Targeting Self-Insured Populations

Healthcare providers are discovering strategic opportunities with large employers that are self-insured, but they need to be willing to partner more directly with payers and employers.

This article first appeared in the July/August 2014 issue of HealthLeaders magazine.

Delivering value is paramount to any healthcare executive who is fighting for his or her organization's place in the industry going forward. But the devil is in the details, and how you get there is dependent on a wide variety of factors. Two organizations—one that has already made the transition and one in the early stages of it—show that any executive who is hanging on to what currently works in healthcare (still largely volume-based fee-for-service reimbursement) is in a very dangerous situation.

So says Robert Mecklenburg, MD, medical director for the Center for Health Care Solutions at Virginia Mason, a Seattle-based system that includes a 336-licensed-bed hospital, a 460-plus multispecialty physician group practice, and a network of regional clinics. He knows of what he speaks; years ago, he and his colleagues at Virginia Mason found themselves in the kind of crisis that many of their peers are now facing. In fact, the Center for Health Care Solutions owes its very existence to a frank meeting between the health system's executives and local large employers that dates to 2004.

"They appreciated our innovations on adapting the Toyota production system to healthcare, but they said our healthcare was not affordable. They said, 'We're going to consider a variety of choices, including taking you off our network of providers,' " Mecklenburg says.

Quite a threat.

And quite an opportunity.

For all healthcare consumers, whether that consumer is a patient, a health plan, or an employer, one thing is clear: Seeking closer cooperation from employers and treating them as a partner to help reduce their cost of healthcare is a winning strategy.

A sense of urgency

"There was an immediate sense of urgency, and you could call it even a crisis," says Mecklenburg of that initial meeting. "Not only would we not want to lose the business from these iconic multinational employers that are so important to our economy, but people say don't waste a good crisis. My job [at the time] as chief of medicine was to lead the change to a systems-based practice."

Mecklenburg first met with employer representatives and those of their third-party administrators in August 2004. In November 2004, representatives of those employers met with Virginia Mason's physicians and showed the physicians the cold market forces that were driving employers to consider other options.

"These were the people who were writing their checks," Mecklenburg says, noting that getting physician buy-in for making drastic changes in care protocols was immediate; he thinks a lot of that urgency developed because the doctors heard directly from the source. "Following that meeting, I asked them to come inside Virginia Mason in February 2005 and begin working on this together."

Mecklenburg says at this early stage, well before the Patient Protection and Affordable Care Act and well before health plans began working directly with providers to help lower the cost of care, all constituencies in the Virginia Mason meetings realized health plans had to change the way they were paying for healthcare, and employers had to change the way they were buying it.

"If we just changed the production model, and purchasing and payment didn't change, we would get nowhere," Mecklenburg says. "All three had to happen."

To address this, the three partner groups (employers, the health system, and payers) created what they call marketplace collaboratives, where the groups would come together to mutually support and hold each other accountable in terms of delivering value to their common customers, defined as patients. That's a critical change, in that healthcare as an industry still lacks consistency on who the customer is. While the patient is always the one receiving the care, different areas of the health system might see the hospital as the customer, or the physician, or the employer. That problem still exists.

Defining the customer as the patient, says Mecklenburg, allowed the three groups to sit down together and work out the complex issues of curtailing unnecessary utilization or finding more cost-effective ways to move patients through a variety of care protocols, depending on the patient condition or diagnosis. The significant indication of the progress, he says, can be found in the fact that the employers have stuck with Virginia Mason and are convinced that it offers the best available value for their employees.

Managing populations

Much has been learned since Virginia Mason began its journey 10 years ago, but healthcare is regionally variable, and some areas of the country are just getting started on their value journey. They have seen that, often, they are their own worst enemy.

Troy Thibodeaux, CEO at Covenant Health-Lubbock in Texas, didn't need to have a meeting with local employers to know that his health system—with four hospitals and 977 licensed beds—needed to be more efficient. He just needed to look at the escalation in cost to cover the health system's own 5,000 employees. He hopes eventually to be able to work closely with employers—Thibodeaux attributes slow progress in that area in part to a lack of "large" employers (defined as employing 500 or more) in his region—but for now, the system is working more closely with insurers to help design care pathways that will eventually enable it to take risk on patient populations beyond its own employees.

Covenant certainly qualifies as a large employer, and that group represented the system's first shared savings experience. The partnership came relatively easily not only because it featured Covenant's own employees, but because the third-party administrator is the system's own health plan, FirstCare. Covenant Health Partners, a physician hospital organization with 320 physicians, is also heavily involved in helping move physicians from volume-based to value-based care protocols.

"We were successful in achieving significant savings," says Thibodeaux, who adds that since then, the health system has entered into "a couple" of other agreements on shared savings, one with the Centers for Medicare & Medicaid Services that feature local populations. The system is just starting those programs and, unsurprisingly, is focusing on moving toward population health management.

Thibodeaux says the system is not yet ready for total risk contracting, but it's getting closer through its work with local populations to better coordinate care for the chronically ill, where much of healthcare expense is found. It's using a population health management tool called Crimson and is extracting data from the health plan to help identify and intervene with such populations.

"There's two segments of that population we're focused on: navigating the chronically ill and the next category of patients, those at high risk of slipping into a chronic disease category," he says. "That's the key population. If we can reach them, it's less costly to apply preventive measures to that population, and the savings are huge."

Integration critical

None of this work is possible without physician cooperation on an unprecedented level. It helps to either have a clinic model of care, where all physicians are employees of the health system, as in Virginia Mason's case, or to have a strong and complete primary care network and alignment mechanism, as Covenant Health Partners does.

"That's absolutely critical," Thibodeaux says, "but you also have to have information sophistication at your fingertips to manage a population of patients. We're making significant investments in each of those, including patient and physician portals for health information exchange, as well as a significant increase in primary care and clinic integration."

Covenant Health is further preparing to take on risk for populations through formal partnerships with the federally qualified health centers in the area.

"Through one of these partnerships, we are utilizing care navigators in our ED to connect patients with the FQHC and a primary care provider," Thibodeaux says. "That's been very successful, and we've seen a 6% reduction in ED visits as well as a reduction in unnecessary return visits to the ED."

Of course, that means patient volume will inevitably decline.

"It's a double-edged sword," Thibodeaux says. "Our volume has gone down this year, too. But we track the patients we refer to them, and those patients are utilizing the ED less and becoming more compliant taking care of themselves."

Covenant began four evidence-based protocols a year and half ago, and Thibodeaux stresses that is a work in progress.

"We had success with two and were not so successful with two others," he says, mentioning general surgery and gastrointestinal departments as the bright spots. "We're hoping our new EMR will help drive more compliance with evidence-based protocols."

He sees particular opportunity in courting employers and payers, though.

"We are seeing employers, local ones, shopping the networks looking for lower cost and higher quality," he says. "We've already developed a narrow network product that we offered on the exchange through our owned insurance company."

Covenant intends to sell that narrow network not only to individuals but also to employers. It can be a mechanism to bid for school district contracts and some other employer contracts immediately. An important caveat to Covenant's current narrow network offerings, says Thibodeaux, is that they are not competitive from a price standpoint with Blue Cross and some of the other larger payers. The differentiator, he hopes, is that "with Crimson, we can demonstrate the quality and efficiency metrics. Premium's not everything."

Worrying about making the transition to value-based care can be debilitating. This transition fundamentally risks putting your organization out of business. If you do it right, your organization will definitely see lower inpatient volumes, and the risk of lower revenue is great. That's why executives have such a hard time knowing when to act and how strongly. But like Virginia Mason 10 years ago, they may find that once they dive in, revenue can be managed.

"While Virginia Mason did not have a decrease in revenue or patient volume to due value-based care, our real, fundamental problem was we had become burdened with a huge amount of waste," says Mecklenburg. "We could not support all that waste even with the ample revenue stream we had."

But Mecklenburg's challenge, as well as that facing his fellow executives, is that his job is to ensure optimum quality of care and reduce waste, while being attentive to the financial condition of the institution.

A helpful way to think about it, he says, is that some of the waste you're focused on eliminating represents part of the revenue stream. "In some cases, reduction in the waste in healthcare delivery is associated with reduced revenue. However, this is more than offset by increases in patient volume and a reduction in production costs, as it is a cost reduction strategy."

With that in mind, he says, "be mindful of revenue but take the cost structure down."

That means, among other changes, fewer FTEs, less imaging equipment, and using advanced registered nurse practitioners instead of doctors in certain cases. Further, you have to have the ability to have frank discussions with your payer and employer partners to make sure the journey is fair to the provider.

"When you start to look at these value streams, you may find that value-added care does not receive adequate reimbursement," he cautions.

He cites an example with Starbucks and its payer Aetna. Virginia Mason's team saw that for a true evidence-based process to be implemented for imaging, the decision rules for ordering MRIs would drop MRI volume by 20%.

Also, instead of using specialty consultants for back pain, Mecklenburg says, "we could reduce the cost of giving the care by using physical therapists instead of a specialist for uncomplicated back pain. When we did this, we improved cost for everyone; however, when we looked at the physical therapy visit, we actually lost money on that visit."

Mecklenburg says that with an open process, Starbucks and its benefits director were able to see proof that Virginia Mason had taken costs out, Starbucks saved money because of that, and the health plan had a better product to sell.

"But you can't get around the fundamental fact we needed a few more dollars for PT visits," Mecklenburg says. That boost in reimbursement was agreed to quickly through Starbucks and Aetna.

The key to making the transition is involving employers, payers, and when possible, providers, on the journey, Mecklenburg says.

"There's plenty of opportunity for everyone and there's no reason all three partners can't make contributions," he says. "But those who have a yestercare attitude do so at their peril, because market-based health reform is moving much more rapidly than the legislated agenda."

Reprint HLR0814-6