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Background In 2009, Blue Cross Blue Shield of Massachusetts (BCBS) implemented a global payment system called the Alternative Quality Contract (AQC). Provider groups in the AQC system assume accountability for spending, similar to accountable care organizations that bear financial risk. Moreover, groups are eligible to receive bonuses for quality. Methods Seven provider organizations began 5-year contracts as part of the AQC system in 2009. We analyzed 2006–2009 claims for 380,142 enrollees whose primary care physicians (PCPs) were in the AQC system (intervention group) and for 1,351,446 enrollees whose PCPs were not in the system (control group). We used a propensity-weighted difference-in-differences approach, adjusting for age, sex, health status, and secular trends to isolate the treatment effect of the AQC in comparisons of spending and quality between the intervention group and the control group. Results Average spending increased for enrollees in both the intervention and control groups in 2009, but the increase was smaller for enrollees in the intervention group — $15.51 (1.9%) less per quarter (P = 0.007). Savings derived largely from shifts in outpatient care toward facilities with lower fees; from lower expenditures for procedures, imaging, and testing; and from a reduction in spending for enrollees with the highest expected spending. The AQC system was associated with an improvement in performance on measures of the quality of the management of chronic conditions in adults (P<0.001) and of pediatric care (P = 0.001), but not of adult preventive care. All AQC groups met 2009 budget targets and earned surpluses. Total BCBS payments to AQC groups, including bonuses for quality, are likely to have exceeded the estimated savings in year 1. Conclusions The AQC system was associated with a modest slowing of spending growth and improved quality of care in 2009. Savings were achieved through changes in referral patterns rather than through changes in utilization. The long-term effect of the AQC system on spending growth depends on future budget targets and providers’ ability to further improve efficiencies in practice. (Funded by the Commonwealth Fund and others.)

T he central institutional feature in health markets is that the price paid by insured consumers when health care services are demanded can be set separately from the price paid to providers when services are supplied. This fact suggests two alternate strategies for controlling the costs of health care: demand-side cost sharing, where patients must pay more in co-payments or deductibles, and supply-side cost sharing, which seeks to alter the incentives of health care workers to provide certain services.In broad terms, any health care financing system has three goals: protect consumers against the financial risk of health expenditures; promote efficient levels and types of health care services; and to be fair to consumers and providers (however fairness is defined). We review the rationale, limits, and comparative advantage of demand-and supply-side cost sharing in health care while primarily focusing on the short-run pursuit of the first two goals. We then turn briefly to the long-run issue of technology adoption, as well as the how supply-and demand-side cost sharing may affect the fairness of the health system.When this paper was completed in July 1993, specific details of the proposed Clinton health care reforms had not yet been released. General features that have been leaked suggest that the reform proposal will include a mandated minimum benefit package; elimination of insurance exclusions based on preexisting conditions; a reliance upon competition between health plans ("managed competition") to contain costs; mandatory employer participation in the health insurance system; and guaranteed access to health insurance pools

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This paper re-examines the relation between the predictability of health care spending and incentives due to adverse selection. Within an explicit model of health plan decisions about service levels, we show that predictability (how well spending on certain services can be anticipated), predictiveness (how well the predicted levels of certain services contemporaneously co-vary with total health care spending), and demand responsiveness all matter for adverse selection incentives. The product of terms involving these three measures of predictability, predictiveness, and demand responsiveness define an empirical index of the direction and magnitude of selection incentives. We quantify the relative magnitude of adverse selection incentives bearing on various types of health care services in Medicare. Our results are consistent with other research on service-level selection. The index of incentives can readily be applied to data from other payers.

IMPORTANCE Managed care payment formulas commonly allocate more money for medically complex populations, but ignore most social determinants of health (SDH).OBJECTIVE To add SDH variables to a diagnosis-based payment formula that allocates funds to managed care plans and accountable care organizations. DESIGN, SETTING, AND PARTICIPANTSUsing data from MassHealth, the Massachusetts Medicaid and Children's Health Insurance Program, we estimated regression models predicting Medicaid spending using a diagnosis-based and SDH-expanded model, and compared the accuracy of their cost predictions overall and for vulnerable populations. MassHealth members enrolled for at least 6 months in 2013 in fee-for-service (FFS) programs (n = 357 660) or managed care organizations (MCOs) (n = 524 607).EXPOSURES We built cost prediction models from a fee-for-service program. Predictors in the diagnosis-based model are age, sex, and diagnoses from claims. The SDH model adds predictors describing housing instability, behavioral health issues, disability, and neighborhood-level stressors.MAIN OUTCOMES AND MEASURES Overall model explanatory power and overpayments and underpayments for subgroups of interest for all Medicaid-reimbursable expenditures excepting long-term support services (mean annual cost = $5590 per member). RESULTSWe studied 357 660 people who were FFS participants and 524 607 enrolled in MCOs with a combined 806 889 person-years of experience. The FFS program experience included more men (49.6% vs 43.6%), older patients (mean age of 26.1 years vs 21.6 years), and sicker patients (mean morbidity score of 1.16 vs 0.89) than MCOs. Overall, the SDH model performed well, but only slightly better than the diagnosis-based model, explaining most of the spending variation in the managed care population (validated R 2 = 62.4) and reducing underpayments for several vulnerable populations. For example, raw costs for the quintile of people living in the most stressed neighborhoods were 9.6% ($537 per member per year) higher than average. Since greater medical morbidity accounts for much of this difference, the diagnosis-based model underpredicts costs for the most stressed quintile by about 2.1% ($130 per member per year). The expanded model eliminates the neighborhood-based underpayment, as well as underpayments of 72% for clients of the Department of Mental Health (observed costs of about $30 000 per year) and of 7% for those with serious mental illness (observed costs of about $16 000 per year).CONCLUSIONS AND RELEVANCE Since October 2016, MassHealth has used an expanded model to allocate payments from a prespecified total budget to managed care organizations according to their enrollees' social and medical risk. Extra payments for socially vulnerable individuals could fund activities, such as housing assistance, that could improve health equity.