BCBSIL Refuses to Negotiate Jointly With “Affiliated” Providers. Now What?

ILACO

Tensions between health plans and care providers have taken an fascinating turn in Chicago. Blue Cross Blue Shield of Illinois (BCBSIL) is refusing to allow care providers “affiliated” through a clinical integration agreement to negotiate contracts jointly.

The ramifications for future network contracts are significant and could play out very differently in other health care markets.

Background

In February 2014 Advocate Health Care and Silver Cross Hospital announced a clinical integration affiliation agreement. Advocate is the state’s largest hospital network and Silver Cross is an independent, suburban hospital. The Chicago Tribune reported on details:

Under terms of the affiliation, which is slated to last a minimum of five years, about 300 doctors who practice at Silver Cross will join Advocate Physician Partners, a 4,400-doctor organization jointly governed by Advocate and the physicians…

Although the hospital will retain its brand, board and balance sheet, it will enter into contracts with insurance companies and government programs under Advocate, and its physicians will fall under Advocate Physician Partners. Advocate will treat the hospital like any of its other 11 facilities financially, assigning pro-rata costs to the Silver Cross in the same way it would Advocate Christ in Oak Lawn or Lutheran General in Park Ridge.

As noted a February article in Crain’s Chicago Business,  the intent of the agreement had been to allow Silver Spring to participate in Advocate’s accountable care organization network and to negotiate contracts jointly:

For New Lenox-based Silver Cross, the deal means participation in programs in which providers and hospitals are paid in part for good outcomes rather than volume. It wouldn’t have been able to launch these on its own due to the hefty investments needed to start from scratch. “It’s a make-or-buy decision,” said Ruth Colby, Silver Cross’ senior vice president of business development and chief strategy officer. “When we saw that we could do an affiliation, we felt we could rapidly get ready for changes in reimbursement.”

However, the state’s dominant health insurer has said “Not so fast”.  The headline of an October 8 article in Crain’s Chicago Business read “Blue Cross delivers blow to small hospitals”

Blue Cross won’t negotiate reimbursement rates with affiliations created by separate health systems that clinically integrate rather than those under common ownership, Dr. Lee Sacks, chief medical officer of Downers Grove-based Advocate, said during a meeting yesterday with the Crain’s Chicago Business editorial board.

So, what we have here is a new slant on an old issue — the fight for market power among health plans and care providers. Health plans will prefer a “divide and conquer” strategy, while providers will prefer a “united we stand” strategy toward pricing and contract negotiation.

Why It Matters

The Illinois scenario is a pretty good prototype of market dynamics in many other markets across the U.S. — a dominant health plan,  a strong regional delivery system, and a smaller independent hospital. Similar affiliation scenarios are likely to play out in markets across the country, but will the results be the same?

ACOs: We’re NOT There Yet

by Brian Klepper

On The Health Care Blog, veteran analyst Vince Kuraitis reviews a report from the consulting firm Oliver Wyman (OW), arguing that the trend toward reconfiguring health systems to deliver more accountable care is more widespread than any of us suspect.

“The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise,” our analysis finds that 25 to 31 million Americans already receive their care through ACOs-and roughly 45 percent of the population live in regions served by at least one ACO.”

OW provides a well-reasoned analysis and conclusions, but I’m skeptical. In discussions with health system executives around the country, I hear some movement toward change, but relatively few organizations are materially turning their operations in a different direction. The specter of policy change is looming, but it is still abstract. As I’ve described before, market forces are intensifying, but they’re mostly still scattered and immature.

ACOs: Are We “There” Yet?

 

A  recent analysis of the ACO market by Oliver Wyman market suggests we’re well on our way toward being “there”.

My personal take on this report:

Provocative, fresh, thoughtful, well reasoned, expansive — albeit a bit of a stretch

However, I suspect many others will describe it as: 

Speculative, harebrained, unsupported, overly extrapolative, out-to-lunch, wishful to the point of being woo woo

So now that I hopefully have your attention, what’s this report all about? In a nutshell: 

The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise”, our analysis finds that 25 to 31 million Americans already receive their care through ACOs—and roughly 45 percent of the population live in regions served by at least one ACO.

Let’s dig in to the report. In this blog post, I’ll summarize their math, surface their critical assumptions and observations, and comment on their reasoning. I’ve indented direct quotations from the report and have italicized wording that spells out the major assumptions.

While I don’t agree with all of Oliver Wyman’s math and assumptions, I applaud them for the process they have gone through. Please take my commentary as “quibbling at the edges” and that overall I’m on board with their methodology and conclusions.

Are Hospital Business Models on a Burning Platform? Not Yet, But It’s Inevitable.

From reading recent headlines, one might easily get the impression that hospitals are resistant — or at least ambivalent — in their pursuit and adoption of accountable care initiatives.

Are Hospitals Dragging their Feet on Accountable Care?

Commonwealth Fund: “only 13 percent of hospital respondents reported participating in an ACO or planning to participate within a year”

KPMG Survey: “(only) 27 percent of [health system] respondents said current business models were either not very or not at all sustainable over the next five years”

Health Affairs: “Medicare’s New Hospital Value-Based Purchasing Program Is Likely To Have Only A Small Impact On Hospital Payments”

The Bigger Picture

Do hospitals today perceive their current business model on the metaphorical “burning platform” — when the status quo is no longer an alternative?

Physicians Shouldn’t Wait for Big Data: “Small Data” Can Jumpstart Your Care Management Program

by David C. Kibbe MD, MBA and Vince Kuraitis JD, MBA

Everywhere we turn these days it seems “Big Data” is being touted as a solution for physicians and physician groups who want to participate in Accountable Care Organizations, (ACOs) and/or accountable care-like contracts with payers. We disagree, and think the accumulated experience about what works and what doesn’t work for care management suggests that a “Small Data” approach might be good enough for many medical groups, while being more immediately implementable and a lot less costly. We’re not convinced, in other words, that the problem for ACOs is a scarcity of data or second rate analytics. Rather, the problem is that we are not taking advantage of, and using more intelligently, the data and analytics already in place, or nearly in place.

For those of you who are interested in the concept of Big Data, Steve Lohr recently wrote a good overview in his column in the New York Times, in which he said:

“Big Data is a shorthand label that typically means applying the tools of artificial intelligence, like machine learning, to vast new troves of data beyond that captured in standard databases. The new data sources include Web-browsing data trails, social network communications, sensor data and surveillance data.”

Applied to health care and ACOs, the proponents of Big Data suggest that some version of IBM’s now-famous Watson, teamed up with arrays of sensors and a very large clinical data repository containing virtually every known fact about all of the patients seen by the medical group, is a needed investment. Of course, many of these data are not currently available in structured, that is computable, format. So one of the costly requirements that Big Data may impose on us results from the need to convert large amounts of unstructured or poorly structured data to structured data. But when that is accomplished, so advocates tell us, Big Data is not only good for quality care, but is “absolutely essential” for attaining the cost efficiency needed by doctors and nurses to have a positive and money-making experience with accountable care shared-savings, gain-share, or risk contracts. The promotional literature for Big Data is peppered with jargon and catch phrases — “close to the point of care,” “synthesizing large amounts of information,” “transformational analytics,” and so on — that promise to “de-fragment” the current health care environment and offer predictive insights that the doctors, nurses, and patients do not now possess.

This all may be true. But why wait for Big Data to be put in place, when what we’ll call “Small Data” is already available and can offer information and analytical insights sufficient to get a good start on care management programs capable of improving quality and reducing some unnecessary costs?

The ACO Antitrust Police — Nothing to Do

One of the biggest concerns about ACOs has been their potential to enable market consolidation— that by uniting health care providers the ACO gains market clout and ability to charge higher prices.

While this is a legitimate concern about ACOs, so far it’s not playing out.

Why?

 

Medicare Announces 27 ACOs. A New Species?

I’m surprised and intrigued by Medicare’s announcement of 27 new Shared Savings model ACOs.

Surprised

I had been anticipating this announcement as a defining moment for Medicare’s thrust into accountable care. My expectations had been that we would see either:

Boom — a big splash of new Medicare shared savings ACOs announced, including big name hospitals and medical groups that were starting large scale ACOs, perhaps with hundreds of thousands of patients.

Bust — no one showed up at the party. Providers would have concluded that Medicare ACOs were too risky, bureaucratic, and high effort.

Intrigued

What we got is something in the middle:

Will Health Plans Want to Contract with ACOs? Maybe, Maybe Not.

On the Perficient Health IT blog, Christel Kellogg writes:

I am hearing that carriers are staying away from ACOs and are not planning on partnering.  What have you heard?

This is one of those blip-on-the-radar-screen comments that jarred my attention — and it raises very important questions about industry dynamics.

First, let me expand on the issue.  As I’ve written before, there are at least two broad categories of “accountable care initiatives”:

1) Formal Accountable Care Organizations (ACOs) by which care providers contract with Medicare

2) Informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans.

The list of accountable care animals in the forest is likely to keep growing. For example, just this week Oregon announced details for CCOs (Coordinated Care Organizations) for Medicaid.

So how are different stakeholders likely to react to the opportunity of a formal ACO contracting with commercial health plans? Let’s look at this from a couple of different angles.

A 6th Difference Between ACOs and “AC-Like” Arrangements

Last week I wrote about five key differences between formal ACOs (mainly care providers contracting with Medicare)  and informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans.

  1. Transaction costs
  2. Timing
  3. Incrementalism
  4. Flexibility
  5. Capital cost

There’s an important  6th  difference worth noting:

Visibility

Elephants

Formal ACOs will be visible from miles away — think elephants on the Serengeti.

An ACO that wants to contract with Medicare must establish itself as a corporation. The Medicare ACO models have substantial disclosure and reporting requirements. We won’t know everything about formal ACOs, but we will know a lot. ACOs cannot hide.

Chameleon

AC-Like arrangements between care providers and commercial payers could be much more difficult to spot and categorize — think chameleons in the jungle.  

Platform Failure and Success: Lessons from Outside Healthcare

Healthcare is just starting down the road of adopting platform technology and business models. What lessons can we learn from other industries?

A recent article by Andreas Constantinou in Vision Mobile blog provides guidance. The article lists a Dead Platform Graveyard from the past 10 years — you will probably recognize some of the names: Meego (Nokia/Intel), Palm 5/6, Symbian OS (Nokia) WebOS (HP), Windows Mobile (Microsoft). Blackberry RIM is a candidate to make next year’s list.

Software platforms have failed for a combination of reasons:

  • Cost of ownership
  • Conflicting revenue model
  • Lack of network effects
  • High adoption barriers

The author also provides great lessons and guidance as to what DOES work: