Tufts Medical Center versus Blue Cross Blue Shield, who blinked?

Boston’s Tufts Medical Center took on the state’s largest insurer in a battle over physician fees.

A resolution to the impasse was recently announced, but the details were not disclosed. According to newspaper reports, Tufts agreed to accept the insurer’s “Alternative Quality Contract,” where instead of being paid fee for service, a fixed amount was paid to doctors per patient. Doctors can earn more “by cutting costs – in part by restricting treatment – and by earning bonuses if they meet targets for better care.”

That sounds suspiciously similar to HMO-style capitation, the system that patients famously rejected in the 1990s because doctors and insurance companies had a financial incentive to withhold treatment. The additional twist this time is that providers are now offered bonuses for meeting quality targets.

It is unknown how much of a pay increase Tufts received, but an estimate from an independent health analyst estimated it was on the order of 20 percent over 3 years, which if true, is marginally more than the 5 percent annual raise that Blue Cross was initially offering.

Although both sides claimed victory, Blue Cross Blue Shield won hands down.

I did not believe that Tufts had the clout (as opposed to Massachusetts General Hospital) to bully the insurer. Had they proceeded with their bluff, their base of patients would have dried up. With the hospital already undergoing financial difficulty, that would have meant possible, imminent bankruptcy.

With a capitation-style contract, doctors may have received an initial, short-term pay raise, but now Blue Cross has better long-term control of physician payments. Previously, few practices accepted the Alternative Quality Contract, and with good reason. Doctors under this contract will now be at the mercy of the insurer, who can control physician payments by simply raising the bar needed to receive quality bonuses, or lowering the threshold to deny payment by withholding care.

If anything, Tufts managed to squeeze out a few percentage points to claim a shallow victory, but by accepting a capitation-based payment system, they lost the war.