Health PlanProvider Relations: Insights from Site Visits to Six California Markets

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Health Plan-Provider Relations Insights from
Site Visits to Six California Markets
Presentation for California Association of
Health Plans 24th Annual Conference October 20,
2009

• Presented by
• Debra A. Draper, Ph.D., Associate Director
• The Center for Studying Health System Change

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Acknowledgements

• Research Team
• Bob Berenson, M.D.
• Jon Christianson, Ph.D.
• Genna Cohen, B.S.
• Peter Cunningham, Ph.D.
• Debra Draper, Ph.D.
• Laurie Felland, M.S.
• Paul Ginsburg, Ph.D.
• Aaron Katz, C.P.H.
• Nicole Kemper, M.P.H.
• Johanna Laurer, B.A.
• Allison Liebhaber, B.A.
• Elizabeth November, J.D, M.P.H.
• Ha Tu, M.P.A.

• Funding
• California HealthCare Foundation
• http//www.chcf.org

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Center for Studying Health System Change

• Nonpartisan policy research organization located
  in Washington, D.C.
• Affiliated with Mathematica Policy Research
• Designs and conducts studies focused on the U.S.
  health care system to inform policy makers in
  government and private industry, including the
  Community Tracking Study (CTS)
• http//www.hschange.org

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Presentation Overview

• Project Context and Objectives
• Methods
• Key Findings
• Significant variation in local markets/health
  systems
• Diminished regional distinctiveness of health
  plan market
• Increased provider leverage
• Limited health plan strategies to moderate rising
  provider costs
• Implications
• Wrap-up and Questions

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Project Context and Objectives

• Project Context
• California is large and diverse, and health care
  is organized, delivered and often financed
  differently across the state
• Project Objectives
• To describe the organization, financing, and
  delivery of health care in six California
  communities
• To identify implications for policy, practice and
  the public

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Six California Markets Visited
Sacramento
Bay Area
Fresno
Riverside/San Bernardino
Los Angeles
San Diego
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Six Site Visit Markets Represent

• Approximately 68 of Californias total
  population
• Geographic diversity
• Range of economic, demographic, health delivery,
  and financing conditions in California

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Respondents Interviewed

• Approximately 300 representatives of
• Hospitals
• Physician organizations
• Health plans
• Large employers (public and private)
• Benefit consultants
• Insurance brokers
• State and local policy makers
• Other key stakeholder organizations

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Site Visit Approach

• Site visits conducted between October and
  December 2008
• Six-person site visit team conducted three-day
  visits two-person interview team conducted each
  interview
• Approximately 50 interviews conducted in each
  market
• Interview notes transcribed and jointly reviewed
  for quality and validation purposes

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Socioeconomic Profile of California Overall

• 10-year population growth 14
• Diverse population
• 57 of population non-White
• 26 of population foreign-born
• 36 college degree or higher
• 50 of population lt 200 federal poverty level
• Approximately 1 in 3 residents Medi-Cal or
  uninsured
• Double digit and rising unemployment
• Approximately 1 in 6 residents report fair/poor
  health status
• On each of these dimensions, California gt U.S.
  average

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Variation of Local Markets Socioeconomic Profiles
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General Provider Trends in California - Hospitals

• Dominant, must-have hospitals/systems grow more
  powerful
• Growing economic pressures
• Eroding payer mix more uninsured, Medi-Cal
• Real/perceived capacity constraints
• States seismic requirements
• Strategic focus on tighter alignment with
  physicians

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General Provider Trends in California -
Physicians

• Growing economic pressures
• Reimbursement (although significant variation)
• Increased shortages-at least in some specialties
• Shift to outpatient setting
• Less satisfaction with independent practice
  arrangements
• More receptivity to employment-type arrangements

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Variation of Local Provider Market Organization
and Alignment
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General Health Insurance Trends in California

• Increased link-up with national health plans
• PacifiCare ? UnitedHealth Group
• Blue Cross of California ? Anthem Blue Cross Blue
  Shield
• Divided market Kaiser and non-Kaiser
• Fewer residents with employer-sponsored coverage
  (65 in 1987 vs. 57 in 2007 62 nationally)
• More Medi-Cal or uninsured residents
• Cross-subsidization pressures
• Provider push-back on Medi-Cal

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General Health Insurance Product Trends in
California

• Continued popularity of Kaiser HMO product
• Strong HMO enrollment increasing enrollment
  shift to PPOs
• Diminished price differential between HMOs and
  PPOs
• National employers want standardized benefits for
  all employees
• Strong link of P4P to HMOs
• Shift towards fee-for-service payment methods

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Variation of Local Managed Care Markets
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National Link-up of Two Major California Health
Plans

• Locus of decision making for two leading
  California health plans now out-of-state
• PacifiCare (now UnitedHealth Group) - Minnesota
• Blue Cross of California (now Anthem) Indiana

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Nationalization of Health Plans Strategies

• Erosion of HMOs as Californias hallmark
  insurance product
• New products and benefit designs mirror those
  nationally
• Dual regulatory structure may be exacerbating
  trend
• Important implications for provider
  payment/contracting arrangements
• Health plans increasingly standardizing their
  strategies across the country
• Shift to fee-for-service payment methods
• Less interest in supporting contracting models
  unique to California e.g., delegated capitation
  model

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Providers Gain Market Power

• Shift over the past 10-15 years
• Hospitals exited capitation-based risk contracts
• Larger hospitals systems formed through mergers
  and acquisitions
• Hospitals began to form tighter alliances with
  physicians
• Medical groups and IPAs consolidated weaker ones
  disappeared
• Factors contributing to strengthening of provider
  leverage
• Consumer preferences for broad provider choice
  across products
• Growing capacity constraints in hospitals
• Increasing physician shortages
• Regulatory environment that appears to favor
  providers

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Providers Strategies to Increase Market Power

• Continued consolidation via mergers and
  acquisitions
• Negotiating on a system versus individual
  hospital basis
• Joint hospital and physician group negotiations
• Increased alignment e.g., medical foundations
• Establishing themselves as must-have providers
• Reputation, specialized service lines, geographic
  monopolies
• Large medical groups and IPAs capitalizing on
  lack of price competition for their services
• Limitations on IPA contract negotiations

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Providers May Temper Full Market Power

• Concerned about
• Fragility of employer-sponsored insurance
• Fee-for-service replacing capitation
• Higher payment rates (and consequently, higher
  premiums) driving more enrollment to Kaiser
• Higher payment rates driving smaller, regional
  health plans from the market, increasing the
  dominance of a few large plans

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Health Plans Strategies to Moderate Rising
Provider Costs

• Overall limited
• Product Emphasis with Employers/Purchasers
• Products with more benefit design flexibility
  e.g., cost sharing, comprehensiveness of benefits
• PPOs vs. HMOs
• Product Development
• High performance network products
• Based on a set of cost and quality measures
  (although varies by health plan)
• Developed largely in response to large national
  employers demands
• Few, if any, incentives for consumers to use high
  performing providers
• Narrow network products that exclude high-cost
  providers
• Scripps, CalPERS

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Implications

• Local health systems vary extensively across
  California, which suggests that any broad reform
  efforts would likely play out differently in
  different areas of the state
• Historically, capitation has helped contain
  health care costs in California, but a decline in
  HMOs/delegated model may lead to higher spending
  trends compared to the rest of the nation
• The development of accountable care organizations
  (ACOs) may encourage more provider integration,
  which as Californias experience suggests, may
  increase their leverage with health plans and
  lead to higher costs

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Site Visit Publications

• Community reports
• Fresno Poor Economy, Poor Health Stress a
  Fragmented System
• Los Angeles Haves and Have-Nots Lead to a
  Divided System
• Riverside/San Bernardino Sprawling Area,
  Economic Woes Create Access Challenges
• Sacramento Powerful Hospital Systems Dominant a
  Stable Market
• San Diego Retreat from Capitation Raises Cost
  Concerns
• San Francisco Bay Area Downturn Stresses
  Historically Stable Safety Net
• Cross site analyses
• Provider Leverage
• Role of Counties in Safety Net
• Health Benefit Designs
• Challenges to the Delegated Model
• Hospital-Physician Alignment Strategies