Blue Cross Blue Shield of Massachusetts (BCBS-MA) announced this week that it plans to launch a new extension of its long-standing value-based payment program, the Alternative Quality Contract (AQC), which ties physician payments to the total cost of care delivered to their patients. In the first arrangement of its kind in the AQC program, BCBS-MA will pilot a similar, capitation-like approach with South Weymouth, MA-based South Shore Health, an independent health system serving southeastern Massachusetts.

As we described in a blog post on the AQC earlier this year, the broader program is structured around physician networks and their primary care practices, which bear two-way, upside-downside risk for the cost of care for patients attributed to them. Participating practices also have the ability to earn sizeable bonuses based on their performance on a number of quality metrics. The new approach is intended to experiment with putting the hospital directly at risk, encouraging it to reduce unnecessary admissions and other high-cost care by collaborating with physicians and other care providers.

While full details of the plan were not released, the agreement was described as a pilot program, to test the model of so-called “global budgeting” for hospitals. A similar approach to paying hospitals has been in place in Maryland for several years, as part of that state’s Federal waiver program. Notably, the CEO of South Shore Health, Dr. Gene Green, previously served as President of Suburban Hospital in Bethesda, MD, and in a press release stated, “What’s so encouraging about this partnership is that the provider and the payer are finally coming together at the same table with the same goal: drive down costs without affecting quality of care”.

The move is noteworthy because health plans—and particularly BCBS carriers—have historically been reluctant to share true risk with hospitals, for a variety of reasons. Some have claimed that hospitals lack the ability to manage commercial risk, while others have worried about the strategic implications of enabling health systems to move into the commercial risk market, fearing new competition for employer contracting.

For the most part, carriers have preferred to limit risk-based programs to physician practices, encouraging doctors to manage total cost of care by limiting referrals to high-cost specialists and hospitals. To the extent health plans have “shared risk” with hospitals, it has typically been in the form of performance-based bonuses added onto fee-for-service payments.

That phenomenon has served to stall the broader transition to provider risk envisioned by the authors of the Affordable Care Act (ACA) in creating the Medicare Shared Savings Program (MSSP) and its much-debated accountable care organizations (ACOs). The new BCBS-MA pilot with South Shore Health will be closely watched by BCBS leaders across the country.

It’s no accident that the first such pilot in the AQC program is with a smaller, independent system that operates in the shadow of the dominant Partners Healthcare system, an arrangement unlikely to raise competitive concerns among BCBS-MA executives.