7 health care providers agree to Blue Cross Blue Shield of Michigan cost targets

Dec. 12--Seeking to rein in health care costs, insurance giant Blue Cross Blue Shield of Michigan announced Wednesday that it has reached new payment contracts with seven southeast Michigan hospitals or physicians groups that must start hitting annual cost targets next year or pay penalties.

The new payment model, called "Blueprint for Affordability," begins in January and will affect roughly 30% of the Blues' total Commercial PPO and Medicare Advantage products, covering $4 billion in yearly health care spending.

Under the new "risk-based" contracts, the seven health care providers agreed to annual cost targets and must pay rebates to Blue Cross for whatever amount they spend beyond the target. If their costs come in below target, Blue Cross will pay that provider a reward.

Blue Cross leaders described the contracts as another step toward a more holistic, value-based model of health care delivery and away from the fee-for-service model. This new model will also be better for patients, they said, and will be an incentive for doctors to focus more on preventing expensive illnesses or ER visits.

"Hospitalization costs should go down, emergency visits should go down, so everybody wins in this," said Dr. Jerome Frankel, chief medical director of Oakland Southfield Physicians, which is a participating provider. "And on top of that, even the insurance company does better because hopefully they would be paying less out."

The seven health care providers are:

-- Ascension Michigan

-- Henry Ford Health System

-- University of Michigan hospital system (Michigan Medicine)

-- Oakland Southfield Physicians

-- The Physician Alliance

-- Trinity Health -- Michigan

-- United Physicians

A Blue Cross representative wouldn't say whether the insurer has pitched the idea to Beaumont Health or the Detroit Medical Center.

"Health systems and physician organizations that sign risk-sharing contracts will be reimbursed according to how well they manage the health outcomes and total cost of care they provide to their patients," Blue Cross CEO Daniel Loepp said in a statement.

"They will realize the financial rewards of success and assume some portion of the financial risk for cost overruns," he added. "I'm confident that each of the partner organizations standing with us today has the expertise, talent and dedication to be successful."

The contracts are expected to save money, although there is no estimate yet for precisely how much they could save, Stephen Carrier, a senior vice president with Blue Cross, told reporters Wednesday.

Carrier said there are potential financial upsides for the seven providers, so long as they hit or exceed their cost targets.

"So there is an aspect where providers can make more money by coming in within the cost target," he said.

Dr. Michael Williams, president and CEO of United Physicians, said the new payment model offers an incentive for doctors to be even more proactive regarding their patients' overall health.

"I can't wait for someone to come to my office and ask for a flu shot," Williams said. "In the new world, I need to find the people who are at risk for the flu, bring them into the office, give them a vaccine. Prevention of one emergency visit or hospitalization will save significant dollars."

A study published earlier this yearby the nonprofit RAND Corp. found that runaway health care price inflation is not a problem in Michigan, unlike in some states, and that Michigan already has some of the nation's lowest hospital costs.

The Blues' dominance in Michigan allows it to extract deeper discounts from hospitals than some insurers in other states, the study found.

Contact JC Reindlat 313-222-6631 or [email protected]. Follow him on Twitter@jcreindl. Read more on business and sign up for our business newsletter.

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