Hawaii Pacific Health and the Hawaii Medical Service Association yesterday reached an agreement "in principle" with details still to be worked out on a new three-year contract that would keep the hospital system in the insurer’s network of participating providers.

The contract will include a pay-for-performance reimbursement model to be implemented for the first time at HPH facilities, which include Straub Clinic & Hospital, Kapiolani Medical Center for Women & Children and Pali Momi Medical Center on Oahu, as well as Wilcox Memorial Hospital and Kauai Medical Clinic on the Garden Isle.

"Our agreement with Hawaii Pacific Health furthers our efforts to create a payment system that ties financial incentives to improved quality and delivery of care and positive patient outcomes," said Robert Hiam, HMSA’s president and chief executive officer, in a prepared statement. "We believe that transitioning to this new payment model and away from simply paying for services based on volume and regardless of outcomes is a vital part of creating an economically sustainable health care delivery system."

The agreement puts an end to the public dispute that was ignited when HMSA posted a notice on its website three weeks ago to its 691,000 members warning that the members could pay more for medical services at HPH facilities if a new contract wasn’t reached by Jan. 31.

At the center of the dispute was the 85 percent base rate the state’s largest health insurer offered to pay for member services rendered by HPH, which countered that an outcomes-based model would require a higher base rate since there would be significant upfront investment for technology, increased staffing and patient outreach. Neither side would provide details of the contract agreed to yesterday or say whether the base rate issue had been resolved.

HMSA also offered a 15 percent bonus if HPH providers could demonstrate that they’ve improved the quality of patient care with measures such as decreased hospital readmission rates, fewer emergency visits and a drop in unnecessary tests.

A resolution means HMSA members will continue to pay the lower, participating provider rate when going to an HPH facility or doctor, rather than a higher out-of-network rate. HPH services up to 400,000 HMSA members each year at its facilities statewide. The contract goes into effect Feb. 1.

The contract between HPH and HMSA sets the precedent for future negotiations with other health care providers. The Queen’s Medical Center also is trying to work out the kinks in a new pay-for-performance model. The hospital and HMSA agreed to a one-year extension of an existing contract through March.

"Everyone benefits from this new contract — payers, providers and, most importantly, patients," said Chuck Sted, HPH president and chief executive officer, in a joint statement with HMSA.