Contracting Innovations | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

Contracting Innovations

August 13, 2011
by Mark Hagland
| Reprints
Can “total cost of care” contracts push the healthcare industry forward?

Earlier this summer, Dudley Morris, senior advisor, and Bill Eggbeer, managing director, at the Miami-based BDC Advisors consulting firm, which specializes in clinical integration and in helping provider and payers organizations to prepare for accountable care arrangements, authored a white paper titled“Total Cost of Care Contracts: Early Lessons.” In that document, the Santa Barbara, Calif.-based Morris and the Annapolis, Md.-based Eggbeer examined the unfolding of a relatively new concept called the “total cost of care contract,” which has been evolving forward in three markets—statewide in Massachusetts; in the metropolitan Minneapolis-St. Paul healthcare market; and in the northwest suburbs of Chicago (in all three instances, Blue Cross Blue Shield plans in those markets have been the insurers involved with hospitals, medical groups and health systems there).

While total cost of care (TCOC) contracts share some of the characteristics of accountable care organizations (ACOs) as envisioned in the federal Center for Medicare and Medicaid Services (CMS) recently released preliminary rule on ACOS in its Medicare Shared Savings Program, there are also important differences. Eggbeer and Morris note that TCOC contracts are being rolled out entirely in the private sector, and that the terms of these contracts are, in their view, less bureaucratic and rigid in their terms than are the terms of CMS’s shared savings program for ACOs. Overall, Morris and Eggbeer note in their white paper, several key points stand out about TCOC contracts, as they’ve evolved so far in the Massachusetts, Minnesota and Illinois markets:

  • “Learning to work cooperatively with insurers was seen as equally important as any financial reward, and learning new techniques for global care management was viewed as the most essential of the new skills they were developing,” the authors wrote of provider executives’ experiences to date.
  • Moreover, the authors state in their report, “Early results indicate success driven more by leadership and commitment to change than organizational structure.”
  • What’s more, they state, downside financial risk doesn’t seem to be necessary to motivate care management-driven operational changes on the part of providers. As they note, “In contrast with the proposed CMS ACO regulations, which provide significant risk-sharing for all participants after year three, the TCOC contracts rely mostly on positive incentives, not penalties for poor performance.” > The authors also note that the terms of the TCOC contracts that have been drafted so far largely revolve around “opportunity costs,” allowing provider organizations to dip their collective toes into the water before making any huge plunges into the risk-taking pool; and TCOC contracts can work across a variety of products, including HMO and point-of-service insurance plans.

All that having been said, Morris and Eggbeer agree that laying the IT foundations for participation in TCOC contracts will be absolutely essential to their success, just as they will be for any provider organizations considering developing ACOs under the Medicare shared savings program. Put another way, failure to develop truly sophisticated, next-generation information systems, replete with data analytics and population health management capabilities, will doom any effort on the part of provider organizations to succeed in this new risk-taking world.

Morris and Eggbeer spoke recently with HCI Editor-in-Chief Mark Hagland regarding their white paper and its implications for the HCI audience. Below are excerpts from that interview.

Can you briefly introduce to our audience the “total cost of care contract” concept?
Bill Eggbeer: What we’re seeing in each of these three markets is the market’s effort to get its arms around the same issues as the federal government is, in terms of healthcare reform—and that is that the rate of growth in medical costs has become unsustainable for employers and consumers. And in these three markets, payers, providers, and consumers have come to the conclusion that the old, fee-for-service-based, volume-driven, model, is broken, and is a central contributor to the excessive rate of growth in costs—and that we need a new construct. And the new construct in each of these cases is intended to make the provider accountable in varying degrees for both the cost and quality of care for a defined population of members.
Dudley Morris: And there is a general recognition in the industry that the current fee-for-service model of payment is not sustainable in the long run; and what’s important about total cost of care contracting is that it’s a phenomenon that was initiated both by payers and providers, but mainly from the insurers, from Blue Cross plans in different states, particularly in Massachusetts, Minnesota, and Illinois. The Massachusetts program is the best-known, but the Minnesota program is more comprehensive, and involves several insurers and most of the provider organizations in the Twin Cities.


Get the latest information on Health IT and attend other valuable sessions at this two-day Summit providing healthcare leaders with educational content, insightful debate and dialogue on the future of healthcare and technology.

Learn More