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Total Cost of Care Contracts: Early Lessons

Executive Summary

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Total Cost of Care (TCOC) contracting is an ambitious payment reform effort launched in 2010 by private insurance companies and provider organizations in Massachusetts, Minnesota, and Illinois. All three markets are different in terms of their size, levels of consolidation and costs — the Massachusetts program being a statewide initiative — and the Minnesota and Illinois programs focusing on the metropolitan Minneapolis market and the western Chicago suburbs.

The TCOC experiments aim to change the payment mechanisms for care from purely fee-for-service payments based on volume to a fee-for-value payment system that links payments to the rate of growth in total cost of care provided a patient annually regardless of where the care is provided. It also provides significant incentives for providers to meet annual quality goals. Over time, TCOC aims to improve quality and value of care for beneficiaries while “bending the cost curve” to provide more predictable premium costs for beneficiaries.

The TCOC contracts share some of the characteristics of CMS’s Medicare Shared Savings Accountable Care rules which also aim to increase value while holding down costs. By measuring outcomes and costs for attributed patients over the entire year, TCOC encourages participants to coordinate services across the entire continuum of care. In addition, by assuring the most medically appropriate service is provided at the right time and in the most appropriate setting, TCOC seeks to reduce unnecessary hospital services and admissions which account for the largest portion of the health care dollar. Historically, negotiations between payers and providers have occurred every two to three years and have focused on unit price increases. TCOC contracting changes the paradigm by focusing instead on negotiating limits to the annual rates of increase over three to five year contracts. In return, providers are given the opportunity to share savings if cost growth is held below negotiated benchmark target growth rates.


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