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Provider-sponsored health plans rising to meet competition

More health systems add insurance products to strengthen their bottom lines.

Image of Kaiser Health's Sunset Hospital from Wikipedia.Image of Kaiser Health's Sunset Hospital from Wikipedia.

Jay LaBine, MD, is a surgeon working at the forefront of America's changing healthcare economy, the provider-sponsored health plan.

"I'm a bit of an idealist," said LaBine, chief medical officer at Priority Health, an insurer owned by Spectrum Health, a $4.5 billion nonprofit network serving western Michigan.

As a general surgeon and ICU physician in Grand Rapids for 13 years, LaBine came to appreciate the power of incentives while tackling the problem of catheter-associated bloodstream infections. Around 10 percent of the hospital's ICU patients developed CABIs, and "that was just accepted," he said. LaBine's team developed a policy that "empowered nurses to be the watchdogs," to consistently use sterile techniques and remove catheters as soon as they were not essential. A year after the change, the unit had zero catheter-related bloodstream infections for three years straight.

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Ten years out, the relationships between providers and health plans is going to be dramatically different if provider-sponsored plans prove to be a superior model and can do things the health plans cannot.

The experience was inspiring for LaBine. "It shows the power to get people focused on problems." When LaBine became CMO at a growing health plan, he wanted to change systems from the payer side. "One of the things that does affect behavior is healthcare finance." The increasingly common high deductible health plan, he argued, "is really a big deal in convincing delivery systems."

Priority Health has about 625,000 members in employer-sponsored, individual, Medicare and Medicaid plans, making it the fourth largest provider-owned plan in the country. It's relatively modest in Michigan, where Blue Cross and Blue Shield of Michigan covers 4.5 million residents, but Spectrum Health has a big opportunity to bring in more patients. About 30 percent of Priority's members live in western Michigan and receive healthcare at Spectrum providers, while only 25 percent of the health system's revenue comes from its own plan.

Spectrum's potential to grow its own health plan and be both an insurer and provider of choice is not unique. With the ACA's mandate to control healthcare costs, increasingly high deductibles and growing enrollment in ACA exchange plans, Medicaid managed care and Medicare Advantage, the insurance market is beckoning health systems. They might be able to offer a strong value proposition--lower premiums, easier access, expanded primary care and more affordable medical bills.

"Ten years out, the relationships between providers and health plans is going to be dramatically different if provider-sponsored plans prove to be a superior model and can do things the health plans cannot," said Bill Copeland, Deloitte's national leader for life sciences and healthcare.

Sleeping giants

In one way, health systems are already running their own insurance plans: the self-funded employee health plans at thousands of U.S. hospitals and health systems. In terms of membership, those self-funded plans and the 90 or so health system-owned companies selling health insurance, like the University of Pittsburgh Medical Center and Kaiser Permanente, comprise only around 10 percent of the population.

"They've been dormant. Now there's tremendous interest" among health system leaders, said Copeland. "They've figured out that you cannot make enough margin and invest enough money to move from fee-for-service to value-based healthcare through value-based contracts alone. There's just not enough margin," said Copeland, whose long career, mostly at Deloitte, includes a one-year stint as CEO of UnitedHealthcare's Mid-Atlantic region.

U.S. healthcare "is at a stage where they know they have to change…because of affordability," Copeland said. "When that happens, there's a lot of uncertainty of where the value is."

Given the shift of healthcare resources to primary and preventive care, there are real, long-standing problems with the health insurance model that could be solved uniquely when the payer is owned by the provider business getting paid.

"This is not about building another Chevy and competing against GM," Copeland said. "This is about you creating something different that is uniquely yours, with prepaid revenue to unlock the system, strong local brand and the hearts and minds of patients."

Unique benefits

Priority Health, for one, is trying to nurture a variety of new approaches. Among the most unique in LaBine's mind is a home medicine program started in 2013 for severely chronically ill Medicare Advantage members.

Priority identified more than 1,000 previously hospitalized, at-risk seniors who were costing on average $40,000 per capita annually, well more than the average Medicare Advantage per-member cost of $10,000.

Health plan teams works with home care agencies, emergency medical services, physicians and nurses to bring a range of healthcare to members in their homes.

Priority Health is working with Spectrum Health Home Based Primary Care, an ambulance company and a community collaborative composed of nonprofit organizations in post acute care. A care team tracks members and makes home visits, "where patients receive coordinated primary care services as well as frequent check-ins by local paramedics," LaBine said.

Results of the program show a 25 percent reduction in the total cost of care for these patients, from reduced hospitalizations, ER visits, and nursing home stays. Priority Health had to get a waiver from the Michigan government to allow emergency medical workers to visit patients and provide services like IV therapy. Medicare Advantage is allowed some flexibility to be more innovative in the care of beneficiaries while insuring that they retain all the benefits provided in the traditional Medicare program.

"Medicare Advantage is unique because we can submit supplemental benefits not provided in FFS, and we want to provide this benefit and make it affordable," LaBine said.

In commercial plans, Priority Health is starting to offer rewards to members who shop for their services and choose a lower-cost site of care. Spectrum Health has been a leader in price transparency; the health system has published price information online for inpatient and outpatient procedures since 2006, showing average payments from Medicare, Medicaid and private insurance.

The Priority Health cost-estimator application lets members get personalized price quotes based on their plan for more than 300 tests and procedures. This service, targeted at the 60 percent of Priority members with a deductible of $1,000 or more "is affecting change in the way our delivery system really thinks about the pricing of services."

Leaders at Priority and its parent organization are rethinking some mainstays of billing, such as the hospital facility fee. Applied to the bill from a Spectrum outpatient clinic to something like an endoscopy, facility fees can tack on $1,000 or more in out-of-pocket costs for patients then if they had gone to an independent clinic.

In Pittsburgh, these hospital facility fees in oncology care have led to a fractious battle between Highmark, a dominant Blue Cross insurer that owns a health system, and UPMC, a health system that owns a 2.5 million member health plan. Last year, Highmark decided to stop paying "grossly inflated prices for cancer drugs," and UPMC is threatening to drop out of Highmark's Medicare Advantage network.

For an integrated delivery system like Kaiser Permanente, or for a health system with 25 percent of its revenue coming from its own health plan, the dynamics of charging such fees are being reconsidered. "There's nothing that says we have to charge the facility fee," said LaBine.

Priority Health members who are in a plan with a Spectrum Health-based network do not get the kind of "streamlined bill" that should come with organizational integration--a simple price, rather than charges from a radiologist, the imaging center, anesthesiologist and primary care doc. "But we have put it on our strategic plan to generate a streamlined bill for the consumer," LaBine said. "If we can get out in front of this, we'll deliver more value to members."

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As Deloitte's Copeland said, one of the largest considerations for provider-health plans is a compensation model for doctors that rewards value as part of simplifying the patient billing experience. "Health systems can have the opportunity now that they cover big geography post-M&A," Copeland said.

Payer relations

One of those making a steady foray into health insurance amid a growth spurt is Catholic Health Initiatives, the giant faith-based network of 105 hospitals in 19 states. CHI is selling Medicare Advantage plans in six states and employee and individual exchange plans in Arkansas. Despite its size, the health system is being "thoughtful of where we want to offer insurance products," said Juan Serrano, Catholic Health Initiatives' national senior vice president of payer strategy and operations.

So far, CHI's health plans count about 160,000 members, including 22,000 CHI employees. "We want to make sure we're being successful as a network player and that we do have a differentiated value proposition," said Serrano, noting that CHI features as the flagship network in a number of exchange plans.

In some markets, CHI may indeed be competing with other insurers, and could fray some short-term relationships. "But when we've spoken with UnitedHealth Group or Aetna," the message is that CHI sponsoring its own plans "means is that we're going to become a better and better health system partner for you," Serrano said.

That strategy echoes the long view of Deloitte's Copeland: that provider-sponsored plans will grow and actually be good for large national insurers, if at the same time garnering membership from the local dominant Blue Cross and Blue Shield plans. "On the far end of the spectrum, the provider should have an operating model that is much better than average and should be very competitive and for the rest of the business they have to take care of, those not in their health plan," he said. "They'll have a good value proposition to other payers."

Twitter: @AnthonyBrino