So what qualifies as small scale? Well, single hospitals are unlikely to be able to hurdle the significant investment barriers to acquire or create a health plan arm, and even small systems that don’t dominate a single autonomous geographic area are probably out. States sometimes have to approve mergers. The feds certainly do, as antitrust scrutiny is another concern. But Parmenter foresees a trend toward relaxation of those types of controls. That’s why larger systems that can provide a full continuum of care in a well-defined geographical area may benefit from directly taking on the risk portion of a revamped payment system.
“Healthcare reform requires scale and a team approach,” he says. “Sometimes the best way to cooperate is to be owned commonly.”
There are more than a few regional health systems that never divested their health plans. Geisinger Health System, one of the models the Obama administration holds up as the gold standard for accountable care, still has one. So does Sharp HealthCare in San Diego. Spectrum Health in Michigan is another. There are several others, including Fairview Health Services in Minneapolis, which owns 50% of PreferredOne with partners North Memorial Health Care (25%) and PreferredOne Physician Associates (25%).
Fairview Health Services CEO Mark Eustis says his system pioneered a risk-based contract with in-state insurer Medica that led to other contracts that provide a risk-reward component to the health system. These new contracts, most of which were negotiated in 2009 and implemented in 2010, compensate the system not on volume but on value. Its contract with part-owned PreferredOne, the smallest of the four commercial insurers with which the system does the majority of its business, rewards Fairview for managing the total cost of care of patients who are attributed to its primary care clinics. “Two years ago, they were paying us based on discounted fee for service,” he says of the Medica contract, similar to contracts with other area insurers. But success with test projects done in cooperation with Medica allowed Fairview to negotiate similar risk-based contracts with BlueCross, and HealthPartners, two payers with larger patient populations. Such contracts stipulate that the plans will continue to pay a discounted fee for service rate that is less than the annual cost of non-risk-based plans, but that they would also put dollars into a pool available to the health system in return for reaching cost-of-care and quality targets.
“If we delivered better value under the traditional method, that would have pushed our revenue down,” Eustis says of the new contracts, stressing that the new system was aimed at “doing what’s right for patients.”
Fairview is required to track certain quality and cost-of-care metrics to ensure those efficiencies, including: