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Alternative Quality Contract in Massachusetts

A new payment model that deserves its own blog post is the Alternative Quality Contract (AQC) pioneered by Blue Cross Blue Shield of Massachusetts in 2009, which is described in detail in this excellent white paper on Blue Cross’s website.

The AQC model can best be summarized as “combin[ing] a global budget for a patient population with significant performance incentives based on nationally accepted quality measures.” An important feature of the model is that participating hospitals and healthcare providers “agree to take responsibility for the full continuum of care received by their patients – including the cost and quality of that care – regardless of where the care is provided.” (Italics mine.) It is currently implemented only for members with HMO coverage, because HMOs require plan members to select a primary care physician.

The AQC model is based on:

  • A global budget (i.e., including primary and specialty care, pharmacy services, hospital care and any ancillary services) adjusted on the health status of the patient group and based on total historical medical expenses and with a predefined growth rate for each year of the five-year contract period,
  • An efficiency opportunity created by financial incentives to carefully allocate available resources, with providers sharing both upside risk (savings) and downside risk (deficits) with the payers [insurers], as computed every year based on the difference between total claims expenses and the global budget,
  • A quality performance incentive that rewards high-quality performance based on nationally agreed-upon measures of care.

A team of researchers from Harvard Medical School, led by Michael Chernew (who pioneered Value-Based Insurance Design, another payment reform model with significant potential), studied the performance of the AQC model in Massachusetts and concluded in a New England Journal of Medicine paper and a Health Affairs follow-up paper that the model had led to 2% slower growth in spending in the first year and 3.3% higher savings than in the rest of the network in the second year. The savings were even more significant for providers that had previously been paid using the fee-for-service model.

It is also valuable to learn about adjustments made to the AQC model after it came into operation. Initially, yearly increases in the budget were made in absolute terms with the goal to bring spending growth in line with general inflation growth at the end of the five years. This, however, meant that complex adjustments had to be incorporated at year-end to address issues outside the providers’ control, such as a pandemic or new government-mandated benefits, which resulted into a lack of visibility throughout the year as to how well the organization was meeting its target. The budget trend targets now “require the group to outperform the general trend by a designated amount.”

Starting in 2011, a group’s share of the savings or deficits generated depends on the size of those savings or deficits, with groups keeping bigger shares of high savings, for instance. Those quality payments are now defined in per-member-per-month terms rather than as a percent of savings so that groups achieving a given level of quality receive the same payment.

The white paper lists the following lessons learned from the AQC experiment:

  • Start with current spending levels, i.e., do not force providers to operate with an initial reduced spending budget.
  • Data is key to supporting change.
  • Long-term contracts encourage long-term investments.
  • Leadership is critical to success due to the sweeping changes in culture involved in implementing the AQC model.
  • Payment systems are most effective when aligned with patient incentives.

The Centers for Medicare and Medicaid Services (CMS) have cited the AQC as the inspiration for its ACO (Accountable Care Organization) Pioneer model, with its “shared-savings global budget tied to quality and patient outcomes.”

The Alternative Quality Contract has also received quite a bit of media coverage, for instance on the blog of Boston's local NPR station WBUR and on the Modern Healthcare website.

For more information about AQC, please refer to this January 2011 Health Affairs paper by Chernew et al, which provides an overview of the model, including a list of the measures involved in quality assessment, and "show how it surmounts hurdles previously encountered with other global-payment models." The authors conclude: "Pairing accountability for spending with accountability for quality,as the Alternative Quality Contract does, seems an important foundation or design principle for the reforms that will be tested in the years ahead."


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