Opportunities and Challenges for Payment Reform: Observations from Massachusetts

Policy makers and private health plans are expanding their efforts to implement new payment models that will encourage providers to improve quality and deliver health care more efficiently. Over the past five years, payment reforms have progressed faster in Massachusetts than in any other state. The reasons include a major effort by Blue Cross Blue Shield of Massachusetts to implement global payment, the presence of large integrated systems willing to take on financial risk, and a supportive state policy environment. By 2014, thirty-seven percent of Massachusetts's residents enrolled in health plans were covered under risk-based payment models tied to global budgets. But the expansion of payment reform in Massachusetts slowed between 2012 and 2015 because some commercial enrollment shifted from risk-based health maintenance organization products to fee-for-service preferred provider organization (PPO) plans, and the state Medicaid program fell short of its payment reform goals. Provider groups will not fully commit to population-based clinical models if they believe it will result in large reductions in fee-for-service revenue. The use of alternative payment models will accelerate in 2016 when Blue Cross begins implementing PPO payment reforms, but it is unknown how quickly other payers will follow. Massachusetts's experience illustrates the complexity of payment reform in pluralistic health care markets and the need for complementary efforts by public and private stakeholders.