A shift in how healthcare is paid for CHELMSFORD, Mass. - It's hard work being one of Dr. Damian Folch's diabetic patients. If a lab test shows high cholesterol, Folch is quick to call or email. No patient can leave the office without scheduling an annual eye exam, a key preventive test. A missed exam or an appointment leads to another call. "We are a real pain in their necks," joked Folch, a primary care physician in suburban Boston. We track them down. That kind of attention has always been good medicine. For Folch, 59, it's now good business. He is among thousands of physicians in Massachusetts whose pay depends on how their patients fare, not just on how many times they see them. If patients stay healthy and avoid costly medical care, he gets more money. This simple shift in how healthcare is paid for - long seen as key to taming costs - has been occurring in pockets of the country. But nowhere is it happening more systematically than in Massachusetts, the state that blazed a trail in 2006 by guaranteeing its residents health insurance. Now Massachusetts, a model for President Obama's 2010 national healthcare law, may offer another template for national leaders looking to control health spending. "There have been few greater periods of change in American medical history ... and this is the epicenter," said Dr. Kevin Tabb, a former chief medical officer at Stanford Hospital and Clinics in Northern California who now heads Beth Israel Deaconess Medical Center, one of Boston's leading hospitals. It is striking how different Massachusetts is from the rest of the nation. In the last three years, commercial insurers in the state have moved nearly 1 million patients into health plans that reward doctors and hospitals that control costs while improving quality. About 180,000 Massachusetts seniors are on track to get care from physicians paid this way by Medicare through a new initiative included in the national health law. And this summer, state lawmakers passed legislation aimed at moving 1.7 million government employees and Medicaid recipients into similar health plans. Within a few years, close to half of the state's 6.5 million residents could be in a health plan that pays for medical care in a fundamentally different way. Massachusetts' move to reshape how healthcare is financed is still in its infancy. And the state continues to have the nation's highest medical costs, spending nearly 50% more per person than the national average. That has fueled skepticism from conservatives who see too much government involvement and from liberals who say the state should more aggressively set medical prices. "I don't see how we can rely on market forces," said Nancy Turnbull, associate dean of the Harvard School of Public Health. But early research in Massachusetts suggests the approach may be slowing health spending. And medical providers, business leaders and elected officials are increasingly hopeful they are making headway. "Whether this is sustainable remains to be seen," said James Roosevelt Jr., president of Tufts Health Plan, one of the state's largest insurers. But there is a broad consensus that it makes more sense to pay for healthcare this way. The building block of the Massachusetts experiment is a contract between insurers and groups of doctors known as a global payment. In such contracts, physicians receive a budget to care for a cohort of patients. If doctors can care for their patients more economically, they keep a portion of the savings. If patient care exceeds the budget, they pay a penalty. That is supposed to encourage physicians to keep their patients healthier and direct them to lower-cost hospitals and specialists. If poorly designed, the arrangement can create a financial incentive to skimp on care. That perceived problem undermined earlier experiments with global payments and provoked a backlash against managed care in the 1990s. "The most widespread attempts to do this failed," acknowledged Andrew Dreyfus, president of Blue Cross Blue Shield of Massachusetts, the state's largest health plan and a leading proponent of the new generation of global payment contracts. There was no quality measurement.... It was really just about dollars. In a key change, Blue Cross now links its contracts to dozens of quality metrics that track whether patients get the right screenings and exams, whether doctors and hospitals prescribe the correct drugs - even whether patients are satisfied with their care. That means a doctor who withholds care in hopes of saving money faces a penalty if patients suffer or are unhappy. In Folch's suite outside Boston, these measurements have been transformational. On a shelf in his tidy office are reams of spreadsheets, updated constantly, that outline how each of his patients is faring, which tests they have taken and which are due. With bonus payments from Blue Cross, he has hired new aides and installed a new computer system to better track his patients.