A global budget pilot project among provider partners and Blue Shield of California led to savings in first two years.

Health care plans and providers in the private sector are developing alternative payment and delivery models to reduce spending and improve health care quality. To respond to intense competition from other organizations, Blue Shield of California created a partnership with health care providers to use an annual global budget for total expected spending and to share risk and savings among partners for providing health care. The patient population consisted of certain members of the California Public Employees' Retirement System in Northern California. Launched in 2010, the pilot accountable care organization in Sacramento provided a framework for operations and established goals and financial risk arrangements. The model shows early promise for its ease of implementation and effectiveness in controlling costs. During the two-year period, the total compound annual growth rate for per member per month cost was approximately 3 percent, or less than half the rate at which premiums rose over the past decade. Some of the savings stemmed from declines in inpatient lengths-of-stay and thirty-day readmission rates. Results suggest that the approach can achieve considerable financial savings in as little as one year and can gain wide acceptance from reform-minded providers.