Docs' Pay Reexamined

As Senators get ready to debate health reform this week, they should take a look at what a Blue Cross plan in Massachusetts is doing to control costs.

Blue Cross and Blue Shield of Massachusetts announced an agreement Friday with Caritas Christi Health Care, a Boston-based chain of six hospitals, to pay doctors based on the cost of patient care rather than for each service performed. The five-year agreement covers 1,100 doctors who treat about 60,000 members of the Massachusetts Blues plan.

Changing physicians' payment structure is an idea championed by a number of people who study health care costs. The current system encourages doctors to order medical tests and perform procedures that may not be necessary, critics say.

"If we compensate doctors appropriately, the risk is shifted to them," Russ Nash, global managing director for the health industry at Accenture Ltd., told me in a recent interview. "Without the payment reform, we'll make improvements, but we won't have the same level of change and impact."

Massachusetts passed universal health care in 2006. While it extended insurance coverage to more people, health care costs continue to rise. In July, a state commission recommended restructuring the fee-for-service system. Doctors and hospitals should be paid based on the cost and quality of patient care, according to the report.

"Fee-for-service payment rewards service volume rather than outcomes and efficiency," the report says.

Tinkering with doctors' pay structure is an idea that has caught the attention of some big employers. UnitedHealth Group Inc., for instance, is testing it with a group of doctors in Arizona at the urging of International Business Machines Corp.