Blue Cross Blue Shield of Michigan and Trinity Health-Michigan — one of the country's largest Catholic health care systems, which includes 12 hospitals around the state — said the dominant fee-for-service model is not working.
They do not plan to drop the traditional model by which providers are reimbursed for each service through agreements with insurers. But hospitals will be rewarded financially for saving money by better coordinating care, preventing re-hospitalizations and improving patients' outcomes.
"Ultimately, consumers will pay less in premiums. As costs go down, premiums go down," Sue Barkell, senior vice president for health care value at Blue Cross, said in a conference call with reporters.
Tuesday's announcement followed Trinity's May 2012 agreement to partner with Blue Cross on a "value-based" model to pay for hospital services. The fee-for-service model has been criticized for giving a financial incentive to doctors and hospitals to offer more treatments rather than focusing on improving patients' overall health.
Officials said it makes sense to change course before major components of the federal health care law take effect in 2014.
"It lines up with what the Affordable Care Act is trying to accomplish. ... We're trying to get out ahead and be a leader in this space," said Roger Spoelman, regional president and CEO of Mercy Health hospitals in West Michigan.
Trinity's hospitals under the Mercy moniker are located in Muskegon, Grand Rapids, Pontiac, Ann Arbor and elsewhere in the state.
Michigan has 134 community hospitals, and Blue Cross said it is hopeful others are willing to sign similar contracts. Blue Cross, which has 70 percent of the state's health insurance market, said fee-for-service reimbursements are a significant factor in the large growth in health care costs in the last decade.
The hospitals are receiving an unspecified amount of funding to improve infrastructure such as a registry system ensuring hospitals and doctors can access patient records.
The U.S. health care system squanders $750 billion a year — roughly 30 cents of every medical dollar — through unneeded care, byzantine paperwork, fraud and other waste, according to a report last year by the Institute of Medicine.
The study identified six major areas of waste: unnecessary services ($210 billion annually); inefficient delivery of care ($130 billion); excess administrative costs ($190 billion); inflated prices ($105 billion); prevention failures ($55 billion), and fraud ($75 billion). Adjusting for some overlap among the categories, the panel settled on an estimate of $750 billion.