Cost-controlled health coverage gaining ground

In just three years, a new way of paying for medical care has spread rapidly across Massachusetts, and now more than 1.2 million people are covered by plans that put providers on a budget in an effort to restrain health spending.

This means that about one in five Massachusetts residents are being treated by doctors working under these new cost-conscious arrangements, a Globe survey of insurers found - even before state lawmakers begin debating legislation to address soaring health insurance premiums by, in part, encouraging such plans.

Governor Deval Patrick called on legislators last week, in his State of the Commonwealth address, to eliminate the traditional fee-for-service system that pays health care providers separate fees for every procedure, test, and office visit. House and Senate leaders are working on their own bills intended to control costs.

The state’s four largest health insurers - Blue Cross Blue Shield, Harvard Pilgrim Health Care, Tufts Health Plan, and Fallon Community Health Plan - now have more than 1 million members in employer-sponsored health plans that put doctors at risk of losing money if they exceed the budget for their patients’ care, they said. Providers can earn extra profit if they spend less than budgeted.

Adoption of these “global payment’’ plans is driven by a desire to control soaring health insurance premiums by giving physicians an incentive to be more sparing in their use of expensive procedures, such as sophisticated scans. But it is also motivated by an eagerness to encourage more preventive measures, and that in turn improves care, which often is disorganized as doctors lose track of patients who need follow-up calls, visits, or tests.

“The numbers have grown dramatically,’’ said Marc Spooner, vice president of provider contracting for Tufts, where 70 percent of HMO members are cared for under budgets, compared with 17 percent three years ago. “The plan and providers have collectively recognized we have a responsibility to manage costs.’’

Insurers said at least another 150,000 Medicare and Medicaid recipients are covered under these types of arrangements, with the federal and state government pushing to expand this group.

Some health care executives said the surging popularity of global payment agreements shows that there is no need to give state government the power to reject excessive rate increases for providers, an idea included in Patrick’s proposed legislation and also endorsed by Attorney General Martha Coakley.

“Any legislation that is really focused on regulating prices would miss the point,’’ said Lynn Nicholas, president of the Massachusetts Hospital Association

But others believe that government still must intervene to limit the high prices negotiated by providers that have market clout because of reputation or location.

Last year, an investigation by Coakley’s staff found that such powerful providers, when put on a budget, can simply negotiate larger budgets. In recent days, highly paid Children’s Hospital Boston and Partners HealthCare each have signed onto global payment arrangements for some of their patients, although they have not revealed details.

Dr. JudyAnn Bigby, state secretary of Health and Human Services, said regulators also must guarantee that any money saved by providers and insurers is shared with employers and consumers through lower health insurance premiums.

“The market has begun to move on its own,’’ said Representative Steven Walsh, a Lynn Democrat and cochairman of the Committee on Health Care, who is leading the House effort. “Government can make it move faster.’’

Walsh said the bill he is drafting - he would not say when he plans to file it - will include a robust consumer protection component, as well as a way for the government to intervene if payments to providers are excessive.

Although most patients do not realize their doctors are part of global payment arrangements, many are starting to feel the impact.

Patients are receiving more e-mails and phone calls from doctors and office staff requesting they come in for follow-up visits and preventive care - important strategies for keeping patients healthy and avoiding expensive hospital stays. Physicians also are clamping down on referrals to expensive hospitals and specialists outside their networks, leading to more conversations with patients stressing the benefits of community hospitals.

Typically, providers have billed insurance companies and Medicare and Medicaid for each individual service provided to patients, including office exams, imaging tests, and hospital admissions - with few limits on the number of services. This system encourages doctors to provide more treatment than is necessary, the governor and other critics say.

With global payments, insurers essentially put primary care physicians, and sometimes hospitals, on an annual budget to cover all costs associated with caring for a patient.

This payment covers not just the care provided by the doctor, but also by specialists, labs, imaging centers, therapists, and hospitals.

When doctors keep patients healthy, they get to keep more of the budgeted amount. Contracts vary as to how much doctors stand to lose if they blow their budget, but it is typically 5 percent to 10 percent of their payments from the insurer.

These arrangements are similar to managed care in the 1990s, which drew widespread complaints from patients that doctors were withholding treatments. But modern-day global payments are different, insurers and doctors say, because the budgets are more generous and because providers must also meet quality standards.

Blue Cross, which has the largest number of subscribers in this new system - 629,000 - found that the 6,300 doctors paid this way in 2009 improved care for their patients faster than the 14,200 other doctors in the Blue Cross HMO network.

Doctors working within budgets say their patients seem satisfied, especially with the sharper focus on prevention.

But, they acknowledged, they are having difficult conversations with some patients who want to go to costly specialists and hospitals for care that can be provided in less-expensive settings. Under global payments, primary care doctors prefer to send patients to community hospitals in their networks for bread-and-butter treatment because they can both better coordinate care and save money.

“That’s been a bit of a struggle,’’ said Dr. Leslie Sebba, medical director of the Northeast Physician Hospital Organization, which includes Beverly and Addison Gilbert community hospitals. “No one is taking a hard line with patients but those discussions need to take place.’’

Sebba said the group has cut costs, in part by reducing outside referrals and hospital readmissions, coming in 2.5 percent under budget in 2010.

It is unclear whether global payments have cut costs overall so far. Last week, state regulators approved the most modest premium increases in years for small employers and individuals with plans renewing in April - an average 2.3 percent - but much of those savings could stem from the weak economy, which causes people to put off elective procedures and tests.

“We still have a lot of work to do,’’ said Andrew Dreyfus, chief executive of Blue Cross Blue Shield. “Health care is still very expensive and it’s still a significant burden on employers, families, and government.’’