The growth of health care spending is a major concern for households, businesses, and state and federal policymakers.1-3
In response to the continued growth in spending in Massachusetts after health care reform, Blue Cross Blue Shield of Massachusetts (BCBS), the state’s largest commercial payer, implemented the Alternative Quality Contract (AQC) in January 2009.4
The AQC is a contracting model that is based on global payment and pay for performance. It is similar to the two-sided model for accountable care organizations specified by the Centers for Medicare and Medicaid Services (CMS) in its proposed regulations for those organizations.5
Global payment has received attention as an alternative financing mechanism to fee for service, because there is greater opportunity to control total spending with a global-payment approach than with a fee-for-service system.6,7
In July 2009, the members of a Massachusetts state commission voted unanimously to move the state toward global payment within 5 years.8
In contrast to a one-sided, “shared savings” accountable care organization model, in which providers do not bear risk, providers in a global-payment model share in savings if spending is below the prespecified budget but are also accountable for deficits if spending exceeds the budget.9-11
This “downside” risk is a strong incentive for controlling spending.12-14
BCBS implemented the AQC in its health-maintenance-organization (HMO) and point-of-service enrollee population. These plans require enrollees to designate a primary care physician (PCP), a feature that is also found in many patient-centered medical home models.15-19
Currently, the AQC does not extend to enrollees in a preferred-provider organization, since they are not required to designate a PCP. Therefore, when a provider organization enters the AQC, only patients enrolled in its HMO or point-of-service program are included in the contract.
The AQC contains three main features that distinguish it from traditional fee-for-service contracts and from capitation contracts locally and nationally.4
First, physician groups, in some cases together with a hospital, enter into 5-year global budget contracts (rather than 1-year contracts). Baseline budgets and future increases in budgets are based on negotiations with BCBS, but no group was given a 2009 budget that was less than the amount the group spent in 2008. The budget covers the entire continuum of care, including inpatient, outpatient, rehabilitation, and long-term care and prescription drugs. The PCP’s organization is accountable for all enrollee services, regardless of whether the enrollee receives care from the PCP, the PCP’s organization, or any other provider. Since the model currently applies only to patients enrolled in an HMO or point-of-service program, enrollees must seek referrals for care by a specialist, consistent with the benefit designs of those plans. During the year, BCBS pays claims on a fee-for-service basis according to negotiated rates, with reconciliation of the budget at the end of the year.
Second, AQC groups are eligible for pay-for-performance bonuses up to 10% of their budget, with performance measures of ambulatory care and hospital care each contributing to half of the calculation of the bonus (Section 1 in the Supplementary Appendix
, available with the full text of this article at NEJM.org
). The potential bonus is substantially larger than typical bonuses in pay-for-performance programs in the United States. BCBS sets a range of performance thresholds, or “gates,” for each measure at the beginning of the contract, and these gates remain fixed throughout the duration of the contract.4
An annual score that is based on performance is given for each measure. Scores are weighted and aggregated to calculate the amount of the bonus paid to the AQC group.
Third, AQC groups receive technical support from BCBS, including reports on spending, utilization, and quality, to assist them in managing their budget and improving quality. In 2009, a total of 7 physician organizations, comprising 321 PCP practices and more than 4000 physicians in total, began assuming risk under the AQC system for more than 25% of the patients enrolled in a BCBS HMO or point-of-service program. Groups ranged from large physician–hospital organizations to small independent practices united by common leadership. Some AQC groups had prior risk contracts from BCBS, whereas others entered from fee-for-service contracts that did not involve financial risk. As of 2011, the AQC has grown to 12 groups, accounting for 44% of the patients enrolled in a BCBS HMO or point-of-service program. We evaluated the effect of the AQC system on health care spending and on measures of the quality of ambulatory care in 2009.