Harvard Pilgrim CEO talks about narrow networks and reform

Since 2010, Eric Schultz has been CEO of Wellesley, Mass.-based Harvard Pilgrim Health Care, one of the largest not-for-profit health insurers in New England with more than 1.2 million covered lives in Connecticut, Maine, Massachusetts and New Hampshire and $2.6 billion in annual revenue. Schultz previously was the CEO of Massachusetts insurer Fallon Health and has held executive roles at Cigna Corp. Schultz also sits on the board of America's Health Insurance Plans. Modern Healthcare reporter Bob Herman recently spoke with Schultz about Harvard Pilgrim's experience with the Obamacare insurance exchanges, emerging profit-sharing ventures between insurers and hospitals, re-entering the Medicare Advantage program, and his views on the expansion of Partners HealthCare in Massachusetts. This is an edited transcript.

Modern Healthcare: What has been your company's experience with the healthcare reform law's exchanges?

Eric Schultz: It varies by state. Payers in Massachusetts have had a number of years of experience working with the Connector exchange and reaching out to consumers. That has generally gone well up until the most recent year when Massachusetts needed to move over to a new computer program that lines up with the requirements of the Affordable Care Act. That has gone really poorly.

It was, frankly, a mess where individuals would come in, think they were purchasing and enrolling in a plan, and the technology was unable to communicate and send the information to the various payers. It was a very frustrating experience for the consumer and for the health plan. To minimize the fallout, a number of individuals were continued on a subsidized plan even though they might not have been eligible for a subsidy, just to keep stability in the marketplace.

The good news is, with good leadership in the past few months, technology support and the chief technology officers of each of the local health plans working together, the enrollment cycle for this fall is going to be much better than what it would have been. It's not perfectly fixed, and it won't be. But we're optimistic that the process will go reasonably well.

MH: What were the margins on your exchange plans? Were you losing money on them?

Schultz: Yes, in Massachusetts anyway. If you look at the financials of Massachusetts' plans, you'll see that it's a very tough financial year. There are a variety of drivers behind that. We have a very aggressive state law setting the minimum medical-loss ratio at 89% for this year. When you pile on top of that the significant administrative cost of going through all the unfortunate Connector issues, you just cannot make a margin.

In New Hampshire and Maine, Harvard Pilgrim is now on the exchange for each of those states effective Jan. 1, and we're excited about that and we'll see how that goes. We've got some very good product options there. Both of those states are very happy about having new options available. In New Hampshire, there was only one option last year through Anthem, based on a narrow network. In Maine, there were a couple of options. So both states will have more options this year. We are not in the Connecticut exchange for this coming year.

MH: Can you talk about this trend of hospitals and insurers coming together to create narrow-network products?

Schultz: All over the country we're seeing the emergence of provider networks that are something less than all of the hospitals and physicians in that service area, and they're being dubbed narrow networks. If you've seen one, you've seen one. We have a network in Massachusetts called Focus Network, which is actually very broad, including about 75 hospitals.

What's different in New Hampshire is that Harvard Pilgrim, Dartmouth-Hitchcock and Elliot Health System came together a couple of years ago and said, 'We want to create a network, which we will call Elevate Health.' The idea was to be open to all hospitals and physicians who would agree to build a model focusing on transformation of care delivery, cost efficiencies and improved outcomes. It started out rather narrow. But as we progressed and the other providers saw what we were trying to do together, we now have a very broad network covering the whole state.

This is a true joint venture where we're distributing the margins that are left over at the end of each year. It changes the incentives by putting all of us into the boat together and working on product design, care- delivery transformation, and investing in innovations such as telehealth. It's a young relationship that I'm very excited about. I want to take what we learn and bring that to the other states where we're operating.

The first year we sold this plan to about 150 employers, mostly small firms. But so far, it's been performing financially well. Our target as a not-for-profit plan and in this joint venture is to achieve a 1- to 2-point margin so we can keep the prices aggressive and distribute the majority of the premium to the providers. So far, so good.

MH: Harvard Pilgrim started offering a Medicare Advantage Plan again in 2014, after a previous foray. How's that going?

Schultz: It's going well. If we're going to develop unique, long-term relationships with providers, they're very interested in working with partners who cover commercial and over 65. You can't do it just in the under-65 commercial space. The plans that do well in Medicare Advantage are ones that have good working relationships with the provider systems. It's very much a strategic play related to our providers.

The enrollment that's underway right now is looking pretty good. We are in three states and about a dozen counties across Massachusetts, New Hampshire and Maine.

MH: Two years ago, your company signed a four-year contract with Partners HealthCare. How do you approach contract negotiations with Partners? And what are your thoughts on Partners and Massachusetts trying to come to an agreement over Partners' market leverage with insurers?

Schultz: Partners is made up of wonderful hospitals, physicians, nurses and staff. But is the price for their services something that's sustainable in the market? My strategy is to work with Partners where we can, negotiating the best long-term risk arrangements. But when a provider such as Partners has greater market control because of their brand and/or their geographic stronghold, we're less able to get deeper discounts than we are with some other providers.

My big focus is developing the transparency tools for consumers. We created Now iKnow, which is the tool that puts in the hands of consumers what the cost and quality of Partners is. Consumers need to decide if they want to spend up to 40% more for a procedure that they can get at a local facility whose quality is the same or better. I don't think the tide will change until the consumer is fully informed and in the driver's seat.

MH: What if transparency isn't enough to bring prices down?

Schultz: Transparency by itself is not going to be the answer, and provider contracting with risk arrangements is not the panacea. It's really a combination of tools. But for the first time, we are starting to engage the consumer in a very different way. It's taken us a decade or two to get to this point. It's not going to change overnight. I believe the combination of all these tools will make a difference. There's no silver bullet.