Blue Cross Blue Shield of Massachusetts Alternative Quality Contract

Issue Background

A major driver of the decades-long growth of health care costs in the United States is fragmentation and lack of coordination in the delivery of care enabled by fee-for-service payment models. These models reward providers based on the quantity of services provided rather than the quality of care and patient outcomes. In an encouraging trend, however, the Catalyst for Payment Reform found 40 percent of commercial in-network payments were tied to value or quality in some way in 2014, up from 11 percent in 2013.1

This trend is reflected in the growth of accountable care organizations (ACOs) in the United States.2 Accountable care organizations are formed to improve health and health care while lowering costs through payment and delivery reform, population health management, and care coordination. In April 2014, an estimated 17 percent of the U.S. population received its care from an ACO. Experts counted approximately 424 Medicare ACOs, 287 commercial ACOs, and 34 Medicaid ACOs in 2014.3,4

Preliminary findings from the Medicare ACOs who started the program in 2012 show promising results of improved care quality and reduced costs. Shared Savings ACOs improved on 30 of the 33 quality measures in their first 2 years, including patients' ratings of clinicians' communication and screening for high blood pressure. Medicare ACOs demonstrated combined total program savings of $417 million for the Shared Savings Program and the Pioneer ACO Models.5

However, there is less evidence on spending and quality in accountable care organizations beyond 2 years. Results from the Alternative Quality Contract (AQC) of the Blue Cross Blue Shield of Massachusetts provide a longer-term perspective and hold promise of the potential for accountable care organizations to achieve the three aims of the National Quality Strategy.

About the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract

In 2007, Blue Cross Blue Shield of Massachusetts developed the Alternative Quality Contract (AQC), an innovative global payment model that combines a population-based budget (adjusted annually for health status and inflation) with substantial performance incentive payments tied to the latest nationally accepted measures of quality, outcomes, and patient experience. The AQC arrangement is a 5-year agreement that encourages providers to invest in long-term, lasting improvement initiatives. The AQC was offered to provider organizations on an optional basis, with the first contracts effective in January 2009. The AQC now includes approximately 90 percent of the physicians in the Blue Cross HMO network in Massachusetts, making it the predominant contract model between Blue Cross and its network physicians and hospitals.

The AQC fosters a shared responsibility for both improving care and moderating the unsustainable rate of increase in health care costs through the use of a global budget and performance incentives. The global budget is based on historical levels of health care expenditures and covers all inpatient, outpatient, pharmacy, behavioral health, and other health services BCBSMA patients require. The initial global budget is adjusted each year for inflation and the health of the providers' populations. If providers can care for their population for less cost than the budget, they share in the savings they produce; if they go over budget, they share in the excess costs. This arrangement gives physicians and hospitals the incentive and flexibility to employ novel care delivery models—such as telemedicine, group visits, and followup home visits after hospitalizations—that reduce utilization and improve health.

In addition to the global budget, BCBSMA also offers providers performance incentives of up to 10 percent of the global budget. Bonus payments for performance on quality measures serve as disincentive for underuse and are intended to support providers in delivering safe, affordable, effective, person-centered care. The incentives are linked to clinical performance measures related to process, outcomes, and patient care experience in both the inpatient and ambulatory care settings.


An October 2014 study in the New England Journal of Medicine shows that AQC has improved the quality of patient care and lowered costs in the 4 years since it was first implemented.6 The study compares Blue Cross members cared for under an AQC contract with a control group comprising commercially insured individuals across eight northeastern States.

The study demonstrates significant quality improvements achieved under the AQC. While quality scores for Blue Cross members were on par with local and national averages prior to the AQC contract, the dramatic improvements in quality and outcomes over the course of the contract show that members now receive quality of care that is significantly higher than national averages. These improvements include preventive care for healthy children and adults as well as improvements in the management of serious chronic illnesses. On a composite of five Health Effectiveness Data and Information Set (HEDIS) measures for chronic care management for populations with diabetes and cardiovascular disease, the 2009 AQC improved health outcomes to 12 percent above the HEDIS national average.

The study also found that the savings achieved by the AQC groups accelerated year by year. In the initial year, AQC groups spent approximately 2 percent less than the control group. By year 4, savings rose to 10 percent compared to the control group and outweighed incentive payments. The AQC generated savings by providing care in lower cost settings (e.g., outpatient rather than inpatient) and by reducing utilization for discretionary procedures, imaging, and testing. The study design, including a rigorously defined control group, is important in that it demonstrates that the AQC achieved significant savings over and above what occurred broadly in the environment during the study period.

Alignment to the National Quality Strategy (NQS):

Priorities of Blue Cross Blue Shield of Massachusetts Alternative Quality Contract: Ensuring that each person and family are engaged as partners in their care. Promoting effective communication and coordination of care. Making quality care more affordable for individuals, families, employers, and governments by developing and spreading new health care delivery models.

The Alternative Quality Contract promotes:

  • Ensuring that each person and family are engaged as partners in their care.
  • Effective communication and coordination of care.
  • Making quality care more affordable for individuals, families, employers, and governments by developing and spreading new health care delivery models.


The Alternative Quality Contract is administered by Blue Cross Blue Shield of Massachusetts.

1 Catalyst for Payment Reform. “Forty percent of payment to physicians and hospitals in the commercial sector today is designed to improve quality and reduce waste.” September 2014.
2 Oliver Wyman. “ACO Update: Accountable Care at a Tipping Point.” April 2014.
3 Cavanaugh, Sean. “ACOs Moving Ahead.” December 2014.
4 Lewis, V. (2014). ACO Contracting With Private and Public Payers: A Baseline Comparative Analysis. Am J Manag Care 2014;20(12):1008-1014.
5 Cavanaugh, Sean. “ACOs Moving Ahead.” December 2014.
6 Song Z, Rose S, Safran DG, et al. (2014). Changes in Health Care Spending and Quality 4 Years into Global Payment. New England Journal of Medicine 371(18), 1704–1714.

Page last reviewed March 2017
Page originally created November 2016
Internet Citation: Blue Cross Blue Shield of Massachusetts Alternative Quality Contract. Content last reviewed March 2017. Agency for Healthcare Research and Quality, Rockville, MD.
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