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The Steward System: Capitated Care

A state-of-the-art linear accelerator (left) and new imaging technology (right) at the St. Elizabeth Medical Center’s radiation oncology center enable …

A state-of-the-art linear accelerator (left) and new imaging technology (right) at the St. Elizabeth Medical Center’s radiation oncology center enable physicians to deliver more customized cancer care.

A state-of-the-art linear accelerator (left) and new imaging technology (right) at the St. Elizabeth Medical Center’s radiation oncology center enable physicians to deliver more customized cancer care.

Based in Boston, Steward owns and operates 10 hospitals serving 85 communities in Massachusetts. The second-largest health system in New England after Partners HealthCare, Steward has an integrated, community-based model caring for more than one million patients. We run the hospitals, manage insurance contracts and connect all the parts with an advanced Electronic Medical Record (EMR).

We offer a unique insurance plan to our 17,000 employees and their families, a low-premium product that is also available to many physicians and their staffs throughout the network. In January 2012, we rolled out a similar offering for small businesses in a partnership with Tufts Health Plan. It is approximately 20 percent less expensive than other insurance plans currently available in Massachusetts.

Our system is designed to address structural flaws in the way healthcare is delivered and paid for in the U.S., starting with the fee-for-service model. Today, Medicare and private insurers pay physicians for each test or procedure they call up. They have an incentive to increase the volume of care, indirectly encouraging patients to consume more of it. Apply this model to manufacturing and you’ll see the absurdity. The government turns to you and says: “We’ll pay you X dollars for every widget—oh, and by the way, you get to place all the orders, and you can order widgets forever.”

In 2009, we re-tooled our approach. First, we revived a system called capitated payments—famously misused by HMOs in the 1980s. In this model, insurers pay doctors a fixed sum to manage each patient’s health over the course of a year. If the medical team spends less than this amount, they pocket the difference. If they over-spend, they have to repay the insurer. The danger here is that doctors, in their zeal to cut costs, will under-treat their patients. That’s why quality overrides that actively reward good practices, such as careful patient monitoring, attention to diet and lifestyle, and zero-tolerance for hospital-borne infections needed to be a key component of any plan moving forward. Blue Cross Blue Shield of Massachusetts first presented this model and helped create the catalyst to work collaboratively with them as the insurer.

Other steps Steward took to cut costs and improve care include:

  • Going local: Wherever possible, tests and procedures in the Steward system are performed within a narrow network of local hospitals, rather than at the famous Boston teaching hospitals, where routine care is more expensive with no demonstrable quality difference. Moreover, the best, most cost-effective care is often delivered in physicians’ offices, or in the patients’ homes. Of course, patients needing highly specialized treatment are referred to appropriate medical centers.
  • Going digital To wean doctors from the fee-for-service model, we had to provide data as well as incentives. We invested $100 million in developing an integrated electronic medical record system, which we support in the physicians’ offices. Combined with a unique call center, this system frees doctors from the red tape of billing, scheduling and referring patients. They can run their practices with fewer full-time staff, reducing their overhead and boosting the bottom line.
  • Unit costs and utilization: We analyze patterns of care that drive per-unit costs and total medical expenses, such as doctors overusing MRI scans, discretionary heart procedures or preference for branded drugs over generics. Studies show that constant diagnostic scans and biopsies, for example, can lead to unnecessary surgeries and a catalogue of complications. We have fixed this problem by changing the incentives and carefully monitoring outcomes.
  • Preventive care: We try to educate patients and employees on the importance of complying with drug prescriptions, staying healthy and staying out of the hospital. Our integrated records and information systems enable us to monitor how well patients are taking care of themselves and to step in when appropriate.

Editor’s Note: The Steward network’s total medical costs are now below the median for all providers in the state of Massachusetts, according to the 2011 Massachusetts Attorney General’s Cost Trends Report. Ninety percent of patients treated in the network receive care under the capitated payment model. Over the next three years, this approach is expected to produce upwards of $100 million in cost savings.

About Ralph de la Torre

Ralph de la Torre, M.D. is the CEO of Steward Health Care System.