Hawaii Medical Service Association and The Queen’s Health Systems have finalized a new performance-based contract that fundamentally changes the way the hospital is paid for medical services.

The three-year contract comes 10 months after the health care giants agreed to a payment system that shifts away from the former model, which primarily paid for the quantity of services performed rather than the quality of care.  

Queen’s expects to sign the agreement within the month.

A major goal of the new payment model is to improve quality such as decreasing readmission and infection rates, and ensure a viable health care system for the long term by rewarding hospitals and physicians for coordinating care to produce positive health outcomes while controlling costs.

The contract sets a precedent for future negotiations with smaller health care providers in Hawaii.

“Health plans across the country are implementing pay-for-quality programs, including other Blue Cross and Blue Shield plans,” said Bob Hiam, HMSA president and chief executive officer. “The outcomes-based reimbursement model has become more prevalent because it puts the focus on the patient and aims to deliver the right care in the right setting at the right time.”

By the end of the contract, up to 15 percent of total reimbursements may be based upon meeting performance measures, and hospitals that don’t meet the goals could even get paid less.

“Obviously what we bill is dependent upon volume, but this model does move us away from quantity payments,” said Rick Keene, chief financial officer at Queen’s. “There certainly is incentive to improve quality metrics because it does impact reimbursements. If a hospital didn’t achieve its quality metrics, it very well could be paid less than another hospital for the same procedure.”

Hawaii Health Systems Corp., the 14-member quasi-public hospital system, agreed earlier this year to a four-year contract under the so-called pay-for-performance model built on a sliding scale with HMSA’s payments increasing as the hospital network meets various performance metrics.