Risky Business: Health Systems Become Insurers

Getting into the risk business is daunting, but health care leaders can use referral management to build financial reserves.

By Ian Morrison

Obamacare has created significant change, especially for the net 10 million people who received coverage since last year, one way or another. But the obsessive national focus on score-keeping the coverage expansion (or lack of it) under Obamacare overlooks perhaps the bigger health care story, namely the massive change under way in the health care marketplace and particularly in the delivery system.

New Models of Care

There are four inter-related megatrends in the health care marketplace, over and above the coverage expansion efforts of Obamacare.

The first megatrend is toward accountable care in which systems are integrating to create systems of care that focus on care coordination, improving quality and reducing costs. In pursuit of the noble Triple Aim, surveys show that about 40 percent of the bed capacity in America lies in hospital systems that claim to be pursuing a broadly defined “accountable care.”

The second megatrend is consolidation. Across America we are seeing the rapid creation of 100 to 200 very large regional health systems that are bringing physicians, alternate site providers and regional competitors into ever-larger delivery systems. Fueled by financial, strategic and clinical integration imperatives, the consolidation is significant in most markets.

The third megatrend is population health. It is everywhere…even though most health systems are not yet fully engaged in confronting the consequences of making population health a priority. If you are truly serious about improving the health of a population, you probably wouldn’t start off with a bunch of expensive facilities and people delivering marginally indicated high-tech care to an over-served insured population. Nevertheless, population health is cropping up in the mission statements and strategic plans of some very large systems, and if these boards and leaders take these mission statements seriously then it will cause them to do things very differently from the way they have done things in the past (more on this below).

The fourth megatrend is health care delivery systems getting into the insurance business. Let’s be clear: The trend could all end badly as it did in the 1990s. As I said to an elite group of deans of medicine of our nation’s top academic medical centers recently, when asked if AMCs could take risk: “Two percent of a big number is a big number.” In other words making a 2 percent rate mistake on a $10 billion block of business is a $200 million hit to the bottom line — not for the faint-hearted. Nevertheless, health systems are pursuing risk strategies.

These four megatrends are connected in a narrative that goes something like this for these large integrated health systems: “If we are going to all the trouble of integrating care to improve quality and reduce costs, then why wouldn’t we want to benefit from all that hard work by getting a share of the premium dollar by taking financial risk for the health and health care for the population we serve?”

Often it is couched in the familiar tones of first-curve-to-second-curve transformation: from paying for volume to paying for value, from filling the hospital to emptying the hospital.

Sounds good. Now, how exactly are you going to do that?

 

Four Flavors of Risk

Many large systems are well on their way, and many of them are serious, sophisticated and committed to making this work. In the last six months I have crossed paths with many leaders who are on this journey and would offer this informal review of what I am seeing and hearing. I make no pretense that this is either a census of all the activity or a comprehensive review, but it represents interactions with leaders in many, many markets across the country. With that caveat I would suggest that there are four flavors of risk:

Legacy health plans.Those of you old enough to remember the 1990s will recall we did this provider-owned health plan thing before and it did not go well for most folk. However, there were a number of committed players who developed viable health plans as part of their strategy in the 1990s.

Some like Sharp in San Diego and Presbyterian in Albuquerque have been committed to a full-blown integrated system of care including taking both commercial and Medicare Advantage risk for the last 20-plus years. The future has just come toward them. Others like Intermountain Healthcare in Salt Lake City or Spectrum Health in Michigan have recommitted to emphasizing the role of their health plans as a strategic asset.

Recent health plan acquisitions.A number of health systems have recently acquired or created a health plan function. Some like Sutter, Dignity Health (through Western Healthcare Advantage) and Memorial Healthcare in Long Beach— all in California — have acquired a Knox-Keane license (the necessary regulatory framework for providers to take risk in California). These health systems are all pursuing strategies to attract both Medicare Advantage and commercial insurance business.

But this is by no means a Left Coast only phenomenon. In Boston, Partners Healthcare acquired Neighborhood Health Plan and in so doing has the platform to provide insurance products in the Massachusetts market. North-Shore Long Island Jewish recently obtained a commercial health insurance license in New York. And perhaps the biggest story to watch is the Baylor Scott and White merger in Texas, where two large sophisticated delivery systems, one with a long history of risk bearing, have come together to create a new regionally integrated system of care.

Health systems going deep on an ACO strategy. A large number of health systems are using both CMS accountable care organization pilots and commercial ACO arrangements as a step toward risk through a shared savings arrangement. I believe ACOs are transitional steps toward more enduring risk arrangements like capitation or global budgeting with performance corridors. But even if ACOs are transitional (I call them “training wheels for capitation”) they are an extremely important step in changing the mindset of providers away from volume toward value.

Many large health systems are pursuing this risk-based strategy using ACOs and/or insurance partnerships as the vehicle. Prominent examples include Montefiore in New York (which I will feature below), Steward Healthcare in New England, and Aetna Whole Health and its partners such as Aurora, Inova and Banner Health. These efforts are happening in diverse markets and provide health systems with an opportunity to offer a “private label” health insurance product in local markets, e.g., St. Elsewhere Health Plan powered by Optum or Aetna.

Health systems “go your own way.” The fourth flavor of health plan is a variant on this private label theme and it is the Evolent health offering. Evolent is a joint venture of the University of Pittsburgh Medical Center (UPMC), a powerhouse regional health system with its own powerhouse health plan, and the Advisory Board Company, which has grown to greatness by being the leading supplier of PowerPoint to the health care industry. Coming together as Evolent they can offer regional health systems a sophisticated back office for a private label plan. And the key advantage they have over national carriers offering a private label ACOs is that they are not a traditional insurer.

The Advisory Board Company has a large trusted Rolodex. UPMC has experience doing this. Neither of them

is known as a health insurer. And that is important because health insurers still rank just above tobacco companies, oil companies and Al Qaeda as the least trusted industries in America. Hospitals are near the top, just behind supermarkets. (If Safeway and the Mayo Clinic put together a health plan it might do well.) The Evolent offering is being taken up by health systems in Georgia (Piedmont/Wellstar) and Medstar in the Mid-Atlantic, with more to come.

The examples cited within these four flavors are all very large multibillion-dollar health systems. Many of these systems have publicly declared they will receive more than half of their revenue from risk-based payment over the next five years. They see growth opportunities in Medicare Advantage, in direct contracting with employers, and potentially in public and private exchanges (although few have dabbled in public exchanges to date, fearful of cannibalizing lucrative commercial insurance reimbursement). If these leaders are correct in their growth forecasts then this trend is a big screaming deal.

 

Making It Work: The Link to Population Health

So great: We are in the insurance business. Now we’ll show those insurance guys who skimmed 30 percent off the top how to run a store.

Here are some basics to remember now you are in the insurance business.

The Halvorson effect. George Halvorson, retired CEO of Kaiser Permanente, told a great story about being confronted by an angry woman at a town hall–style meeting on health reform. She was outraged at health insurers’ ever escalating premiums. George, ever calm, measured and correct, quietly stated:

“Health insurance premiums are the costs of care for the population being covered, plus an administrative fee.”

“Well that’s one way to look at it…” the woman said indignantly.

No, lady, that is the only way to look at it.

The reason health insurance premiums are high is because the underlying costs of care are high. When you are in the insurance business (or even the shared savings business) you have to fundamentally own that problem.

The 5/50 problem. In any insurance pool, whether it be commercial or Medicare, there is a basic rule that 5 percent of patients account for 50 percent of costs, and 50 percent of patients use next to nothing — most of them are not patients at all, just premium payers. From an insurer’s perspective you would like more of the latter than former.

Remember the obvious: Hospitals generally do not have warm and close relationships with healthy people; they are, however, magnets for sick people. About half to two-thirds of the heavy users in any given year persist in that group over time, generally the multiply co-morbid: with diabetes, obesity, chronic obstructive pulmonary disease, congestive heart failure and joint problems. The other smaller fraction are folk who get acute illnesses such as cancer and who may improve or expire in subsequent years.

Again, if you think like an insurer you have to ask what would make me attractive to the 50 percent healthy folk that I really want, and how to manage the 5 percent most frequent users. You better not get into risk unless you have the data and analytics, the predictive modeling tools, and the people who know how to use them. Otherwise you may find yourself short on healthy and long on sick.

Managing care looks more like social work than medicine. In my travels I am constantly inspired by the stories of how those sickest 5 percent of patients can be viagrasansordonnancefr.com managed better to improve their health and their lives and lower total costs of care dramatically. And in many cases the secret sauce looks a lot more like social work than medical care, as I described in a previous column, “Massively Coordinated Care.” (http://www.hhnmag.com/display/HHN-news-article.dhtml?dcrPath=/templatedata/HF_Common/NewsArticle/data/HHN/Daily/2012/May/morrison050112-1090001119. Here are a few recent examples from my travels:

The refrigerator. Art Gonzales, CEO of highly respected Denver Health, told me the story of the brittle diabetic patient who was constantly admitted to the hospital. Non-compliant with her medications, caregivers probed why she was not taking them.

“The medication has to be refrigerated” she said.

“So?” they asked.

“I don’t have a refrigerator.” She replied.

They bought her a refrigerator. She is a lot better.

The truck. A CEO of a hospital in Arizona told me the story of a young hot-shot hospitalist who challenged the CEO that he could cut readmission rates in half if the CEO got him an old pick-up truck. The CEO offered one of the nice white fleet vehicles to use, but the hospitalist insisted on a used pick-up truck because he was going to be driving into some low-income neighborhoods with high car theft rates.

The hospitalist made house calls to Latino patients a day or so after discharge. He spoke to all the family members

in Spanish and explained what happened in the hospital and what medications the patient was now on. It was a labor of love, unpaid. It cut the admission rate in half.

These examples and scores of others across the country point to the tremendous opportunity available to integrated health care systems if they open their eyes to new ways of thinking.

The Case of Montefiore

There is no more challenging health care market than the Bronx. Montefiore serves a community with a largely public payer mix (40 percent Medicare and 40 percent Medicaid), disproportionate poverty and immigrants from multiple cultures. Add its academic medical center role (in partnership with Einstein College of Medicine) with the responsibility of training the care givers of tomorrow and its medical staff that includes employed as well as community-based physicians and you might think all that would mean they would have an insurmountable task.

Yet Montefiore is a true pioneer. Not only was it the top performing pioneer ACO by most measures, it is quietly transforming care in the Bronx by accepting risk-sharing arrangements and pre-payment in partnership with health plans. A majority of its revenue comes on a risk basis, yet margins are up, patient satisfaction is climbing, clinical performance is achat cialis 5mg constantly improving.

CEO Dr. Steve Safyer, trained at Montefiore, now leads this exciting transformation. A key to Montefiore’s success is the 1,000-person dedicated care management team of physicians (including many psychiatrists) — nurses, social workers and care managers who are constantly developing and improving the care pathways for their patients and offering help to patients and families improve their health.

Montefiore is headed to a target of 1 million lives at risk, and it is well on its way. While it has an insurance license, it prefers to have shared risk arrangements with insurers in which Montefiore gets a bigger share of premium to manage care.

 

Bridging the Risk Gap: Referral Management

If all this sounds daunting, it is. Getting into the risk business is not for the faint-hearted. But across the country leaders and their boards are going down this path. A key challenge is migrating the financials to a new risk-bearing business model: the classic first curve to second curve dilemma.

And here is the epiphany I have had in the last few months: This can be achieved by using referral management as the fee-for-service fuel to get you to capitation. Here’s how it works. Most health systems have considerable leakage of referrals. While they may have a primary care base or even a health plan, rarely do those plans or practices refer tightly within the network. The “leakage” can be 20, 30, 40, 50 percent.

Increasingly, I am seeing systems recognize this as an enormous opportunity to increase fee-for-service volume in the short run to build the financial fuel to take risk. Typically this involves setting up a centralized one-touch, call center–based, referral center to direct patients and primary care physicians to “our team.” The opportunity to keep revenue in house is enormous. I talked to one such system who claimed to have moved $1 billion in revenue in-house over a couple of years using this model (more than 10 percent of total revenue).

Clearly, not everyone can win. One person’s leakage is another person’s revenue. So expect the battles over market share, particularly in secondary service territory markets, to intensify dramatically over the next year as more and more systems take risk and seek a way to fund that transformation.

 

Ian Morrison, Ph.D., is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Speakers Express.