Success with value-based contracts called a balancing act

Some providers are finding that success with value-based contracts depends on whether they can counter lower inpatient volume by adding new customers.

That was the experience at Memorial Hermann Healthcare System when the Houston-based system formed an accountable care organization with Aetna last year. The pricing for its narrow network was set 8% to 15% below the broader networks in which Memorial Hermann participates.

Aetna is anticipating about $3,200 in savings per member over five years, said Dr. Catherine Gaffigan, executive director of strategy and operations for Aetna's West and Midwest regions.

“The expectation is bending the cost curve over time,” she said during a session at the Healthcare Financial Management Association's 2014 Annual National Institute. “Maybe you ride those discounts the first year … but in the out years, this is really about squeezing out utilization.”

But shared savings are the more difficult part of the revenue opportunity in an ACO, said Christopher Lloyd, CEO of the Memorial Hermann Physician Network. Instead, the system is seeing new patients that previously sought care elsewhere.

“We're pushing in more lives faster than we're squeezing out utilization,” he said.

Narrow network insurance products can be attractive to patients if they offer lower premium costs, said Kenneth Kaufman, managing director and chair of consulting firm Kaufman Hall. In one market, a $13 per month difference in price was enough to steer people into a narrow network, even when the health plan excluded most of the area's prominent providers, he said.

Aetna had 1.7 million members across its value-based networks as of the first quarter of this year, according to a spokeswoman. It expects that up to 25% of its medical costs will run through a value-based network contract this year, increasing to 45% by 2017, she added.

Even beyond ACOs, about 50% of the health plans sold on an insurance exchange this year were narrow network plans, according to a report this month from the McKinsey Center for U.S. Health System Reform.

The proliferation of narrow networks can create winners and losers.

In Colorado, Kissing Camels Surgery Center and three other ambulatory surgery centers filed suit in 2012 against HCA and Centura Health, accusing the hospital groups of anticompetitive behavior for discouraging insurance companies from entering into contracts with independent surgery centers.

Ellen Stewart, a Denver-based healthcare attorney at Berenbaum Weinshienk, questioned whether providers would fare better under value-based contracts than they did under capitation in the 1990s. “Insurance companies love them but routinely across the country, providers revolted,” she said in a session at the HFMA meeting.

The pressure then was so strong that some states passed laws making it harder to do capitation, she added. Colorado, for instance, prohibits providers from entering into capitated contracts with health plans unless a licensed insurer is responsible for the risk.

But with accountable care organizations being introduced rapidly across the country, including in Colorado, “There's going to be pressure to do away with those laws,” Stewart said.

Follow Beth Kutscher on Twitter: @MHbkutscher

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