Reform Update: Anthem's Vivity alliance with seven L.A. systems aims at Kaiser

News of an unusual joint venture between Anthem Blue Cross and seven Los Angeles health systems signaled new competition for Kaiser Permanente, the integrated health system with one of California's largest insurers. It also underscores the eagerness across the industry to broker novel and riskier deals in an increasingly competitive marketplace.

The new company—called Vivity—will seek to replicate some of Kaiser Permanente's success managing the use and cost of healthcare, but without the ownership Kaiser has over its health plans and health system. To do so, participants in the joint venture agreed to share equally in profits and losses.

The venture will market a new health plan to employers with no deductible and premiums 10% below competitors, according to Anthem Blue Cross, a division of publicly traded insurer WellPoint. Patients who select the health plan will be limited to a select network of providers, which includes 6,000 doctors and 14 hospitals. The California Public Employees' Retirement System agreed to include the Vivity network in its HMO plan.

Health economist Jonathan Gruber described the move as an overdue reaction to Kaiser's integrated model. “When it comes to healthcare cost control, if the market is going to solve our problems, it has to be through competing systems,” said Gruber, a professor at the Massachusetts Institute of Technology.

“For years, the question has been why hasn't this happened?” Gruber said. Hospitals and health plans lacked the incentive to more closely coordinate, he said, but the more expensive healthcare grows, the more price-sensitive consumers become. The move by Anthem and health systems to compete with Kaiser Permanente suggests that rising healthcare prices have “reached the breaking point,” Gruber said.

The Patient Protection and Affordable Care Act's new insurance markets and publicly reported premium prices have also made consumers more aware of price, giving plans and providers more incentive to find new ways to compete on cost, he said.

The network of seven health systems joining hands with Anthem—Cedars-Sinai Health System, Good Samaritan Hospital and UCLA Health, all in Los Angeles; Huntington Memorial Hospital, Pasadena; Memorial Medical Center, Torrance; MemorialCare Health System, Fountain Valley; and PIH Health, Whittier—will work to coordinate medical care for patients and manage medical costs.

But success will require clear communication and tight coordination of medical care across seven independent health systems, something with which single health systems struggle. Kaiser Permanente's advantage here is clear. “There are seven different ways of doing things,” said Steve Valentine, president of the Camden Group, a consulting firm based in Los Angeles.

Kaiser officials touted their organization's integration as an advantage after Wednesday's announcement. “The fact that our system is not just stitched together from existing parts, but has actually been built with this integration as the goal, will be difficult for others to copy," said Peter Andrade, senior vice president of California sales and account management for Kaiser.

Anthem and its partner health systems risk losses unless all members perform well. Profits and losses will be shared equally among the members, said Anthem's Pam Kehaly.

The participants' shared earnings or losses on the venture will depend on what remains of the premium revenue after medical and administrative expenses. The plan will be marketed to fully insured employer groups starting Oct. 1 and may expand into California's health insurance exchange--but not before the partners gain experience.

“We want to be purposefully small,” she said. “We don't want it to fail right off the bat.” Anthem may eventually expand the approach to other markets.

The model is similar to accountable care contracts that have emerged in the private insurance market and in Medicare under the Affordable Care Act. Accountable care ties financial incentives to targets for reduced health spending and quality. ACOs under Medicare have struggled to slow spending enough to earn incentive payouts.

“That is a pretty bold play,” said Leemore Dafny, former deputy director for healthcare and antitrust with the Federal Trade Commission and professor with Northwestern University's Kellogg School of Management. “It's not obvious how they're going to reduce hospital occupancy and come out on top.”

The partners' willingness to enter into such a risky agreement reflects the mounting pressure faced by health insurers, hospitals and doctors to blunt rising medical costs. The Patient Protection and Affordable Care Act, too, has created new incentives, increased price transparency and created a new market for the newly insured.

“The current market is in such turmoil that people are willing to agree to a lot of things,” said Mark Pauly, a professor of health management at the University of Pennsylvania. “They don't know where history is going to end up, but they want to end up on the right side of history. It's made hospitals a lot more willing to agree to things that they might have rejected out of hand.”

That turmoil is apparent in joint ventures, mergers and acquisitions across the industry. Recent deals have created new regional mega-systems, such as the proposed merger of Advocate Health Care and NorthShore University Health System in the Chicago suburbs. Others have united rivals under new joint ventures to operate health systems, health insurers or post-acute care, as has been the case with a string of recent agreements secured by Ascension Health. One, for example, will unite Michigan hospitals owned by Ascension Health and CHE Trinity Health to jointly contract across the entire state.

The CMS released the latest look at Medicare accountable care this week, with a report of ACOs performance on savings and quality targets. The report captured update and new results for ACOs through the end of 2013. The mixed performance is similar to uneven results for Medicare ACOs reported in January. Of the roughly 250 Medicare ACOs, one-quarter earned bonuses based on performance. The bonuses totaled $445 million. Medicare saved another $372 million. Scores for quality improved for many measures. Pioneer ACOs, a small group that Medicare's Innovation Center recruited to test accountable care, saw an average increase in performance scores of about 15% across 33 measures. ACOs in the larger Medicare Shared Savings Program improved performance on 30 of 33 quality measures, though CMS did not release additional details.

Follow Melanie Evans on Twitter: @MHmevans