Blue Cross and Blue Shield of Minnesota is adopting a new payment model in partnership with four local hospital and clinic systems.

The new “shared-incentive” model gives financial rewards to health care providers who deliver better care rather than more care as measured by the sheer number of tests and procedures performed.

Under the new model, Eagan-based Blue Cross has signed agreements with Minneapolis-based Allina Hospitals & Clinics, Duluth-based Essentia Health, Minneapolis-based Fairview Health Services, and St. Paul-based HealthEast Care System.

The new model is a departure from traditional “fee-for-service” models through which physicians, clinics, and hospitals are paid based on the volume of procedures performed and services provided. Through the new model, providers will continue to get paid at basic rates; but instead of relying on guaranteed rate increases, they will rely more heavily on incentives that reward them for measurable improvements in quality of care at a reduced overall cost.

“Traditional payment models have fallen short of addressing cost increases and have only minimally addressed quality goals,” Blue Cross President and CEO Patrick Geraghty said in a statement.

The new approach will be implemented in the form of a multi-year partnership between insurer and provider. Blue Cross' contracts with the four providers will stretch for three years.

The new payment model is designed to make health care more affordable and to improve the quality of care delivered to its members, according to Blue Cross.

Blue Cross is not the first insurer to go down this route. Minnetonka-based Medica and Bloomington-based HealthPartners have both signed similar contracts with health systems in the metro area.

Blue Cross and Blue Shield of Minnesota is the state's largest health-care insurer based on revenue, which totaled $9.1 billion during the company's 2009 fiscal year. It has close to 2.7 million members and employs about 3,600 people.