Private sector claims health reform success in setting low premiums

A private sector partnership between insurers, hospitals and physicians says it has found the solution to healthcare coordination that federal regulators are desperately seeking.

By working together and breaking down barriers, the partnership says it was able to keep premiums flat for 40,000 California state workers in the Sacramento area - saving the California Public Employees' Retirement System $15.5 million last year.

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The key, they said, was trust.

"The problem is we have this kind of 18th Century model of hospitals and doctors and payers, all scattered," said Wade Rose, vice president of external and government relations for the Catholic Healthcare West (CHW) nonprofit hospital system. "The science has moved ahead but our organizational methodology has lagged behind, so we're trying to get a better match."

CHW and its partners - Blue Shield of California and the doctors' network Hill Physicians Medical Group - say federal officials could learn from their experience, as they seek to encourage similar partnerships in the Medicare program. Regulators rolled out proposed rules on how to structure the healthcare reform law's Accountable Care Organizations with great fanfare earlier this year, but the nation's leading healthcare providers so far aren't signing on.

The proposed rule, Rose said, "sets the bar too high and creates incentives too low. So you really have to question whether it's worth it, especially in relationship to what we're already accomplishing."

Regulators say they're taking public comments into consideration as they revise their proposal.

The California ACO, the partners said, was born of necessity rather than politics. After rising by 11 percent annually in recent years, Blue Shield of California family premiums were on track to reach $39,000 - 50 percent of the median income - by 2020, a "social and political tipping point" according to Executive Vice President Paul Markovich.

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"We have to make it affordable," Markovich said, "or the business simply won't be there."

The first step was to find the right partners, he said, and create a legal framework they could all live with since all three were taking a huge risk by guaranteeing low premiums upfront. The proposed regulation lacks that flexibility, critics say.

"We've seen ACO-like entities emerge on business models of their own choosing ... and that was a good thing," former Republican Congressional Budget Office Director Douglas Holtz-Eakin said at a Senate hearing this past week.

The proposed regulation "is literally a one-size-fits-all, put-the-hospitals-in-charge disaster. It's not going to work,” he said.

Another criticism of the regulation is that it doesn't tell providers upfront which Medicare beneficiaries are in the ACO versus traditional Medicare. Regulators say they don't want to assign patients against their wishes, but providers say that if they're going to be paid for keeping people healthy rather than on a per-procedure basis, they need to know whose outcomes they're financially responsible for.

"We wanted to make sure for example that the patient had a follow-up visit with his or her primary care physician within 10 days after discharge," Markovich said. "If you don't know who that patient is that you're responsible for, among other things you're not going to know who that patient's primary care physician is."

Another criticism of the regulation has been that it offers too little upfront investment for providers to create ACOs, but the California partnership discounted that. They said physicians, insurers and hospitals can save large amounts of money by pooling their resources and stop working at cross-purposes, for example by eliminating the wasteful concurrent review process that has three teams of nurses separately checking up on the same hospital patient.

Markovich said Blue Shield of California is seeking to expand the Accountable Care Organization model to Medicare Advantage and other markets, and he's hopeful that half or more of patients will be in such arrangements within five years. BSA's recent announcement that it will cap profits at 2 percent could help, he added, by encouraging hospitals and physicians' groups to sign on since they know savings will serve to make healthcare more affordable rather than pad insurers' profits.