Blue Cross CEO says providers must control costs, or else

By Robert Weisman
The Boston Globe
January 23, 2011

The chief executive of Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer, is calling on hospitals and doctors to step up efforts to contain health care costs, warning that those insisting on traditional fee-for-service contracts will face level or reduced payments from his company.

Andrew Dreyfus, who took the helm at Blue Cross Blue Shield in August, last week sent a letter to more than 400 leaders of hospitals and physicians practices, applying pressure on them to switch to a global payment plan.

Dreyfus’s letter acts as “both a threat and a promise,’’ said Stuart H. Altman, health policy professor at Brandeis University. “He’s saying to the hospitals, you can do better under global payments. But he’s also saying, if you don’t want to do it, if you’re more comfortable with the fee-for-service system, forget it, we’re going to come down on you.’’


By Don McCanne, MD

One of the advantages of a single payer system, as envisioned by PNHP, is that hospitals can be placed on global budgets. They are paid periodically a flat budgeted amount based on legitimate operating expenses, just as other public service institutions, such as the fire department, are funded. This relieves the hospital of the high costs and administrative burden of itemizing a multitude of charges for each individual patient – not to mention that it does away with the $15 charge for a Tylenol or $35 charge for a Band-Aid.

Considering the efficiencies of global budgeting it might seem that the decision of Blue Cross Blue Shield of Massachusetts to switch to global payments for hospitals is a giant step toward single payer. It might seem that, but it isn’t.

Under a single payer system, all legitimate costs are budgeted (with separate budgeting of capital improvements), and payments made accordingly. With a global payment made by a single insurer in a multi-payer system, it is difficult to decide which costs should be allocated to that insurer. Furthermore, the insurer really doesn’t care.

A large insurer like Blue Cross Blue Shield will use its leverage to negotiate down its global payments in a secretive, proprietary process, while leveraging risk adjustment to its own advantage (“our privately insured patients are healthier than your sick Medicare patients”). Smaller insurers would be at a competitive disadvantage because of a lack of leverage and an excessive administrative burden per beneficiary. Public payers such as Medicare and Medicaid would continue to do what they already do, regardless of any agreements the hospitals work out with the private payers. Thus the inefficiencies, inequities, and administrative excesses of our current, fragmented, public and private financing system would be perpetuated.

We keep hearing that if we don’t do this, or if we don’t do that, we are going to have single payer. The problem is that if we do this, or do that, anything as long as it isn’t single payer, we’re only going to delay the inevitable. Wouldn’t it be much smarter to end the suffering and hardship now by enacting a single payer system, especially since it’s inevitable anyway?

Re-posted with permission from