Back to the future in La La Land

A new joint venture linking California's second-largest insurer and seven major providers in a defined network that will compete directly with Kaiser Permanente throughout greater Tinseltown represents a major milepost in the nation's movement toward healthcare network competition and value-based care.

The significance of the move,see this week's cover story, shouldn't be underestimated. First, Vivity, which will be co-owned by its partners and assume financial risk for its patients, is set in the nation's second-largest metropolitan area, which has been notoriously resistant to change.

Second, the joint venture includes two of Los Angeles' leading academic and research medical centers: Cedars-Sinai Health System and UCLA Health. Over the years, both have been able to charge very high prices because patients in status-conscious L.A. prefer prestigious providers.

Their presence means Vivity's most visible co-owner, Anthem Blue Cross, a unit of WellPoint that in December will officially assume the Anthem name, can never be accused of constructing a narrow network dependent solely on price to attract customers. It also suggests those institutions have been willing to bend on price.

Third, the immediate positive response from major purchasers like CalPERS, the state's giant public pension fund, is highly significant. The initial target of 15,000 enrollees in the first year is modest. No doubt, the partners still have qualms about their ability to coordinate care among a set of providers who are not used to collaboration and whose broader self-interests are still bound up in fee-for-service medicine.

But California employers and their employees long have been more receptive to capitated payment models than the rest of the country. There's a reason why Kaiser has more than 40% of the statewide market. Employers who have resisted Kaiser's closed system may be enticed by a fixed annual payment for every beneficiary, and the opportunity to offer their workers no deductibles and lower co-pays in a network that offers them broader choice.

Vivity—assuming its pricing is competitive—could make inroads among Kaiser's existing customers. Its larger opportunity, though, may be among employers with traditional health plans, many of whom are busily engaged in figuring out an exit strategy from their risk under fee-for-service medicine.

It's possible that comprehensive networks surrounding best-in-class hospitals will become a viable alternative for the thousands of employers who are stampeding to high-deductible plans. That fast-spreading option—probably already a quarter of the private insurance market—risks alienating employees and incentivizes care avoidance. Numerous providers already are fretting that population health mismanagement lies down the road.

Vivity, as analysts have pointed out, is similar in structure to the HMOs that swept through the health insurance marketplace in the 1990s. Back to the future, indeed.

This time, however, the providers are not only willing participants but have a financial stake in the success of the joint venture. If Vivity can attract a critical mass of consumers, it should incentivize its provider partners to collaborate in care coordination and to begin moving the needle on eliminating unnecessary procedures.

There are technical issues to overcome. High on the list is the lack of interoperability between the partners' various electronic health-record systems. It spoke volumes about the state-of-play in the health IT industry when Vivity's partners announced they would initially rely on Anthem's claims records to coordinate care.

There could also be antitrust concerns, although that's probably not an issue in a large, sprawling market like L.A. and for partners assuming financial risk. When just two or three competing networks emerge in a midsized market, regulators may well see the potential for price-fixing that benefits both the insurers and providers in ostensibly competing networks.

And there's still the issue of establishing trustworthy benchmarks for consumers to evaluate the quality, safety and outcomes of competing systems. Those are the measures that matter most to many consumers.

The networks emerging across the country still don't offer reliable and easily interpreted data that will allow potential customers to evaluate the competition. Price isn't everything, and the absence of transparent quality data will slow the emergence of the HMO-ACO hybrid model unveiled last week in L.A.

Follow Merrill Goozner on Twitter: @MHgoozner