Renegotiating Reimbursement: Good Policy or Good PR?

Yesterday Partners Health Care, Massachusetts largest health system, voluntarily disposed of its current contract with Tufts Health Plan and renegotiated a new four year agreement that is expected to lower the health reimbursements they receive by about $105 million dollars over the next four years.

This is significant.  In a conversation I had with a Partners executive two months ago he shared that the Partners negotiating team often leaves their contract meetings with groups like Tufts feeling "proud" of the deals they are able to strike with health insurers.  My impression was that Partners, with the largest market share of any hospital system in Massachusetts, knows it can throw its weight around and does quite willingly.

Not any more.  Partners' decision to rework its contract with Tufts, following a similar renegotiation last year with Blue Cross Blue Shield that is estimated to save $240 million dollars, was likely due to the following.

• Altruism: although not likely the biggest factor, Partners CEO Gary Gotlieb did state that one reason for accepting smaller increases in reimbursements going forward is the growing burden of health care costs on families and businesses.
• Government pressure: the political environment in Massachusetts, and in many areas of the country, is such that all hospitals understand that costs must be cut voluntarily or else the government is likely to do it for them.  With Massachusetts congress toying with rate setting as a way to control out of control medical costs, hospitals would rather be a part of a pre-emptive solution.
• ACOs: Partners was recently announced as one of 32 Pioneer ACOs set to begin this year.  As part of the agreement, ACOs commit to generating at least 50% of their revenue from business models similar to that of the Pioneer Medicare program.  This can only be accomplished through agreements with insurers, employer health plans, and/or Medicaid (called "Participation of Other Payers" in the CMS Pioneer ACO Fact Sheet).  As part of Partners' new agreement with Tufts, approximately 70% of the patients in the plan will now be reimbursed via a global payment structure, shifting significant risk to Partners and forcing them to find ways to contain costs for all their patients, not only the Medicare population.  This is exactly the goal of the ACO, and to the extent that Partners' participation in the Pioneer program is influencing this new agreement with Tufts, the ACO model is succeeding.

Whatever the reasons, I applaud any move by hospital systems to voluntarily forego future payment.  Additionally, I applaud any move toward global payments and the taking on of risk by hospital and physician groups.  However, scale must always be kept in perspective.  While $105 million dollars is no small amount, with an annual budget of over $8 billion dollars and capital expenses totaling $3.2 billion dollars over 5 years, it doesn't seem like so much.  Additionally, there has been little talk of where the $105 million dollars in "cuts" to Partners bottom line will come from.  The hope is that money will be saved through care coordination and a focus on the high utilizers or perhaps a reduction in capital investments year over year.  I imagine that if savings do not materialize, however, chronically underfunded mental health and substance abuse programs will instead be on the chopping block, and this would be an unwelcome result.

Despite my significant skepticism of the hospital market environment in Massachusetts and at the risk of being duped by what may turn out to be simply a PR move, I am encouraged that, whether it be altruism, the political environment, government policies, the market at work, or some combination of these, the system appears to be working.  At least for today.