Children’s, Blue Cross deal curbs payments

Insurer will have no cost increase this year; global payments included

Children’s Hospital Boston has agreed to a three-year contract with Blue Cross Blue Shield of Massachusetts that will not pay Children’s any more money this year, offering fresh evidence that the clamor to contain health costs is having an effect.

In the second and third years of the pact, the hospital will be reimbursed by Blue Cross Blue Shield at a rate neither party would specify, but both said it was below the current 3 percent rate of medical inflation.

Perhaps most important, Children’s and its doctors groups will accept global payments for the first time, meaning they will be given a budget for patients’ care rather than billing for each visit and procedure.


“The contract is completely aligned with our aggressive and comprehensive efforts to take costs out of the system, while also improving quality,’’ said Children’s president Sandra Fenwick. She said the hospital has cut costs by $125 million since 2009 by reducing the prices of some services, reopening contracts with insurers, and better coordinating services between specialists and referring doctors.

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Harvard-affiliated Children’s has been cited in reports by the state attorney general’s office as one of the highest paid health care providers in Massachusetts, though it has argued that the pediatric care it specializes in is more expensive than some other medical services. Under the new Blue Cross Blue Shield global payment contract, the hospital’s financial success will be determined not by patient volume, but by its ability to meet a series of performance and quality measures.

Until recently, it was thought unlikely that specialty providers such as Children’s, a 395-bed teaching hospital that is a national leader in pediatric research and training, would join the new global payment plans being offered by insurers. Executives from some specialty hospitals had protested that the criteria used by insurance companies to reward health care providers were heavily weighted toward adult care.

The parties were able to overcome that obstacle in the new pact by modifying the insurer’s “alternative quality contract’’ to include measures for clinical outcomes more relevant to pediatric care. For instance, the hospital and doctors will be gauged on how well they help young cystic fibrosis patients maintain good lung function and on how they prevent complications after appendectomies.

Fenwick said the deal makes Children’s the first pediatric hospital in the nation to take global payments instead of traditional fee-for-service reimbursements. The contract also covers the Children’s Physicians Organization, made up of 959 specialists, and the Pediatric Physician Organization at Children’s, which includes 279 primary care doctors.


“Children’s participation, to me, marks a very significant development in the move to payment reform in Massachusetts,’’ said Andrew Dreyfus, chief executive of Boston-based Blue Cross Blue Shield, the state’s largest health insurer. “This particular contract will be studied by other pediatric hospitals across the country.’’

The pact is the second contract the insurer has concluded in recent months that will shift some of the state’s highest paid academic medical centers to global payments. In October, it reached agreement with Partners HealthCare System Inc., which operates Massachusetts General and Brigham and Women’s hospitals. Those Harvard teaching hospitals will receive payment increases of between 2 and 3 percent over the next three years.

Blue Cross Blue Shield officials have cited studies suggesting their alternative quality contract is achieving its goals of improving care and slowing cost increases. Among other things, the studies found that medical spending was almost 2 percent lower for hospitals and doctors taking global payments than for those in fee-for-service contracts.

But it may be too soon to say whether the gains from global payments and more modest increases in the recent contracts can save money for the health care system long term, said Josh Archambault, director of health care policy for the Pioneer Institute in Boston, a public policy research group.

“It’s really hard to know because of all the factors in play,’’ Archambault said. “You have a slow economy, so folks are a little reluctant to get medical care. You also have all these organizations looking over their shoulders. They’re fearful that the state is going to be very aggressive in setting prices, so they want to look like they’re doing something.’’


Nonetheless, the Children’s contract is likely to give further momentum to the push toward global payments, putting new pressure on other academic medical centers with which Blue Cross Blue Shield and other health plans are negotiating. “This is becoming the principal way we contract with hospitals and physicians,’’ Dreyfus said.

The campaign to control health care costs is also starting to be reflected in the premiums insurers charge to small businesses and individuals. Last week, the state Division of Insurance approved premium increases averaging 2.3 percent for policies covering hundreds of thousands of residents, the most modest hikes in at least a decade.

Robert Weisman can be reached at