Children’s Hospital in Boston to start global payment strategy

From WBUR:

Children’s Hospital Boston has a new three year deal with Blue Cross Blue Shield that holds rates flat this year.  In the second and third years, Blue Cross says the increases will be less than general inflation, which has been around 2%.


Beyond the savings, Fenwick says this contract is a milestone because it moves Children’s into the Blue Cross Blue Shield global payment plan (the Alternative Quality Contract/AQC).  “We’re going to be taking risk for managing the care of our patients,” says Fenwick, “we’re going to be held accountable for the quality, and it really is in line with policy changes that the whole country is going to be watching.”

Blue Cross CEO Andrew Dreyfus also calls this contract a milestone, but for a different reason.  Dreyfus recalls sitting in meetings several years ago about moving to global payments and hearing “a lot of skepticism about whether global payments could work in a specialty hospital like Children’s. I think we’re answering the question that it can work in a way that both improves quality and lowers cost.”

Well, it hasn’t worked yet.  I think that remains to be seen.

Before I proceed in describing my reaction to this, I would pause to clarify what a “global payment plan” is.  (I’ve done so in a previous post, but it bears repeating.)  Instead of a fee-for-service model, in which BCBS would pay a certain amount for doctor’s visits, medical tests and treatments, in a global payment model BCBS pays a certain amount of money that is mean to cover all the costs of care for its customers who receive care at Children’s Hospital.  If Children’s can stay within budget and keep costs low, whatever remains is theirs to keep.  If their costs exceed the payment, they assume that risk themselves.

My first reaction to this is to simply note that it was inevitable.  The fee-for-service model is on its last legs, and there is little hope of its being revived.  The global payment model has been on the horizon for a while, and it appears that Children’s wants to be ahead of the curve.  Frankly, I think that’s a smart strategy.  By being the first children’s hospital to make this kind of arrangement, CHB can take a more proactive role in determining how the model is more broadly adopted.

Further, an institution like CHB is well-positioned to make this kind of change.  As a premier research and teaching hospital, changing the way things there are done in light of emerging information is part of its DNA, as is being on the forefront of calling for the changes themselves.  I also suspect that its research funding and status as a major charity will provide something of a buffer against too much risk.

Frankly, hospitals like CHB can be a significant source of healthcare expenditures.  It is packed to the gills with sub-specialists.  It has every test, scanner or device you could possibly imagine readily available.  Any lab you want or consultation you think might be helpful is a mouse click or page away.  Paying closer attention to how these things might be unnecessary and contribute to useless cost overruns is especially important at a medical center of its ilk, so I commend it for taking this step.  An additional aspect of the global payment deal will be more attention on improving various quality measures, which seems a good idea (at least in theory).

With all of that being said, I have one minor hesitation in raising a mighty cheer.  It’s one thing for a massive institution like Children’s Hospital Boston, with multiple funding streams and (one presumes) a sizable endowment to adopt a global payment strategy.  It’s another thing entirely for a smaller, far less wealthy hospital to do it, and another thing still for a private practice to do so.  I have no doubt that my practice will be looking at similar changes at some point, and we won’t enjoy the same resources as CHB in weathering the transition.  As a physician, I’m intrigued by how this all will go, and how medical care may be streamlined and made less costly, a change that’s been long in coming.  As a small business owner, I’m a little less sanguine.

[Full disclosure:  I toyed with what, if anything to say about this, but decided it was a big enough deal that I should discuss it.  However, intellectual honesty demands that I reveal that I am on staff at Children’s Hospital and have an academic appointment there as well.  I am not an employee and I have no direct financial relationship with it, nor do I have any detailed inside knowledge of its finances.  While I did receive a widely-disseminated e-mail about this deal as part of the medical staff, it did not contain much more information than is publicly available and nothing of particular import for this post.  Nothing I say in either this post, or anywhere else on this blog reflects anything other than my own personal opinion, and in no way comprises an official statement or opinion from Children’s or any affiliated entity.]

Russell Saunders

Russell Saunders is the ridiculously flimsy pseudonym of a pediatrician in New England. He has a husband, three sons, daughter, cat and dog, though not in that order. He enjoys reading, running and cooking. He can be contacted at blindeddoc using his Gmail account. Twitter types can follow him @russellsaunder1.

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