Shrinking the medical bill
Insurers are partnering with providers to find ways to scale back costs
- August 31, 2012
June’s Supreme Court decision on the 2010 Affordable Care Act was a big deal. The 5-4 ruling upheld most of the law’s provisions, including the requirement that almost everyone buy health insurance.
For health insurers the ruling would seem to be good news, since the law is expected to mean that another 16 million Americans will buy insurance by 2019. But nobody’s sure yet exactly how the law will play out. The court decision allows states to opt out of a largely federally funded expansion of Medicaid. And, if the Republican Party wins control of the White House and Congress this November, its leaders have pledged to get rid of the law any way they can.
Health insurers, however, say their attention is focused on medical costs. While federal law was concerned mostly about access to health care, insurers are trying to figure out ways to scale back its ever-rising price tag. “This is an issue of affordability and cost,” says Tom Grote, market president for Virginia for Aetna.
While the court fight over the federal law captured the public’s attention, Grote’s employer and other insurers have been cutting new deals with health-care providers in hopes of fixing a system “that pays for volume instead of value,” he says. “We would have gone this way regardless of the outcome of the health-care reform decision, because the affordability and cost issue doesn’t go away.”
In late June, Aetna and Inova Health System announced plans to go 50-50 on a new program called Innovation Health Plan. It’s the only such arrangement in the country so far. “It puts both the health system and the health-care company on the same alignment as far as our collective goals,” Grote says.
The health plan represents a big change because insurers and hospitals generally work opposite sides of the line. Hospitals and health-care providers are paid each time they perform procedures in addressing a patient’s care. Insurers, on the other hand, want providers to cut back on procedures and accept less pay. “Today under the [existing] system, it’s the more you do, the more you get paid,” Grote says.
The new arrangement with Inova is an effort to provide better care for patients at a lower cost, he says. Essentially, the deal pulls Inova over to the insurers’ profit model of collecting more in premiums than it pays out in services. In the current system, if health-care providers cut the amount of care they provide “it results in less revenue for them and they’re not rewarded for that. But in this scenario, they’re rewarded because they’re a 50-50 owner,” Grote says.
By some estimates, unnecessary treatment constitutes one-third of medical spending in the United States.
For employers, the new arrangement is supposed to produce lower premiums. First, this new partnership has to spend less, which Grote says it will do by paying less for many medical services. Then, “we’ll realize additional savings through efficiencies” in medical care, he says, including wellness programs to help employees stay healthy and combat chronic conditions such as diabetes and hypertension. “Ultimately our vision is we’re going to be able to lower the cost but also bring higher quality,” he says.
Aetna already has an “accountable care” initiative with Carilion Clinic in the Roanoke region. “They understood that over time [the old system] is not going to work, and we have to try new things,” Grote says. “There are health systems out there that very much understand what we’re doing today can’t sustain itself.”
Paying to keep people well
In addition to Aetna’s health plan with Inova, Anthem Blue Cross and Blue Shield is pushing a new patient-centered initiative that leans heavily on primary-care physicians. Dr. Jay Schukman, Anthem’s chief medical director for Virginia, says the new effort will be rolled out to 10 primary-care groups, mostly in the Hampton Roads region, in the fourth quarter this year.
The initiative gets Anthem more involved in the care physicians provide. The program includes specific metrics for measuring health-care outcomes and provides virtual case managers — and in some cases, on-site case managers — to work with doctors’ practices and their patients. “I’d like to start reimbursing primary-care physicians for keeping people well,” Schukman says.
Patients who cost the most and who need the most medical attention typically are chronically ill and are taking multiple medications. The employers of these high-cost workers want to know how Anthem will deal with their needs. The old insurance model of paying medical bills and ramping up premiums won’t work anymore. Employers want fewer medical claims and expect their insurance companies to help them achieve that goal. “That’s really want they’re interested in,” Schukman says. “If we want to get to affordability, we’re going to have to find ways to keep people healthy.”
Pressure from employers is driving the change in the way health care is delivered, says John Shiver, a professor at George Mason University’s College of Health and Human Services who has more than 30 years’ experience in the health-care field. “The market is pushing harder and probably more effectively than the legislation is pushing,” Shiver says.
And the market is breaking down a key wall — the one between the money that insurers make and their payments to providers. Some of the models being introduced now, such as accountable-care organizations, are not really new, Shiver says. They’re just like the HMOs of the past. “We had this over 20 years ago,” he says. The difference now is sharing profits that come from spending less while still providing high-quality care. “It’s a structural change that really puts the insurance company and the provider in the same tent.”
One reason employers are crying for better cost containment is a trend Shiver says has been under way for close to a decade, especially among small businesses. They’ve been buying high-deductible, low-premium health plans that rely on health savings accounts (HSAs) to help pay medical bills. Employees receive tax exemptions for dollars they put in their HSAs. “That’s something that’s flying well below the radar,” Shiver says. “They’re still providing health insurance, but they’ve pretty much shifted all the costs to the employees.”
The main challenge facing the federal health-care law is the continuing uncertainty over how it will play out. “If I were in the health industry right now, I’d be very careful and cautious, but I’d also be ready to be very nimble in anticipation of going in any direction,” he says.
The Amerigroup deal
One big insurer is betting that that the law will change the market for government-sponsored health-care programs. Indianapolis-based WellPoint, the nation’s second-largest insurer, plans to pay $4.46 billion for Amerigroup Corp., the Virginia Beach-based Fortune 500 company that manages Medicaid coverage in 13 states. The federal health-care legislation could expand eligibility for Medicaid to millions more people, and companies like WellPoint see a chance to profit as states looked to managed-care providers to reduce their costs for Medicaid enrollees.
Upon completion of the deal, WellPoint, with its affiliated Medicaid plans, will serve more than 4.5 million current beneficiaries of state-sponsored health-care programs. It will manage programs in 19 states, which have nearly 60 percent of the nation’s existing Medicaid enrollment.
Some critics have questioned the wisdom of the deal, given the fact the Supreme Court ruling allows states to opt out of the Medicaid expansion. Several states already have said that the expansion would put too much strain on their budgets.
But Doug Gray, executive director of the Virginia Association of Health Plans, says don’t underestimate the federal government’s influence. The Supreme Court ruling “says you can’t use funds to punish [states] for not implementing the expansion … that doesn’t mean they don’t have other tools at their disposal to encourage Medicaid expansion.”
Gray also notes that the court’s ruling at least gave the private sector some clarity. “Now we have clear direction on what is the law. Uncertainty is a business’s worst enemy.”
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