To some, a 75-year-old health insurance company might be an unlikely wellspring of innovation.

But Blue Cross Blue Shield of Massachusetts is defying stereotypes by pioneering new ways to partner with members and providers to improve quality and lower costs of care.

Organizations have to experiment more and learn to get from planning to doing more quickly.

All eyes have been on the Boston-based not-for-profit insurer since 2009 when it rolled out its payment reform initiative: the Alternative Quality Contract (AQC). These contracts provide a population-based global budget coupled with substantial financial incentives based on performance measures to improve quality and lower costs.

Today, the AQC is one of the largest commercial payment reform initiatives in the nation, with 19 provider organizations, 85% of in-state primary care providers and 89% of specialists participating. Combined, these providers treat about 86% of the insurer’s in-state HMO population, or almost 800,000 members.

In AQC arrangements, medical groups or health systems agree to a five-year contract under which they receive a global budget for all their HMO Blue members and are accountable for managing the cost and quality of care across the full continuum (primary, specialty, hospital, pharmacy and ancillary services) for their patient population.

At the end of each contract year, total claims are reconciled against the global budget to determine a surplus or deficit. Providers can earn additional revenue based on how well they perform against widely accepted performance measures.

Tying Share of the Profit to Improvements in Care

Somewhat unique to the AQC is the way that providers’ share of the surplus or deficit is tied to quality. The contract’s quality measure set includes 64 measures, among them clinical performance, outcomes and patient care experiences. For each measure, a range of performance targets (“gates”) is defined to reward good-to-exceptional care.

In addition to payment for quality performance, the quality “gate” score also determines the AQC provider’s share of surplus or deficit each year. Higher quality scores are advantageous in either case—translating into a higher share of surplus retained by the provider or a smaller share of deficit owed if the budget is overspent.

The AQC appears to be working—both reducing spending growth and improving quality and health outcomes. In the second year of the AQC program, spending growth among AQC groups was 3.3% less than non-AQC providers in the Blues plan’s HMO network.

Savings were higher among AQC providers with traditional fee-for-service contracts prior to the AQC—with these providers achieving first-year savings of 6.3% and second-year savings of 10%, according to an analysis by Harvard Medical School researchers.

Lisa Whittemore, vice president, performance network improvement, at Blue Cross Blue Shield of Massachusetts, says a large part of the AQC’s success is the transparent sharing of data and lessons learned along the way.

“By significantly changing the incentives and marrying this with meaningful support for improvement, we see real change happening in the delivery system,” Whittemore says. “For example, accountability for outcomes has driven some important new approaches to engaging patients and integrating care across settings.”

Data Analytics, Sharing Are Keys to Program Success

One way Blue Cross Blue Shield of Massachusetts is changing the conversation is by giving providers a 360-degree view of patient care—a full claims data set every month, along with a great deal of additional information to help them be successful, Whittemore says.

For instance, the insurer generates more than 60 reports on all areas of quality, efficiency and trends. The insurer also provides apples-to-apples comparisons to show peer performance. One report measures the total medical expenses of each group and the entire network against one another, accounting for the health status of populations.

The insurer hosts collaborative events and other networking opportunities, including user groups for case managers and regional dinners where AQC participants are invited to share what they’ve learned so far in a relaxed setting.

Blue Cross Blue Shield of Massachusetts is planning to expand payment reform into its preferred provider organization (PPO) platform, leveraging lessons from the AQC.

Many things are different about PPO, including the fact that members are not required to formally designate a primary care provider, so BCBSMA will use a validated claims-based algorithm to attribute members. This method is similar to what the Centers for Medicare and Medicaid (CMS) has done in its Medicare Pioneer and Shared Savings programs.

State Reform Policy Drives Need to Innovate

Invention is often the product of necessity, and that’s true of the AQC, which launched in the wake of the 2006 Massachusetts universal healthcare law.

“We knew that Massachusetts spends more on healthcare than any other state in the country,” Whittemore says. “And leading up to the launch of the AQC in 2009, the state saw many years of double-digit medical spending growth trends. We knew that we were going to have to figure out some way to get that spending growth in hand. We wanted to make sure that we were not only addressing the cost issue but improving quality and outcomes at the same time.”

Sustaining the AQC over the long term will require further innovation. AQC providers have shown enormous leadership and inventiveness in identifying ways to continue to meaningfully improve patient care while reducing medical spending growth.

In fact, results of the HMS evaluation indicate that AQC groups’ ability to find savings and efficiencies accelerates and deepens over these multi-year contracts explains Whittemore, who formerly worked in primary care at Brigham and Women’s Hospital in Boston.

Whittemore is not naïve, though, to the challenges on the front line. From her old life of running primary care practices, she knows about burnout among primary care doctors and is looking for ways that the performance improvement support program that she now oversees can help.

“With the right leadership and practice models, payment reform should be helping primary care doctors get off the fee-for-service treadmill and find some joy in patient care again. As we innovate by trying new staffing models, engaging patients differently and working to improve adherence, we are able to change the model of care in a meaningful way. These delivery system changes are not as ‘high stakes’ as clinical decision making and can improve the lives of the people for whom we care.”

Innovator Insight: Healthcare leaders must create a workplace culture in which it’s OK to experiment and fail. Innovation often stalls because people are hesitant to try something new due to the remote chance that it may not work or work perfectly. They over-engineer and over plan and over think. It’s better to try more, plan less and be willing to improve on an idea if it doesn’t work perfectly the first time.