Michigan Blues makes deals with seven health organizations aiming to bend cost curve

Seven health systems and physician organizations in Southeast Michigan have agreed to contract with Blue Cross Blue Shield of Michigan in January under "value-based" contracts that share risk and could provide additional revenue if they lower costs and improve quality.

But under an enhanced value-based contracting approach Blue Cross first began eight years ago, the new contracts — under the banner Blueprint for Affordability — could force provider organizations to refund payments to Blue Cross if annual total expenses for the covered patients exceeds targets, officials announced Wednesday.

To receive shared savings payments, healthcare organizations also must meet all of more than a dozen agreed-upon quality metrics. The contracts also limit the amount provider organizations can earn or lose from the program.

"Blueprint for Affordability is a transformative shift in the way we approach the management of healthcare costs," Daniel Loepp, Blue Cross' president and CEO, said in a statement. "This first wave of provider partners are true leaders in their industry — and courageous for stepping up and joining us in this bold new approach to promote quality and affordability."

Loepp said the Blueprint program seeks to "permanently change the trajectory of healthcare costs in Michigan and make healthcare more affordable for people and employers."

The four participating health systems are Ascension Health, Warren; Trinity Health, Livonia; Henry Ford Health System, Detroit; and Michigan Medicine, Ann Arbor. The three physician organizations are United Physicians, Bingham Farms; the Physician Alliance, St. Clair Shores; and Oakland Southfield Physicians.

In a conference call Wednesday afternoon, executives of the provider organizations agreed that risk-based contracting is the wave of the future and that it promises to improve patient care and reduce healthcare costs.

Harpreet Cheema, Trinity's vice president of payer strategy and product development, said Blue Cross' Blueprint program is the next step toward achieving value for patients and employers.

"We have demonstrated success (in Medicare's risk-sharing programs) ... and have received dividends (from Blue Cross' current value-based programs," Cheema said. "We have comfort in that and the path of taking downside risk. ... We believe we can generate a fair return again."

Paul Castillo, Michigan Medicine's CFO, said it is natural to have concerns with a new reimbursement system. "We have confidence to manage care for patients we serve" in this arrangement because of success in similar Medicare accountable-care organization contracts, he said.

Mike Williams, president of United Physicians, said the more than 2,000 physicians who make up the independent physician organization do not have deep pockets as do major hospital-based systems. "We don't have the financial wherewithal to support huge sums of risk on the downside" if the group fails to meet financial targets, he said.

"We have been able to negotiate (successful) contracts" with Blue Cross and other payers in the past, said Williams, adding that the group feels comfortable with the new contract knowing that other healthcare organizations also are involved.

Todd Van Tol, Blue Cross' senior vice president of healthcare value, said Blue Cross understands that healthcare costs too much for businesses and individuals. Healthcare costs "continue to consume more of our customers' budgets and our members pocketbooks," he said.

Over the past 15 years, Van Tol said Blue Cross has used a variety of value-based reimbursement arrangements with hospitals and physicians to save customers more than $2.2 billion. At the same time, quality and outcomes have improved, he said.

But Van Tol said Blue Cross needs to "press the accelerator more rapidly" with hospitals and physicians "to change the underlying incentive model and reimbursement model in order to drive the change that we know we need and that our members deserve."

As encouraged by the Affordable Care Act of 2010, or Obamacare, private and government payers have been attempting to move providers away from higher-cost traditional fee-for-service reimbursement system that rewards providers for higher utilization of services.

National studies have shown that 30 percent of healthcare spending either is wasteful, duplicative or unnecessary. U.S. healthcare costs are projected to rise 6 percent in 2020, up from 5.7 increases in 2019 and 2018, said the PricewaterhouseCoopers Health Research Institute. Still, those numbers are far below the 12 percent increase in 2007 and 9 percent increase in 2010 before Obamacare was fully implemented.

But because healthcare cost increases have failed to fall below the 5.5 percent low of 2017, employers and individuals feel more needs to be done to contain costs that far exceed salary inflation.

Over the past few years, as payers have tried to use various methods to contain costs, including utilization review, prior authorization and high-deductible health plans, hospitals and physician organizations have been preparing to accept more value-based reimbursement arrangements.

Value-based care contracts are designed to reward providers for reducing hospital readmissions and unnecessary ER visits, eliminating duplicate and wasteful services and moving care to lower-cost outpatient settings, when appropriate.

In 2011, Blue Cross began a value-based contracting program with hospitals and health systems that started its evolution toward rewarding providers for quality, positive patient outcomes and greater efficiencies.

By 2017, Blue Cross had signed up 14 health systems and 75 hospitals in "performance-based health insurance contracts." However, hospital executives complained that the Blues' program didn't meet their expectations and was difficult to achieve savings and additional revenue for a variety of reasons.

The new Blueprint risk-based program will include Blue Cross' PPO commercial members and Blue Cross' Medicare Advantage PPO members, which represent 30 percent of the covered population in Southeast Michigan, or hundreds of thousands of members with more than $4 billion in total costs of care in the region.

Blue Cross executives said additional systems and providers in Southeast Michigan are expected to be added in 2020 and a rollout in other parts of Michigan will begin later in the year.

Contract providers can earn additional dollars in slightly different ways in the commercial and Medicare Advantage markets. In the commercial space, if the four hospital-based systems and three physician organizations hold down annual expenses in the commercial business below the statewide average of 4-5 percent in 2019, they share savings on a 50-50 basis with Blue Cross, company officials said.

However, if costs exceed the statewide average, the healthcare organizations must pay back Blue Cross 50 percent of the excess amount, subject to loss caps.

"If you're a provider, that's a scary concept to know I might have to pay something back," said Steve Carrier, Blue Cross' senior vice president of network management and provider partner innovation. "We have a rule of thumb and that rule of thumb is we want enough risk in the equation to make them pay attention. ... (but) not enough risk to put them out of business."

Blueprint is intended to be revenue and budget neutral for Blue Cross as incentive payments to providers will equal refunded risk payments, although it may take a few years to achieve the balance. However, Blueprint is designed to decrease costs of care paid to healthcare providers by coordinating care more effectively and avoiding unnecessary care.

If there are overall savings, however, providers could see enhanced revenue and any savings to Blue Cross will be reinvested into company operations, Blue Cross said. "This could come in the form of lower premium growth or lower premiums, enhanced benefits, or provider enablement functions that will allow for future savings," the company said.

While commercial business shared savings will be based on statewide market trends, the Medicare Advantage PPO business line takes a different approach. Hospitals and doctors must hit medical loss ratio targets for the Medicare Advantage PPO.

If contracted health organizations are under the MLR target they split savings with the Blues. If above, they pay 50 percent of that loss that is translated into dollars, Carrier said. An MLR is the percentage of premium an insurer spends on claims and expenses that improve healthcare quality.

"We have caps for how much you can gain or lose," Carrier said. "You could earn more than you could lose. That's on purpose. In the early years we will make it "easier to hit targets, he said.

Under Blue Cross' Blueprint for Affordability program, Van Tol said the new performance-based payment model will offer hospitals and doctors on a voluntary basis what is called "two-sided" risk arrangements.

Similar to Medicare "accountable-care organization" and specialty physician two-sided risk models, providers share in the savings but are also responsible for some of the loss if spending is above the benchmark. Experts believe two-sided risk arrangements will become the norm over the next decade.

Providers will continue to be paid for services and procedures under Blue Cross' fee schedule, officials said. The risk-based program is in addition to the existing payments, they said.

"The pioneers that we have in this program, if they do a great job on their members ... they meet the right quality thresholds and they manage those costs effectively ... they get to share in the gains," Van Tol said. "If they don't, if they struggle to hit those quality targets or they don't (reduce) total cost of care for those populations effectively, they have to bear some of the financial responsibility of that as well."

Carrier said the company has been very clear with providers that risk-based contracting is coming. He said other large national for-profit payers have tried the two-sided risk approach, but have done it more on a smaller scale and in pilot projects with one or several providers.

"Saying our entire broad network PPO is going to be using this payment methodology, that is incredibly different" than other competitors have done, Carrier said.

One of the challenges facing hospitals and doctors under the Blueprint system is understanding the health risks of their insured population and helping patients prevent serious and expensive medical problems, Carrier said. To help providers, Blue Cross has added about 20 additional medical directors and support staff to work with the contracted providers on understanding patient claims and outcome data.

"We are actually going to be enabling providers so that they can see from the standpoint of looking at their claims and trends, where the spikes and costs are, and using data to help them understand" how to address the costs, Carrier said.

In the past, Carrier said some payers have simply "dumped a six-inch binder with a lot of great data on their desks." He said providers need actionable data, so Blue Cross also will be discussing the data and suggesting improvements to help providers meet goals.

"The whole idea is we're in this together, the customer, the provider, and the payer all saying there's only a set amount of dollars here. We'll reward you for staying within that," said Carrier.

For commercial patients, Blue Cross has 14 designated quality measurement targets that healthcare organizations must hit to receive shared savings. Medicare Advantage patients have 14 slightly different quality measurements. The measurements could change in the future based on Medicare or Blue Cross priorities.

Commercial quality measurements are the following: appropriate testing for children with pharyngitis; appropriate treatment for children with upper respiratory infection; avoidance of antibiotic treatment in adults with acute bronchitis; breast cancer screening; cervical cancer screening; childhood immunizations; colorectal cancer screening; three diabetes care metrics, including blood glucose controls; controlling high blood pressure; statin therapy for patients with cardiovascular disease; statin therapy for patients with diabetes; and use of imaging studies for low back pain.

For Medicare Advantage, quality measures are HEDIS measures such as breast and colorectal screening, diabetes control, osteoporosis management in women, all-cause readmissions, rheumatoid arthritis management and statin therapy for cardiovascular. Four other measures are medication adherence for cholesterol, diabetes, hypertension and cardiovascular.

This article was originally published in Crain's Detroit Business.