Leveraging population health management to financial success

In 2007, Blue Cross Blue Shield of Massachusetts asked Lowell General Hospital to accept a monthly capitated payment to care for its HMO members in the Merrimack Valley north of Boston.

Under an arrangement it calls the alternative quality contract (AQC), BCBS, or the Blues, required the Lowell General Physician Hospital Organization to be fully at risk for the cost of delivering care to 25,000 of its HMO members.

Lowell General’s experience shows that when a hospital has a close partnership with its community physicians, and a health plan provides the proper incentives and rewards quality care, the hospitals can manage risk effectively and reap the rewards as well.

When BCBS approached Lowell General with its proposal, Susan Green, Lowell General’s controller at the time, simultaneously saw the potential and recognized the risks involved in moving away from fee-for-service payment. If the LGPHO could control rising costs and achieve the quality goals attached to more than 60 quality metrics BCBS designated, it could earn a bonus worth as much as 10 percent of the total budget. Half of the quality metrics were designed to boost hospital care and half were aimed at improving physician care. BCBS also promised to increase the capitated rate in each of the five years of the contract.

[See also: Can hospitals maintain high quality care while cutting costs?]

Over the next 18 months, the LGPHO reviewed health plan data on past utilization among BCBS’ HMO members, weighing what it would cost to deliver care against how much the hospital could earn. By the end of 2008, the hospital and its physician partners signed the contract. Since it went into effect on Jan. 1, 2009, the LGPHO has thrived while also transforming how care is delivered.

“In hindsight, I’m not sure it could have worked out any better,” said Green, who was named CFO of the 240-bed hospital in September 2009. “If it hadn’t been successful on all fronts, we wouldn’t be starting our second five-year contract this year.” The contract renewal became effective on Jan. 1, 2014.

One key to success was, as Green put, to “max out the quality scores.” The physicians averaged scores of 4.2 out of 5.0, meaning they earned bonuses for delivering high-quality care. “Very few physicians left money on the table,” she said. While Lowell General did not earn a bonus at the full 10 percent level, it got close each year, Green said. And by keeping costs under the capitated payment rate, the LGPHO reaped the savings as well.

While the health plan offered the right incentives, the hospital had to provide the proper infrastructure to support its community physicians. Lowell General gave them the data it had from BCBS and hired support staff to identify patients who needed physician office visits, screening tests or chronic disease care. Also, the hospital hired four support staff for the physicians in the first year of the contract. Since then it has hired 11 more to analyze data, call patients at home and provide case management services.

[See also: Managing the shift from volume to value.]

“We made sure that each physician knew how many patients needed mammograms and how many needed screening colonoscopies. We also knew how many had diabetes and cardiovascular disease,” Green added.

Another key to success was managing referrals closely. “We had to make sure that patients got the best care but didn’t go to any of the more prestigious hospitals in Boston,” Green explained. The hospital outlined to physicians the financial benefits of keeping patients at Lowell General, the lowest cost setting, and BCBS explained the issue to patients.

“In the past, HMOs gave out referrals like nothing,” she added. “But the Blues really worked with us to establish a message that we can treat patients just as well in Lowell as the hospitals do in Boston. In that way, the plan was serving as our partner to keep costs down."