By Alec MacGillis
On the same day that the Congressional Budget Office chief sharply criticized the health care reform plans emerging in Washington for not doing enough to reduce costs, Massachusetts is taking a big and controversial step toward the kind of reform that many believe could actually bend the long-term cost curve.

A commission recommended this afternoon that the state turn away from the traditional "fee for service" model of paying for health care -- piecemeal payments for each procedure delivered. Instead, the commission said, the state should shift toward a system under which health-care providers would receive a sum to care for a given person or family, thereby providing an incentive to deliver care in a cost-effective way.

The long-term goal is to replicate statewide the "accountable care organizations" such as the Mayo Clinic, where providers of all types work together to coordinate a patient's care and, in the process, reduce the need for wasteful treatments.

"Fee-for-service is an idea whose time has come and gone," said commission member Dolores Mitchell, director of the state's Group Insurance Commission, in an interview prior to the report's release. "It no longer serves us well. What it does is provide incentives that focus on volume rather than overall health care."

The state legislature appointed the commission to study ways to reduce health care costs. The legislature is worried that high costs will imperil its path-breaking universal-health-care plan, under which all but 2.5 percent of residents are now covered.

Massachusetts' coverage system has emerged as a national model, with several of its main elements now at the center of universal-coverage proposals proposed in Washington. But the state's reforms have so far done little to restrain costs.

To save money, the state is now considering cutting subsidies to legal immigrants.

And one of Boston's biggest hospitals this week sued the state, alleging that the health reforms are driving it out of business. Boston Medical Center says that the state reduced payments for uninsured patients on the assumption that most patients are now insured -- an assumption that the hospital says is not bearing out.

Despite the pressures to reduce costs, the commission's recommendation -- giving health-care providers financial incentives to join broad networks that would be paid for individuals' care -- will face strong resistance.

The state medical society was quick to criticize the recommendation. Skeptics warn, among other things, about the difficulty of getting the state's many solo or small-group physicians to join in such networks. They warn about the challenge of keeping patients within a given network when many would still demand to be seen by the best out-of-network hospital or physician if they were gravely ill, as well as the challenge of the networks denying costly treatments that patients believe they need, as HMOs were accused of doing in the 1990s. Some providers also worry about whether the new system would adequately adjust the per-patient payments to account for the pre-existing medical needs of low-income and minority patients.

"There are some events for which fee-for-service is the only means of reimbursement," said Alice Coombs, the president-elect of the state medical society. "One size does not fit all."

But proponents of the recommendations say that many of the fears are exaggerated. The networks would differ from the HMOs of old because they would put more emphasis on quality than on simply saving costs, they said. Patient choice would not necessarily be limited to their network's providers.

The networks would in some cases be relatively "virtual," with physicians not having to give up all of their autonomy. The incentives to get physicians to join networks would be financial nudges, not outright requirements. While many networks would presumably put their physicians on salary, they would not be required to do so, and could still compensate them in a more piecemeal way.

Networks would not take on all of the financial risk for patients in their networks -- insurers would still have a role in accepting the risk for some of the bigger, unforseen medical costs, said commission member Sarah Iselin, the state's commissioner for health care finance and policy.

"The intent is to support the delivery system in providing the most efficient care, not to expose providers to the level of risk that will make them unsuccessful," she said.

Reformers in the rest of the country will be watching closely to see what comes of the commission's recommendations. Just as Massachusetts was the first to embark on trying to achieve universal coverage, it is now the first state to seriously grapple with the cost issues that the proposals in Washington are, so far, largely avoiding.

"What makes us unique is that we're in a great position to lead," said Iselin. "Our starting position is that we're starting from a really high quality health care system. If anyone can do it, we can."

By Post Editor  |  July 16, 2009; 4:38 PM ET
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