Aetna

Scaling the Limits of Scale: The PBM Path to Value-Based Health Care

Scaling the Limits of Scale: The PBM Path to Value-Based Health Care
Scale has its limits, as the nation’s two largest pharmacy benefit managers (PBM) are discovering.  Express Scripts and CVS Caremark each process more than a billion prescriptions a year.   That is not enough for big customers Anthem and Aetna.  Both are likely to alter dramatically or not renew long-term contracts set to end in 2019 with the PBM behemoths.

PBM Optionality for Anthem, Aetna

Anthem and Aetna say they now have “optionality” because Cigna and Humana, which they are respectively acquiring, both have PBMs.  That optionality goes well beyond the scale Aetna would enjoy as the fourth largest PBM.  It can put the pharmacy benefit, integrated within each organization, on the path to value-based health care.

Both the Humana and Cigna PBMs align well with the quality and outcomes focus of value-based health care.  Humana’s PBM primarily supports the company’s Medicare Advantage (MA) and Part D programs, with MA accountable care arrangements delivering better outcomes than traditional Medicare.

Meanwhile, Cigna has pioneered outcomes-based reimbursement arrangements with pharmaceutical manufacturers.  Previously overseeing Cigna’s PBM was none other than Aetna CEO Mark Bertolini; Cigna CEO David Cordani will serve as chief operating officer of the new Anthem.

In their sights is UnitedHealth Group (UHG), which brought its PBM business inside from Medco at the start of 2013, trigging Express Scripts’ anticipatory acquisition of Medco in 2012.    UHG says its OptumRx PBM focuses “on connecting total condition spend and pharmacy’s impact across benefits,” a process it calls “synchronization.”

More explicitly than Anthem, Aetna has said it will integrate Humana’s PBM, along with its “growing health care services business,” even characterizing it as an “Optum-like business.”

Value beyond Scale

UHG’s Catamaran acquisition earlier this year, while adding scale, also significantly included Catamaran’s RxClaim processing platform.  OptumRx plans to integrate the adjudication platform with its medical and pharmacy claims synchronization.  UHG promises to create value “beyond the scale … resulting from integration,” by linking “demographic, lab, pharmaceutical, behavioral and medical treatment data” to encourage healthy decisions and improve compliance with pharmaceutical use and care protocols.”

In fact, the very tools used to leverage scale to get lower prices, such as formulary exclusions, can potentially work against reducing total costs.  In securing a substantial discount from AbbVie for Viekira Pak, Express Scripts excluded Gilead’s Harvoni from its 2015 formulary.  Viekira Pak is a four pill a day regimen to Harvoni’s adherence-friendly one pill for curing hepatitis C.

Not surprisingly, given their focus on overall costs, Aetna, Anthem, UHG and Cigna all included Harvoni on their formularies and do not publish exclusion lists like Express Scripts and CVS Caremark.  Instead, they typically establish clinically based prior authorization criteria.

For the latest high-cost drugs to hit the market, Express Scripts is following the health plans on their value path.  Instead of excluding one of two new anti-cholesterol drugs, known as PCSK9 inhibitors and list priced at $14,000 per year, it announced coverage for both this week.

As the health plans did with Harvoni, Express Scripts will implement rigorous prior authorization procedures.  The company says it negotiated good pricing with Amgen for Repatha and with Sanofi and Regeneron Pharmaceuticals for Praluent, enabling it to cover both drugs.  Perhaps it also heard from customers unhappy with price-driven drug exclusions.

Wanting More, Customers Become Competitors

Clearly, some very big customers – Aetna, Anthem and UHG – want something more than scale from traditional PBMs like Express Scripts and CVS Caremark.  Beyond scale, they want a pharmacy benefit that contributes to reducing total costs through better outcomes, consistent with achieving overall value-based payment goals.

Building PBM paths to value-based health care for themselves, Anthem, Aetna and UHG will also sell against volume-based models like those of Express Scripts and CVS Caremark, and against health plans that fail to integrate pharmacy and medical claims for actionable intelligence.

Employers and the Limits of Scale

Their strategy blueprint could easily have come from the Harvard Business Review article “The Limits of Scale.”  Hanna Halaburda and Felix Oberholzer-Gee argue that, when rapidly scaling companies neglect to take into account differences among their customers, performance declines.  On that premise, they suggest how challengers and incumbents can take advantage of customer differences.

Among PBM customers with differences are employers, which provide health coverage for 147 million Americans.   The National Business Coalition on Health is uneasy with the growing use of exclusionary formularies.  It advises members to “base selection criteria for formularies on clinical outcomes to ensure that pharmaceutical costs do not decrease at the expense of rising medical costs.”

Employers are becoming more actively engaged in managing the pharmacy benefit, even developing their own formularies and negotiating directly with pharmacy retailers.  Caterpillar’s Daren Hinderman told an NBCH panel last year, “I don’t want to have a conversation [with PBMs] on rebates; I want to have a conversation on how I can keep my employees more compliant with medications they need to stay healthy. We decide what’s best for our employees. It’s a transparent process.”

NBCH also urges members to “verify that pharmacy and medical benefits are aligned, and link data between the two in order to evaluate cost and outcomes across both types of benefits and the entire health-care spectrum, not just through the lens of pharmacy.”  As Dr. Mark Fendrick of the University of Michigan Center for Value-Based Insurance Design told the NBCH panel, “I’d prefer to spend more on statins than on stents.”

Obstacles on PBM Value Path

Mapping the PBM path to value-based health care is one thing, building it is another.  Aetna and Anthem still must face a gauntlet of government and legal reviews before they can complete their acquisitions and commence integrating the Humana and Cigna PBMs.

OptumRx must complete its integration of Catamaran, which in turn is still integrating the data platforms of its acquisitions.  Furthermore, OptumRx and Catamaran both use different versions of the RxClaim platform and, for Catamaran, medical claims synchronization remains down the road (or path).

Meanwhile, the Catamaran acquisition has roiled a PBM industry where many participants use Catamaran’s RxClaim platform – including Cigna!  They were content to compete with Catamaran, despite using its technology.  However, will they be similarly comfortable with OptumRx and UHG in the technology driver’s seat?

Much like UHG’s acquisition of Catamaran and its technology, Rite-Aid did the same when it acquired EnvisionRx.  The PBM had previously acquired Laker Software, also a claims platform supplier for many PBMs.  Again, the comfort question arises, in this case over Envision and Rite Aid as the drug retailer pursues its path to value-based health care via innovative alliances with health care providers.

Making the Laker and RxClaim platforms particularly valuable has been the PBM industry’s reliance on a hodge podge of decades-old, antiquated platform technologies.  With each acquisition, scaling PBMs have patched together instead of invested in their platforms to maximize short-term synergies, at the cost of limited flexibility and lower efficiency.

PBMs Miss Technology Revolutions

Meanwhile, multiple revolutions have coursed through the systems development world since the PBM industry acquired its mainframes and data centers in the late 1980’ – early 1990’s.   When relational databases followed soon thereafter, PBMs adopted them for after-the-fact data analysis, but not broadly for real time use with claims processing platforms, which now are antiquated and fragmented.

More recently, graphical user interfaces have greatly streamlined the programming of business intelligence applications.  It is now easier for more people, more efficiently to translate their expertise into innovative systems.  No longer must visionaries exclusively funnel their solutions through highly specialized programmers and coders.  Now, the visionaries’ can become coders, their hands on the programming controls, unleashing new applications across the entire economy, including the PBM industry.

PBM Platform for Value-Based Health Care

One such visionary has developed a PBM solution for value-based health care.  His name is Ravi Ika.  “The solution is holistic, unlike that of any other existing PBM.  It reduces overall pharmacy cost, converts specialty from ‘buy & bill’ to ‘authorize and manage,’ and lowers avoidable drug-impacted medical costs,” explains Ika.

Before turning his attention to the PBM industry, he created a comprehensive, integrated payer platform now provided by ikaSystems, which he founded to transform the payer operating model.  Spanning all payer departments and business lines, it decreased administrative costs for health insurers by as much as 50% and reduced avoidable medical costs.

In 2013, Ika launched RxAdvance, a full service PBM, which similarly operates on an integrated, end-to-end platform – one designed specifically for value-based health care.   Combining pharmacy, medical, and lab data, the platform – called PBM Collaborative Cloud– enables real-time engagement.  This engagement occurs with physicians at the point of care, pharmacists at the point of sale, and patients via mobile cloud.  It also engages payers clinical and pharmacy staff through their workflows.

Better decisions by these stakeholders – driven by platform-generated, actionable intelligence – can reduce avoidable drug-impacted medical costs, optimize utilization, facilitate better specialty drug management, and decrease overall pharmacy costs.

PBM Processes Reimagined

“We started with a clean slate,” observes Ika, who says he and his team reimagined PBM processes to streamline workflow before building the platform.  Redefining the human role, they automated as much as possible while, on the other hand, increasing opportunities for engagement, what-if modeling, and informed decision-making.  The platform also enables market and regulatory changes configurable by the business user, as well as system-driven compliance management.

Ika built the platform from the ground up using a unified data model.  In information technology parlance, that means the platform’s standards are universal enough to encompass a large scope of data and types of data with high scalability.

In PBM language, the platform includes everything from pharmacy claim adjudication, formulary management, benefit design, enterprise reporting and analytics, to pharmacy network and rebate contracting, medication adherence and therapy management, specialty management, transparency, compliance, and adverse drug event management.

From Existing to Ideal Formularies

For example, the platform includes algorithm-driven artificial intelligence to manipulate, with plan sponsor engagement, the complex and interdependent variables associated with formulary management.  Incorporating habitual member and prescriber utilization patterns, in addition to other data, it derives an ideal formulary with optimal financial and clinical outcomes.  The system then maps a transition plan from an existing formulary.  The platform also accommodates an unlimited number of formularies and supports real time dynamic modeling and changes coupled with full transparency.

Better Medication Therapy, Adherence Outcomes

For medication therapy management (MTM), the platform taps patient medical claims and disease conditions, against which the system overlays a prescription listing for easy use by prescribers.  In addition, each new prescription triggers a dynamic analysis to determine patient eligibility for a comprehensive medication review (CMR), which the system prepopulates for efficient prescriber use.

After the CMR, RxAdvance advisors rely on system alerts to intervene with patients to ensure medication adherence.  For high-risk patients, RxAdvance will install an electronic, patent-pending pill station at their residences and resupply it with disposable pre-filled pill trays.

Integrated with and wirelessly connected to the company’s platform, the device assists with monitoring adherence and vital signs.   The company says the device has improved adherence to more than 93%, including patients with multiple chronic conditions who are taking an average of 15 medications a day.

The Centers for Medicaid and Medicare Services (CMS) recently underscored the PBM need for physician-led, point-of-care MTM capability when it announced a new Medicare Part D MTM model.  Currently, highly fragmented PBM MTM relies on pharmacists “chasing” patients without closing the loop with prescribers, thus failing to secure meaningful health outcomes, according to Ika.

Ika points to the RxAdvance specialty management program as another example of his platform’s capabilities.  As it does for MTM, the platform integrates prescriptions, medical claims and disease conditions to create an action plan for all stakeholders.  Case managers use a dashboard to prioritize their outreach to patients, prescribers and pharmacists.  Because the platform integrates medical, pharmacy and lab information, it helps facilitate appropriate utilization.

Risk Sharing

One of the hallmarks of an organization configured for value-based health care is its ability to share risk.  The RxAdvance unified data model platform enables it to share risk for both pharmacy and avoidable drug-impacted medical costs.  For pharmacy, it is prepared to assume both up and down side risk based on its cost management performance against a risk cap set below a national benchmark projected increase.

The company can also compute a baseline trend for avoidable drug-impacted medical costs using prior years’ medical claims data.  RxAdvance and its client then set a target and, if the PBM lowers actual avoidable drug-impacted medical costs, it will share in the savings.  According to Ika, this sort of risk sharing is unique in the PBM market.

Ika reports that RxAdvance is currently implementing full PBM services for three clients, replacing national PBMs.  “The Collaborative PBM Cloud platform is making for a very smooth launch,” he notes.

RxAdvance has gotten a head start along the PBM path to value-based health care, scaling the limits of scale.

Express Scripts 2020: Back to the Future?

Express Scripts

The clocks are ticking for Express Scripts.  Having achieved formidable “size and scale,” how will the nation’s largest pharmacy benefit manager synchronize with value-based health care?  With each day, between the medical and pharmacy benefits, the time to value is diverging.

Time to Value

Under fee for service, the time to value is relatively short for both benefits.  The physician bills soon after an encounter.  Similarly, the patient (for the most part) uses her pharmacy benefit to get her prescription, after which Express Scripts pays the pharmacy, collects a rebate (on a brand) and bills its client.

In value-based health care, the time to value lengthens to include outcomes and, as a result, expands to include many more inputs.  As Michael Porter explained, using the Institute of Medicine as his source, “Because care activities are interdependent, value for patients is often revealed only over time and is manifested in longer-term outcomes.” According to Porter, “The only way to accurately measure value, then, is to track patient outcomes and costs longitudinally.”

Value Based Health Care

By 2020, 75% of commercial payments will be through value-based arrangements, if the Health Care Transformation Task Force — a coalition of providers, payers, purchasers and patients – has its way. In 2014, 38% of payments to hospitals were value-oriented, compared to 10% for specialists and 24% primary care physicians in the outpatient setting, reported Catalyst for Payment Reform.

Meanwhile, the Centers for Medicare and Medicaid Services (CMS) wants 30% of Medicare payments in alternative payment models by the end of 2016 and 50% by the end of 2018.  The percentage stood at 20%.  Alternative payment models include Accountable Care Organizations (ACOs), advanced primary care medical home models, bundled payments for episodes of care, and integrated care.

Great Value from Express Scripts

To be sure, Express Scripts has added substantial value to the pharmacy benefit transaction.  It led the conversion to generic drugs, most notably and unprecedentedly when it moved against Pfizer’s Lipitor with simvastatin (generic Zocor) in 2006.  Now, Express Scripts’ drug exclusion announcements are routine events and its public campaign against high priced specialty drugs compelling.  The company has also narrowed retail networks and, for nearly a year, excluded Walgreens.

For years, Express Scripts has mined its mountain of data for insights and it pioneered the application of behavioral economics to the pharmacy benefit, in an effort called “consumerology.”   The company now has its own research laboratory, to which Medco’s Therapeutic Resource Centers and RationalMed program have been important additions.  Using these assets, the company has driven drug costs down, promoted greater use of lower cost drugs and achieved stronger adherence to drug regimens.

Better adherence can indeed lead to improved outcomes, thus increasing Express Scripts time to value, as demonstrated by its ScreenRx® program.  However, the company’s value proposition remains tethered to the pharmacy benefit transaction, instead of the ultimate clinical outcomes of value based health care.  At most, its contribution to those outcomes can be inferred, but not routinely measurable — yet.

Drug Payment Models

Take the pay-for-outcomes vs. pay-for-performance conversation now underway between Express Scripts and some drug manufacturers.   For its newly approved heart failure drug Entresto, Novartis proposed an initial discount with a performance bonus if it successfully lowered hospitalization rates in patients suffering from the condition.  The company said Entresto does a better job of preventing heart failure deaths and hospitalizations than lower cost alternatives already on the market.

Express Scripts was not buying it.  Instead, the company countered with an indication-based model, emphasizing its “elegance.”  It would differentiate pricing for specific cancer drugs based on how well they work against different types of tumors.

“Unlike the outcomes-based rebate systems that have been tried by others in the past, our model won’t require plans to reconcile payments long after-the-fact based on downstream health outcomes of a specific patient,” responded Express Scripts.

However, a leading pioneer of outcomes-based rebate systems has been Cigna, which Express Scripts client Anthem is set to acquire. Cigna’s arrangements have involved Merck’s diabetes drug Januvia (sitagliptin), the EMD Serono multiple sclerosis drug Rebif (interferon beta-1a) and, recently, Gilead’s hepatitis C drug Harvoni (ledipasvir/sofosbuvir).  Cigna based the Harvoni contract on elimination of the disease.

Hepatitis C

Arguably, disease elimination would reduce high cost liver transplants – a significant and valuable outcome.  Presumably, that is why Cigna, Anthem, Aetna, Humana and United Healthcare – with their longer, medical benefit time to value equation — all contracted with Gilead for Harvoni. They did so exclusively, presumably for better discounts.  Prime Therapeutics, owned by a number of Blue Cross plans contracted for both Harvoni and AbbVie’s Viekira Pak.

Meanwhile, Express Scripts contracted exclusively and presumably at a deep discount with AbbVie for Viekira Pak, excluding Harvoni from its 2015 formulary.  Viekira Pak is a four pill a day regimen to Harvoni’s one pill, with similar effectiveness and different safety profiles.  The latter comes from a review by Advera Health Analytics, which analyzes real world outcomes data.

Payer Cost

Advera Executive Vice President, Jim Davis, argued that exclusive deals emphasize the payer trend of focusing on immediate savings rather than overall outcomes, total cost of care and most importantly patient safety.

He echoed findings of a 2014 survey by the consulting firm EY that found “payers are highly focused on immediate cost containment, which means that the longer-view approach that emphasizes outcomes and keeping total costs down is irrelevant to payers.”

Express Scripts clearly is not alone in its short-term focus on controlling immediate costs.  However, it alone of the major PBM’s has the shortest time to value horizon because its “center of gravity” remains the pharmacy benefit transaction.

Competitor Time to Value

Both Caremark and EnvisionRx are subsidiaries of providers CVS and RiteAid respectively.  CVS recently inked a big data deal with IBM’s Watson cloud to predict patient health and RiteAid is pursuing innovative care initiatives with EnvisionRx.  OptumRx, and now Catamaran, are part of UnitedHealth Group, which concentrates on linking “demographic, lab, pharmaceutical, behavioral and medical treatment data.”

Synchronizing Express Scripts

Often offered in answer to the question of how Express Scripts will synchronize with value-based health care is a merger or other arrangement with Walgreens mirroring CVS/Caremark.  That may be part of a solution, but it will not be the entire or sufficient answer.

Also not the answer, but still important, Express Scripts should remain independent and continue to leverage its size and scale to lower drug prices.  Ironically, its assault on Giliad’s Solvadi and Harvoni, and then its exclusive contract with AbbVie, lowered Giliad’s prices, benefiting Express Scripts’ competitors.

Anthem Contract

It is through Express Scripts’ relationship with Anthem that the PBM can extend its time to value horizon and synchronize with value based health care.

Key will be the creation of a new, outcomes-focused collaborative thrust involving Anthem’s HealthCore, which is conducting real world evidence research with drug manufacturers, Cigna and its innovative payment models and the Lab at Express Scripts.  The only alternatives would be losing the Anthem business or relegation to functional role, much like Medco’s with UnitedHealth Group, the pending 2013 loss of which led to Express Scripts’ acquisition of Medco in 2012.

Notably, Anthem CEO Joe Swedish told investment analysts during a conference call on his company’s acquisition of Cigna “We do believe there’s significant value and opportunity from a better pharmacy contract.”  Cigna CEO David Cordani, who will serve as COO of the combined company added, regarding Cigna’s PBM business, “We have meaningful optionality relative to the program as it stands, and you should think about that optionality as being preserved and further expanded.”

Back to the Future

In the face of this challenge, Express Scripts would do well to go back to the future, twenty years ago when it launched a visionary effort to link pharmacy and medical claims.  Embodied in a “before-its-time” subsidiary called Practice Patterns Science (PPS), the initiative sought to build clinical data warehouses for health plans that organized all of a patient’s financial medical claims into meaningful, condition-specific, longitudinal episodes of care.”

Express Scripts’ CEO at the time, Barrett Toan, explained, “Having identified an episode of care for a patient, the drug therapy costs for the episode are compared to the associated medical costs.  What we’re finding is, in some cases, the drug costs are helping us control the overall costs.”   He pointed to a $380 reduction in epilepsy medical costs resulting from using a newly approved drug costing just $30 more.   An episode is a time line, which may be long or short depending on the nature of the disease.

Epilogue

With the DeLorean time machine at the ready, enter target destination California and target date April 3, 2015.   Flux capacitor powered, you will arrive in a Federal court where Dr. Douglas Cave won a $12 million patent infringement suit against UnitedHealth Group over the PPS technology.

Cave had been president of PPS and, when Express Scripts shut down the subsidiary.  The company gave him the intellectual property rights, including the disputed patent for physician efficiency measurement.  He now operates Cave Consulting Group in San Mateo, California, and filed an anti-trust suit in July against UnitedHealth Group alleging UHG obtained its patent laws fraudulently and violated anti-trust laws.

Boeing, Going, Gone: The End of Group Health Insurance

Boeing Headquarters

Come the fall, when benefit enrollment is in full swing, Boeing employees in St. Louis and South Carolina will have a new option – one of their local health systems, in addition to current coverage alternatives from Blue Cross and Blue Shield (BCBS) plans.

Boeing announced last week that it has directly contracted with Mercy Health Alliance, an accountable care organization (ACO) in the St. Louis bi-state region, and the Roper St. Francis Health Alliance ACO in South Carolina’s coastal low country.  Express Scripts is managing the pharmacy benefit and the Health Care Service Corporation of BCBS Illinois will help with administration and paper work.

Greater Savings, Improved Health, Better Experience

By working directly with the ACOs, Boeing hopes to save money for itself and employees, improving employee health and enhancing service for a more positive employee experience.  Boeing South Carolina executive Beverly Wyse told WSCC-TV the company is applying the same logic to healthcare as it does in building Dreamliners, with a commitment to more quality, reliability and lower costs.

Boeing estimates employees will save $350 to $1,000 per person per year on monthly payments, deductibles, copays and prescription costs.  Mercy executive Donn Sorenson told the St. Louis Business Journal Mercy could cut per family health care costs by more than half to $6,000 from the large-employer average of $15,849.  He plans to do it with greater attention to preventative and maintenance care.

In negotiating Preferred Partner ACO contracts, Boeing puts a high priority on access and convenience.  Primary care appointments are available for acute conditions same day and within 72 hours for any condition.  The wait for a specialist appointment can be no longer than 10 days.  In addition, each Preferred Partner provides extended hours, a dedicated phone line with care navigators, a member website and phone apps.

Competition in Seattle

Additional Preferred Partner arrangements are in the works, understandably because Boeing’s formula appears to be working.   A year ago, Boeing contracted with two ACOs in the Seattle area – Providence Swedish Health Alliance and the UW Medicine Accountable Care Network.  Of the 27,000 eligible employees and 3,000 retirees, about 18,000 signed up for one of the ACOs in roughly equal numbers.

In Seattle Boeing has pitted two prominent health systems against each other, creating a retail, consumer market within its large employee population, much like a private exchange.  Through their ACOs, both systems have assumed upside and downside risk, absorbing an insurer’s traditional role.

Instead, BCBS Illinois collects and provides data, in addition to performing administrative services as in St. Louis and South Carolina.   Boeing’s relationship with BCBS Illinois could be a plus, if the manufacturer decides to implement a private exchange.  BCBS Illinois has its own, Blue Dimensions, private exchange platform, which offers “many of the same features of online shopping.”

Boeing’s Health Care Endgame

In fact, the Seattle competition may foreshadow Boeing’s endgame, according to Tory Wolff of Recon Strategy.  Boeing “is setting up its market to transition to a provider-consumer type market.  We do not expect it to be too long before Boeing starts transitioning its employees to defined contribution.”  The impact would be substantial.  The company spends $2.5 billion on health care for 480,000 employees, dependents and retirees in 48 states.

Assuming Wolff is right, look for Virginia Mason to become a third option for Boeing’s Seattle employees.  In St. Louis, SSM and its newly acquired Saint Louis University Hospital could become a second option.  In time, BJC Healthcare/Washington University Physicians will conclude their shared brand – without an insurer intermediary — can attract more Boeing patients.   In South Carolina and other major Boeing locations, expect the same.

Private Exchanges – Small but Growing Rapidly

While Boeing approaches a private exchange, where employees get a broad range of coverage options and a defined company contribution, other large employers have already made the plunge. These include Walgreen Co., CVS Health Corp. and IBM, at least for retiree benefits.

Admittedly, private exchange utilization is still extremely small.  There are six million participants this year, up from three million in 2014.  However, by 2018, 40 million people likely will choose coverage on a private exchange, according to an Accenture study.

Aon Hewitt attributes the projected surge to a number of factors, including lower cost.  The average annual cost increase to employers completing a second year renewal 2.6%.  Large employers with similar benefit structures saw increases of 6.5% to 8% this year.

However, the most significant driver is a 40% excise tax on “Cadillac” health benefit plans scheduled for 2018 implementation under the Accountable Care Act.  Imposed on family and individual plans respectively costing $27,500 and $10,200, the tax could impact as many as 48% of employers in its first year, according to the benefits consulting firm Towers.

According to Accenture, private exchanges are a “compelling alternative” for employers who want to accomplish two goals simultaneously – control cost and administrative burdens, while still providing health coverage.  They are very aware that 76 percent of consumers see health insurance as the primary or an important factor for continuing to work at their current employer.  In fact, employer involvement in facilitating health benefits matters as much if not more than the employer’s financial contribution.

Sam’s Club Now, Amazon Soon?

Typical operators of private exchanges include health insurance companies and benefit consulting firms.  However, small employers may rely on an unlikely source to provide their employees with coverage options, Sam’s Club, which has collaborated with Aetna to offer the Aetna Marketplace for Sam’s Club.  Employers can offer a defined contribution plan or make a flat, pre-tax contribution an employee can apply to his or her plan choice.  (Recently proposed IRS rules could negatively affect the latter option.)

Can Amazon be far behind?  Perhaps not.  Both Wal-Mart and Amazon are engaged in a fierce battle for consumer loyalty.   There is no public evidence suggesting an Amazon move toward offering a private exchange.  However, Amazon Web Services has been touting its deep association with Oscar Health, a technology-driven, health insurance start-up, which could be serving as a learning platform for Amazon.

What is surely not far behind is the end of group health insurance, supplanted by a rapidly growing retail market for health coverage.  As blogger Joe Markland has observed, “a single 10,000 person employer will become a firm with 10,000 retail buyers.”    In addition to the 40 million in private exchanges by 2018, Accenture predicts there will be 31 million participants in public exchanges, up from 15 this year, for an overall 71 million consumers.

Retail Market Driving Insurance Mergers

This burgeoning retail market is the primary driving force behind the mergers of Anthem and Cigna, and Aetna and Humana, respectively.  Yes, greater size will provide negotiating advantage, but within a model that is quickly becoming obsolete.  In fact, insurance industry critic Wendell Potter observed last year, “If the Boeing strategy flies, health insurers as middlemen will be history.”

Agreeing, Leavitt Partners notes that employers want benefit options that will drive a world-class, healthy, productive workforce.”  However, it concludes, “the current composition of intermediaries cannot meet these demands on yesterday’s technology and workflows.”

Instead, health insurers are racing to avoid commoditization.  They have to reposition to add value differently in the new retail paradigm.   Instead of pounding out reimbursement deals with providers, they will need to collaborate, creating differentiated coverage alternatives for retail marketplaces.

More important than added scale, success for these insurer mergers will depend on the integration and expansion of initiatives such as:

Ultimately, successful health insurers will be collaborators instead of intermediaries, creating value with, not at the expense of, providers in a retail marketplace.

For more on this topic, see Employers Chasing Health Care Rainbows and Branded Narrow Networks:  Gold Value at Bronze Prices.

As Insurers Merge, What’s Next for Healthcare? Watch Gretzky!

Gretzky

Remember that quote from hockey great Wayne Gretzky, “I skate to where the puck is going to be, not where it has been.”  To see where healthcare is going, watch Gretzky.  Watch the successful organizations that always seem to be in the right place at the right time. Watch Ascension Health.

The nation’s largest not-for-profit health system, Ascension popped up in a recent New York Times story on health insurer consolidation.  It had become an insurer, too, when it acquired Michigan-based U.S. Health and Life Insurance in February.

Ascension Health as Insurer

Ascension plans to continue the small insurer’s focus on serving small, self-insured employers, according to a filing with Michigan regulators.  Although 20 states have licensed the insurer, Ascension plans to concentrate on Michigan, where the health system’s footprint is biggest, as well as in Illinois, Indiana and Wisconsin.

Longer range, the system has the much more ambitious vision of coupling its new insurance asset with a newly formed Ascension Care Management subsidiary to provide employers with population health services. Ascension then can take provider direct contracting with employers to a new level.

Generally, organizations like the Mayo Clinic and the Cleveland Clinic have contracted with national employers for single-price orthopedic and cardiac surgeries.  Ascension, on the other hand, is ready to provide capitated care arrangements directly to employers for all their employees, not just surgical patients. Modern Healthcare reports that risk based contracts, including capitated arrangements with payers, already cover about 1.9 million Ascension patients.

Being a Healthcare Gretzky

To be a Gretzky, a healthcare provider must be able to assume risk. However, not every provider capable of assuming risk will be as good as Gretzky.  There is more to being a Gretzky, including focused scale, powerful information technology and clinical leadership.

Focused Scale

Surely, Ascension’s size is its most striking characteristic.  However, size alone does not make Ascension a Gretzky.  Instead, Ascension brings a distinguishing focus to its size, one that recognizes healthcare in the U.S. as a confederation of 50 state markets plus the District of Columbia.

For example, in Michigan, Ascension has allied with CHE Trinity Health Michigan to form Together Health Network for joint managed care contracting and, potentially, offering narrow network coverage products on the state’s public insurance exchange.

The network, which does not involve an asset merger, covers nearly all of the state, with 75% of the population no more than 20 minutes from a participating hospital or physician practice. Reinforcing that coverage, Ascension has also agreed to acquire Crittenton Hospital Medical Center in Southeast Michigan.

On the other hand, Ascension has scaled back in Arizona, where it has entered into a joint venture with Tenet and Dignity Health, resulting in Tenet operating Ascension’s Carondelet Health Network.  Ascension had not been a major presence in the market.

Ascension is also configuring horizontally for the nation’s diverse healthcare payment models.  In a recent article, CEO Tony Tersigni observed that Medicare resembles Canada, our under-65 model is closer to France, Germany or Japan, veterans, military and Native American healthcare is a lot like the British National Health Service and, for the uninsured, rural India or Cambodia provide the best comparison.

Consistent with this mental map, Ascension last year announced establishment of Ascension Health Senior Care, now the nation’s second largest not-for-profit long-term care provider in the nation.  Consisting of 34 facilities serving more than 5,500 patients, the unit shares best practices and establishes consistent standards.

Once again, like Gretzky, Ascension has positioned itself well. At this week’s White House Conference on Aging, the Obama Administration announced a proposed rule updating, for the first time in nearly 25 years, the quality and safety requirements for nursing homes and skilled nursing facilities.

Powerful Information Technology

Ascension is not waiting for national data to achieve “drastically reduced hospital readmissions.”  Instead, in almost real time, it spots patterns in 30-day readmissions using admission, discharge and transfer (ADT) data across the care continuum. The immediacy enables Ascension to evaluate and adjust interventions on a local level.

“We are highly engaged with supporting the technology that would enable rapid identification and management of those conditions, so we are working very hand-in-glove with our clinical leaders,” Ascension Information Services (AIS) vice president Mary Paul recently explained to HealthITAnalytics.

The system has identified three key risk factors for readmissions – medication management, access to primary care and socio-economic factors.  ““We can predict fairly well which patient is likely to get in trouble from their clinical situation, but their social determinants are just as important,” Chief Quality and Nursing Officer Ann Hendrich told the publication.

Meanwhile, 2,500 AIS employees are also working to standardize and consolidate across 1,900 sites of care in 23 states, according to CIO Mark Barner.  They are shrinking more than 4,000 software applications to a much smaller number and consolidating 37 disparate interface engines into one.  Ascension is using the Athenahealth ambulatory electronic health record application and cloud based applications for ambulatory physician practice management.

Clinical Leadership

Ascension Health has been at the forefront of the patient safety movement for more than 20 years.  In connection with a 2002 commitment to 100% access to safe, effective care, Ascension adopted a goal of clinically excellent care with no preventable injuries or deaths by July 2008.  The Joint Commission Journal on Quality and Patient Safety published a series of articles charting the system’s journey toward clinical transformation.

Ascension continues its leadership through its Hospital Engagement Network (HEN).  Selected by and with funding from CMS, Ascension’s HEN is developing advances in ten areas, including sepsis, hospital acquired infections, patient safety culture, home healthcare models, hospital acquired kidney failure, and safe patient handling.  Ascension will share the advances with hospitals throughout the nation.

The Ascension HEN has already identified, documented, refined and shared best practices in ten additional areas, including urinary tract infections, adverse drug events, pressure ulcers, fall injuries and central line associated blood stream infections. For example, Ascension developed a protocol for reducing catheter induced urinary tract infections, which account for 30% of hospital-acquired infections, by limiting catheter use.

In another example, Ascension has dramatically reduced induced or C-section deliveries before 36 weeks, which often result in higher complications for babies and mothers.  In February 2012, Ascension’s early-elective delivery rate was about 3.5%, already substantially lower than the national average of 10% to 15%.  Now, it is even lower, at 0.6% after shared data with physicians and stepped up patient education efforts.  (For additional advances in obstetrical care, see three Ascension-authored articles in the January 2014 edition of Health Affairs.)

Last month, Ascension told the White House Forum on Antibiotic Stewardship that it wants to “set the pace for the nation in antimicrobial stewardship.” It has pledged to establish facility-based antimicrobial stewardship programs in all Ascension hospitals that will include both a pharmacist and a physician with antimicrobial expertise.  The system also said it would reduce the use of three broad-spectrum or niche antimicrobials by at least 10% reduction during the first 12-18 months.

What’s Next for Ascension?

One of the best ways to project where a Gretzky organization will be next is to watch the Gretzky’s within it.  In Ascension’s case, that would include Chief Quality and Nursing Officer Ann Hendrich, who joined Ascension in 2003, after leading the development of an innovative coronary care unit at Methodist Hospital in Indianapolis.

That she would be a Gretzky to watch at Ascension was clear from an observation she made in her application to be a Robert Wood Johnson Executive Nurse Fellow in 1998.  Hendrich wrote, “The opportunity to take shell space and not replicate the present and familiar but integrate environmental design, technology and a new care delivery model is imperative.”

In her dozen years at Ascension, Hendrich has played a key role in cementing Ascension’s clinical leadership.  Given the system’s accomplishments, especially in clinical quality and patient safety, Ascension merits the recognition usually afforded the great healthcare brand names like Mayo, Cleveland Clinic, MD Anderson and Kaiser.

Establishing a strong national brand is “what’s next” for Ascension.  The need and the opportunity are clear and, to track how Ascension intends to build its brand, look to the recent arrival of another Ascension Gretzky, Nick Ragone.  A lawyer and author, Ragone most recently led the Washington office of Ketchum, a global public relations agency.

As Ascension’s chief communications officer, he will “enhance the strategic identity of Ascension,” according to the 2014 announcement of his arrival. His initial focus has been internal, engaging 153,000 employees, as it should be for any brand-building exercise.  Ragone is supporting an enterprise-wide “One Ascension” initiative, which is integrating and establishing best practices throughout the once highly decentralized system.

Meanwhile, Ragone is preparing to take his branding initiative on the road:  He is looking for a brand strategy director to “lead work around the definition and development of the Ascension brand, both internally and externally.  The Director will be responsible for developing the value of the Ascension brand and driving strategies to build brand equity for Ascension, its Subsidiaries and Health Ministries.”

Epilogue as Prologue

Earlier this month, Modern Healthcare editor Merrill Goozner interviewed Ascension CEO Anthony Tersigni.  He asked Tersigni about Aetna buying Humana and Anthem pursuing Cigna.  Tersigni shrugged off the big deals, saying, “Ascension is preparing to take on risk itself for self-insured employers as the system strives to manage population health while encountering an increasing number of patients in high-deductible plans.”

Spoken like a true healthcare Gretzky.