologists, cardiologists, and
radiologists, in addition to the allowable Medicare payment for consulting physicians. In addition
to savings to Medicare, three of the four hospitals initially included in the demonstration
experienced an average cost reduction of 2 to 23 percent by changing physician care practices
and hospital processes (Bertko and Effros 2010). Specifically, the cost reductions were
attributed to reduction in nursing intensive care unit hours, thus resulting in fewer nursing days
per patient, reduced pharmacy cost from generic drug substitutions, and efficient use of the
catheter lab. All four original hospitals included in the demonstration enjoyed profits.
Beneficiaries saved $7.9 million in coinsurance payments (Cromwell et al. 1997).
The fixed price for CABG under Geisinger’s ProvenCare was set at the cost of a typical
hospitalization plus 50 percent of the average cost of post-acute care over 90 days. An
evaluation of the program found that hospital costs dropped 5 percent (Casale et al. 2007).
Average length of stay (LOS) for CABG fell by 0.5 days, and the 30-day readmission rate fell 44
percent over 18 months.
