The Massachusetts health care industry’s traditional system of paying doctors for every office visit, test, and procedure may be nearing its end.
The state’s largest health insurer, Blue Cross Blue Shield of Massachusetts, will vastly expand its system that pays doctors based on how well they care for patients — not just for the number they see and volume of services they provide. The move will extend the quality-based system to more than 1 million health plan members, making it the biggest initiative of its kind in the state and probably the country.
The move by Blue Cross, which controls 40 percent of the state’s commercial insurance market, should hasten the decline of the way American doctors have been paid for decades, analysts said. The traditional model, known as fee-for-service, encourages unneeded care and drives up costs, without necessarily improving patient health, most industry specialists agree.
“This is definitely a new phase,” Blue Cross chief executive Andrew Dreyfus said in an interview. “It’s a very important signal to the community and to the market that we want to continue to advance payment reform, promote accountability for quality and costs, and continue to move away from the fee-for-service system.”
Blue Cross will essentially pay doctors a set amount to care for their patients but payments will ultimately be tied to how well doctors and hospitals score on a variety of quality measures.
For consumers, the change will mean more coordinated care and management, such as follow-up visits by home aides after surgery and phone calls to make sure patients take their medicine.
Performance-based systems are expected to be widely adopted as state and federal health care laws pressure providers to lower expenses.
Since 2009, Blue Cross has offered a plan called the Alternative Quality Contract, which gives doctors a set budget to care for patients, rewards them when they meet certain health care quality benchmarks, and penalizes them when quality scores are lower.
The plan has gained popularity over time and now serves 680,000 members.
But it applies only to patients in health maintenance organizations, which already require patient care to be managed through primary care physicians.
Studies show the contract has slowed spending growth while improving the quality of patient care.
Blue Cross’s new pay-for-performance initiative is designed for 615,000 patients in preferred provider organization plans, which give patients more choice of doctors.
Blue Cross sent a letter this week to doctors and hospitals urging them to adopt the new plan.
State health officials have encouraged insurers to develop new payment plans for the PPO market — especially since these plans are gaining in popularity.
“This is great,” said Stuart Altman, chairman of the state Health Policy Commission, which monitors health care costs.
“This is what the Health Policy Commission and other health analysts have been pushing for years,” he added.
Other health insurers are also developing new payment plans for PPO members. Watertown-based Tufts Health Plan has a version of such a plan, covering about 28,000 government employees.
Payment reform has gained steam nationally.
Two dozen health care providers and insurers launched a task force in January and vowed to commit 75 percent of their businesses to value-based contracts by the end of the decade.
And Medicare, the insurance program for seniors, said it will shift half of its payments to new models by 2018.
Thousands of Medicare patients are already part of alternative contracts in what are known as accountable care organizations, which receive incentives for keeping patients healthy. The accountable care organization affiliated with Beth Israel Deaconess Medical Center, for example, said it saved $17 million while improving quality in 2013, making it one of the most successful such programs in the country.
The new contract from Blue Cross, said Christina Severin, chief executive of the Beth Israel Deaconess Care Organization, is a continuation of the same strategy. “We have demonstrated our success in this area,” she said.
For now, traditional fee-for-service medicine remains the norm, accounting for 66 percent of the Massachusetts market, according to state data. But health care providers say they expect those numbers to go down as more insurers adopt performance-based contracts.
They say they already coordinate care for many patients and moving to a single payment system that rewards quality of care will simplify their business model over time.
“It’s difficult when you have multiple payment systems operating at the same time,” said Dr. Timothy Ferris, senior vice president of population health management at Partners HealthCare.
Many health care leaders welcomed Blue Cross’s effort to ditch fee-for-service medicine, but said the success of the new payment system hinges on the insurer’s use of accurate data. In PPO plans, patients don’t have to choose a primary care physician, so Blue Cross will use claims data to determine which doctors will manage their care.
“The details of these contracts really matter,” said Dr. Michael D. Cantor, chief medical officer of the New England Quality Care Alliance, a doctors group affiliated with Tufts Medical Center. “Unless we pay close attention to them and get them right, it jeopardizes our ability to do this for everybody.”