Last fall, California regulators approved Blue Shield's acquisition of Care1st Health Plan, giving the not-for-profit insurer statewide reach and a greater presence in the state's Medicaid managed-care market. Its total membership roster of 4.5 million makes it the state's third-largest insurer behind Kaiser Permanente and Anthem. Modern Healthcare California Bureau Chief Beth Kutscher recently discussed the rapidly evolving California insurance market with Blue Shield CEO Paul Markovich. This is an edited transcript.
Modern Healthcare: Why do you see a growth opportunity in the Medicaid managed-care market?
Paul Markovich: It can be very difficult from scratch to win a bid to be able to serve that population. The surefire way to enter, over the past several years, has been by acquisition. That requires a willing buyer and a willing seller and mutually acceptable terms. The circumstances and the conditions have to be right and they were in this case.
MH: Do you have other acquisitions or partnerships that you are looking at?
Markovich: I would never say never, but nothing is imminent. We are really focused on making this particular acquisition work. Our partnerships with providers are really the key to our long-term success. We're trying to create a healthcare system that's worthy of our family and friends and sustainably affordable.
It can only happen with physicians, hospitals, other clinicians and members themselves engaging differently in healthcare decisions. We're creating a much more closely integrated partnership with all of those parties. We're clearly setting the bar on how to make it affordable and how to raise the quality of the clinical care and service to the right level. We can't do it at arm's length.
MH: Are you replicating Anthem's Vivity partnership model?
Markovich: I'd say the opposite happened. We started our partnership model and Vivity was in response to that. We actually had our first accountable care organization partnership launched in 2009 with Hill Physicians and Dignity Health in Sacramento. That was highly successful and we now have over 30 of these partnerships.
Their healthcare costs are trending at a little over 3% per year compounded. We've got enough geographic coverage and enough of these partnerships that we've created a network that is exclusively made up of these ACO partners. It's called Trio and we launched it in 2015. We have not gone to an ownership structure as they have, but we've really tried to take the principles of shared risk and commitment to driving affordability and quality to all of the ACOs that we have.
MH: How much of your $14 billion in revenue is flowing through these risk-based or value-based contracts?
Markovich: It's not yet the majority, but we're into the hundreds of thousands of members that are getting care through these partnerships.
MH: Is it growing fast?
Markovich: Yes it is, and we expect it to continue to be one of our fastest-growing segments.
MH: What role are you playing in the individual market?
Markovich: Fortunately, it's gone quite well here in California overall. I think a lot of credit goes to Covered California and choices that they've made and the leadership they've demonstrated in setting up the system. We've pulled ahead of Anthem and are a little bit larger than Kaiser in terms of our individual membership through Covered California. We are now the market-share leader by maybe a family in Fresno.
We have been profitable, which has been less common nationally. We've had modest rate increases, less than 3% this time around. The exchange has got over a million members in it; it's a reasonably healthy pool. And it appears to be on a sustainable track for the exchange and for the individual players.
MH: All providers worry they're going to be left out of narrow networks. Are you building them?
Markovich: Trio works that way. We are trying to establish primarily one set of partnerships in each geographic area.
MH: So somebody's going to be left out?
Markovich: Absolutely. It's a lot of work to do the clinical, financial and operational integration, and to do things like reduce the 30-day inpatient readmission rate by 15% to 20%, which we've done on average across all of the ACOs. It's a lot of work to completely change the discharge planning process, which is one of probably a dozen different initiatives that we've put in motion with each ACO. We're asking an awful lot of our provider partners.
In exchange, what they get is an exclusive reward in that geography for the value that they create. And they have a sense of ownership over the network and the product. Their willingness to step up and do that heavy lifting with us goes up a whole lot if the value that's created is not dissipated among multiple providers in that area.
MH: Do you see providers beginning to compete as insurers?
Markovich: I assume we're going to get competition from any and all angles. Providers are starting their own health plans; we have early-stage companies like Oscar that are competing in some markets in California. Every single major publicly traded company's health plan is competing here. We've had a lot of competition in California for as long as I've been working in this market, and I just expect that will continue.
MH: What is going to be the next big advance for healthcare in California?
Markovich: Keep your eye on the California Integrated Data Exchange, or Cal INDEX, launched by Anthem and Blue Shield a year ago. It is a not-for-profit utility whose goal is to integrate data and create a secure digital longitudinal health record for each Californian. It's going to be integrating data from inpatient electronic health records, outpatient electronic health records, pharmacy, lab and clinical information from the health plan claim, all in one place.
Dignity Health has already signed up. We are likely going to be announcing some other participants soon. We're looking to get all payers, all providers on this place so you can have a standard platform on which this data are available and you can bring healthcare into the digital age. You can have your records on your phone and your clinician can look them up on a tablet and you can start using some of these wonderful technical tools that are coming out.
Right now we're doing this one EHR version at a time. That's not a way to rapidly scale and change the healthcare delivery system. If you can create this integrated data exchange on an open platform, the platform becomes a bit like the iPhone is for apps. Now you have potential for innovations coming from Silicon Valley and other places.