The 2½-year-old partnership between Cleveland Clinic and insurer Oscar Health illustrates an emerging, value-based business model for the healthcare industry aimed at lowering costs and raising care quality.
Cleveland Clinic + Oscar began offering individual health plans to people who live in Cuyahoga, Summit, Lorain, Medina and Lake counties at the beginning of 2018, then expanded its operations to Ashtabula, Geauga and Portage counties at the beginning of this year. The plans cover only care provided by Cleveland Clinic's network.
"Together, Cleveland Clinic and Oscar Health intend to offer a different approach, one that breaks down the complexities between providers and insurers, allowing our patients to easily navigate the healthcare and health insurance systems, get the highest-quality care at a reasonable price and improve their overall health," Steve Glass, the Clinic's chief financial officer, said when the partnership was announced in June 2017.
Cleveland Clinic has traditional, fee-for-service, contractual relationships with most of its other payers, which are insurance companies or government programs like Medicare and Medicaid.
Under the fee-for-service business model, insurers pay providers for each procedure or test they perform. The incentive—whether providers bow to it or not—is to do more procedures and tests so they get paid more money, said Tom Campanella, professor of health economics and director of Baldwin Wallace University's healthcare MBA program.
The value-based model, on the other hand, pays doctors and hospitals for the quality of their services: keeping people healthy and improving the health of those who have chronic conditions in a cost-effective way that is based on evidence.
Financial and health incentives for payers and providers are misaligned in the fee-for-service model, Campanella said. For instance, he pointed out, under the fee-for-service model, providers can be paid for procedures that don't work.
Fee-for-service payments can drive up healthcare costs and lower the value of care by encouraging wasteful use, especially of high-cost items and services, according to an article by the Center for American Progress, an independent, nonpartisan policy institute in Washington, D.C.
By contrast, the relationship between Cleveland Clinic and Oscar is a value-based partnership model.
"In this arrangement, Oscar shares risk with Cleveland Clinic 50-50, meaning we share equally in both the profits and losses," said Dr. Dennis Weaver, chief clinical officer for Oscar Health. "Value-based care is predicated on aligning incentives between payers and providers."
While Cleveland Clinic has been around for 99 years, Oscar Health is only 8 years old. Josh Kushner and Mario Schlosser, now Oscar's CEO, founded the company in New York City in 2012, a year after Kushner started Thrive Capital Management, where he is managing partner.
Oscar Health is rooted in dissatisfaction with the health insurance industry. In 2012, when Schlosser and his wife were experiencing their first pregnancy, he wanted to find out how to take care of her.
The insurance company "referred him to a website that was broken," Weaver said, leading Schlosser to conclude that customer service among U.S. health insurers "is fundamentally broken."
Schlosser and Kushner raised $727 million in venture capital backing and started Oscar Health in December 2012, with the aim of fixing the system, according to a 2017 article at FierceHealthcare.com. Oscar received an additional $165 million in investments from two of Google's sister companies in March 2018, the article added.
"What we are trying to do is differentiate Oscar as an insurance company that says, 'You can reach out to us, you can engage with us and you can trust us,' " Weaver said. "Our goal is to guide you through the healthcare system."
In a May 2019 report on Oscar's business strategy, research firm CB Insights said, "This means providing access to care when needed, helping patients navigate the complex healthcare system and avoiding unnecessary care and expenses."
Guiding patients through the system lends the Clinic/Oscar partnership qualities of "concierge medicine," which traditionally has meant a relationship between a patient and primary-care physician in which the patient pays an annual fee—sometimes tens of thousands of dollars—for most procedures done by the physician in his or her office.
Under Cleveland Clinic + Oscar plans, beneficiaries are assigned a team of medical providers at the Clinic, including a primary-care physician, physician assistants and others, according to the Advisory Board, the Washington, D.C., membership organization that provides best practices and research to healthcare stakeholders.
Plan beneficiaries also get access to an Oscar "concierge team" of a nurse and three care guides to help them navigate the healthcare system.
"We have worked to streamline the patient experience with Oscar and focus on a concierge level of service," said Meghan Cassidy, senior director of managed-care product, sales and marketing at Cleveland Clinic. "We tried to align with what patients want when they want it."
For instance, Cleveland Clinic has enhanced its scheduling function so it's easier to set up an appointment.
"We simplified the way we register our new patients," Cassidy said. "If you have a complex condition, the concierge team works closely to make sure you get the right level of care when you need it."
The term concierge also marks a distinction between a partnership like the one Cleveland Clinic has with Oscar versus a contract between a provider and an insurer, which is the norm.
Take benefit design, for example. In the fee-for-service model, the insurer designs the benefits and the provider, like Cleveland Clinic, "has to figure out how to make that design work for them. It's not an integrated process," Cassidy said.
But in working with Oscar, she added, "There isn't one driver; we're co-pilots. I would say we're very much aligned."
For Cleveland Clinic + Oscar, "concierge also refers to things like enhanced benefits for things that are considered a little more progressive, like virtual care," Oscar's Weaver said.
Oscar's app serves as the "front door to the health system," according to the CB Insights report. Through the app, members can access medical records and lab reports as well as medical care through virtual "televisits" and physician recommendations.
"Technology is a critical component of everything we do at Oscar. We are just as much a tech company as we are a health company," Weaver said.
Cleveland Clinic is also a technology leader, especially in electronic health records and telemedicine. It has its own app, called My Chart. Patients can use that or the Oscar Health app to access care.
Virtual care—having a face-to-face visit with your doctor on a computer screen rather than in an office—also lowers the cost of care, Cassidy noted.
Oscar Health, which operates in 14 markets in nine states, had some hiccups early on, according to the CB Insights report.
"Participation in the individual exchanges has been far lower than initially expected, and Oscar has faced an uphill battle in the small-business market," according to the 2019 report.
But as Oscar matures, it is "beginning to control its costs, generating an underwriting profit in recent years by sending members to the lowest-cost care setting, bringing key functions like claims processing in house, and expanding its virtual-care offerings," CB Insights said.
In Cleveland, previous Crain's reporting found that the Clinic-Oscar plans beat enrollment expectations in 2018, accounting for 15% of those sold on the individual market during the open enrollment period for that year, with 11,000 total enrollees, according to Kevin Sears, executive director of Cleveland Clinic's market and network services. Enrollment was at least 30% greater than the companies had anticipated.
Though it's still early to assess 2019 results, "It looks like we had 22% market share last year," the Clinic's Cassidy said. Although she wasn't certain of the number of Cleveland Clinic + Oscar enrollees for 2019, the plans had an 85% renewal rate for 2020.
This article was originally published in Crain's Cleveland Business.
