BY JONATHAN FROCHTZWAJG
As health care reform inches forward, insurers, doctors and hospitals seek to improve quality and control costs.
BY JONATHAN FROCHTZWAJG
What with the Cover Oregon debacle, delayed employer mandates and ongoing political gamesmanship, health care reform in Oregon and around the country got off to a rocky start. But behind the Oracle scandal, the enrollment snafus and high-profile health insurance exchange firings and hirings is a health care system slouching toward change.
Oregon Business talked to the doctors, the insurers and the hospital executives on the front lines of “health care transformation,” an ambitious moniker for institutional and policy shifts that can seem, to the layperson, far more incremental than radical.
Many of these changes revolve around the idea of collaborative care, a prevention-based model that seeks to organize health care businesses around patient outcomes; the goal is to control costs and make people healthier. Free-market competition and a rethinking of the relationship between employers and health insurance are among other changes under way. It’s a battlefield marked by uncertainty and innovation, along with a deep-seated desire to conquer one of the nation’s biggest challenges: our extraordinarily expensive and inefficient health-care delivery system.
In 2012 Gov. Kitzhaber persuaded the federal government to grant Oregon $1.9 billion over five years to help pay for an ambitious health care transformation experiment: to fund 16 “coordinated-care organizations” serving members of the Oregon Health Plan, the state’s financially unsustainable Medicaid program. The philosophy behind CCOs is simple: If health-care providers communicate more effectively around patient care, they will deliver more cost-effective service. Pay these providers a limited amount for each patient — a practice called “capitation” — rather than a fee per service, and you also create an incentive to keep patients healthier.
Technically, the governor’s transformation initiative was limited to the Oregon Heath Plan. But two years later, private-sector providers are following suit. And as the number of CCO-inspired health care organizations increases, the stakes for the governor’s gamble are getting higher. Oregon health care businesses are all asking themselves the same question: Will coordinated care deliver on its promise?
More than 800,000 OHP members now receive care through CCOs, as do about 130,000 public employees covered through the Public Employees’ Benefit Board. Because many private providers are invested in the CCO business — Moda, for example, owns the Eastern Oregon Coordinated Care Organization — the CCO-patient population is catalyzing change system-wide.
Federal reform is also helping spread the coordinated-care gospel. The Affordable Care Act (ACA) prohibits insurers from denying coverage for preexisting conditions. As Ralph Prows, CEO of the new nonprofit insurer Oregon’s Health CO-OP, points out, the new regulations make coordination carriers’ best bet for minimizing risk. “The health plan that’s going to do well is the health plan that manages its sick people well,” he explains. “It’s a totally different game.”
Moda, the Northwest insurance giant, covers employees working for the city of Portland. To reduce expenses, the insurer last year offered the 5% of city employees driving health plan costs the opportunity to participate in a new care-coordination initiative. The result was a 50% drop in ER visits for that population, and Moda is now considering expanding the program.
Providers are adopting similar initiatives. The Portland Clinic, with seven locations and 500-plus employees, recently launched a program in which nurses visit seniors’ homes to consult on accident proofing. The program helps prevent ER visits and lengthy hospitalizations, says Mike Schwab, the clinic’s snowy-haired CEO. And yet under the traditional fee-for-service payment model, there was no system in place to pay for that initiative.
So the clinic pitched insurers new models placing a value on preventive care. “We said, ‘We’re doing these things, and we want to do them for your patients as well; would you pay us differently to do that?’” Schwab says. “We’re moving the change ourselves.”
Bob Dannenhoffer, CEO of Architrave Health
Over the long term, however, neither Schwab nor anyone else knows whether coordinated care will work as planned. If the savings promised by CCOs don’t materialize, and the state doesn’t limit annual Medicaid spending growth under ambitious caps of 4.4% this year and 3.4% in 2015, the federal grant dollars Kitzhaber secured will disappear, leaving a yawning gap in Oregon’s health budget.
“At least so far, we’ve lived within a sustainable budget,” reports Bob Dannenhoffer, chief executive of Architrave Health, the parent company of the Douglas County CCO, Umpqua Health Alliance. Dannenhoffer says the CCO encourages medical and mental health care providers to integrate treatment of patients with “severe and persistent” mental illness, thereby cutting down on services performed in the emergency room. “It’s an experiment, and not all experiments work,” says Dannenhoffer, referring to CCOs. “But it’s been looking pretty good.”
A state report released in June validates Dannenhoffer’s prognosis, including a finding that in 2013, ER visits by people served by CCOs were down 17% compared with the number of visits in 2011.
Others are more circumspect. Andy Davidson, president of the Oregon Association of Hospitals & Health Systems, predicts the real test for CCOs will come when the surge of federal dollars and new Oregon Health Plan members begins to ebb. “I don’t think you’ll see anybody choking in the first two years of reform, because there’s enough new volume and new dollars in the system to mask the problems,” says Davidson, a former health care policy advisor to U.S. House Whip Steny Hoyer. “But we’ve got to watch carefully at the two- and three-year marks. There’s enormous risk for everybody that’s part of a CCO.”
The Big Pill
The Oregon coordinated-care solution seeks to align hospital and doctor incentives. “Everybody has looked out for themselves. That’s the way the system was built,” observes Davidson. “Breaking down those walls, you have hope for creating a system that’s incented to do less with less.”
There’s one problem: Not all the walls have come down. Drug companies and medical-equipment manufacturers, for instance, remain outside the purview of reform, despite the fact that their products are huge drivers of health care costs. “Oregon hospitals and physicians have bought into this concept, but drug companies and medical-equipment manufacturers clearly have not — and they threaten to sink it,” says Dannenhoffer.
He points to a $1,000 pill: a new hepatitis-C drug he calls useful but ridiculously priced. “It’s hard to live within a 3% or 4% increase a year when some of the component costs are going up at a far greater rate.”
Long-term care providers, too, have managed to avoid transformation. “They negotiated a great political deal to not be included,” Davidson notes.
But health care reform is inherently political and therefore requires compromise. “We can’t let the perfect be the enemy of good,” says Davidson. “Drugs aren’t in. Durable medical equipment’s not in. Long-term care’s not in. And we need to have policy conversations about adding them in. But we had to do something to get everybody in the same tent.”
Building a Nimble Hospital
|Jim Diegel, president and CEO,|
St. Charles Health System
If the ACA improves access to preventive care, fewer people will need to visit the ER or be admitted to the hospital. From a Hippocratic perspective, lower hospital utilization is a good thing, says Davidson. “If you’re keeping people healthier, you’re keeping them out of the hospital, so you’re ultimately having less cost on the system. That’s awesome.”
But from a business standpoint? Not so good. Hospitals have large fixed costs: property maintenance, food service, laundry. If revenues go down, it will be difficult to lower expenses to match. “Hospitals can change,” Davidson says, “but they’re like battleships: You turn the wheel, and it sometimes takes a mile or two to actually turn.”
ER visits are actually up, Davidson notes, due to pent-up demand from previously uninsured people. But hospitals are preparing for a future drop in patient volumes by developing more efficient, standardized processes and considering ways to “re-deploy” their staff. “If you reduce volume, it’s going to have an impact on how many employees you need,” Davidson says. “You’ve got to start thinking about how to retrain people to do other things.”
Recent data from the Oregon Employment Department shows although the state’s health care industry as a whole has been growing, hospital employment has stagnated since 2007 and is projected to grow by a relatively slow 14% between 2012 and 2022.
Financial pressures on hospitals will likely lead to consolidation and collaboration. That’s already happening outside Portland, where some institutions share back-office resources without fully merging. “People are realizing we’ve got to figure out how to deliver coordinated care; we’ve got to figure out how to be more cost effective,” says Jim Diegel, president and CEO of Central Oregon’s St. Charles Health System, which merged with Madras’s Mountain View Hospital last year and entered into a lease agreement with Prineville’s Pioneer Memorial Hospital in 2008. “Smaller organizations, or organizations that don’t have the talent, resources and capital internally, are saying, ‘We need to have a different relationship going forward.’”
For an example, look no further than Prineville. This spring St. Charles, whose revenues grew more than 10% to $556 million in 2013, broke ground on a new $30 million hospital slated to replace Pioneer Memorial in 2015. St. Charles Prineville will be two-thirds the size of its predecessor. It will have 20% fewer beds, and MRIs will be performed by a contractor in a trailer that will also serve St. Charles’s Madras hospital. The lean design of the new facility anticipates the industry’s shift away from acute care, explains Bob Gomes, CEO of St. Charles Bend and St. Charles Redmond: “We’re building our infrastructure looking to where health care is going, not where it is today.”
Diving into Big Data
Care coordination demands improved technology such as shareable electronic health records. These new IT systems are costly, but Oregon doctors and hospitals view them as up-front investments in long-term savings.
The Portland Clinic, for example, recently installed an expensive new computer system as part of an electronic-health-records initiative. That sent the clinic’s cost-per-visit “sky high,” says CEO Schwab. But he believes the system will pay off in the long run. “The innovations we’re doing are having a negative impact on our bottom line. But if done correctly, there’ll be rewards down the road.”
An effort is under way to create an information exchange among area emergency rooms. This Emergency Department Information Exchange would enable hospitals to find out whether a patient had visited other ERs in the region and what treatment they received — and then refer repeat ER users to more appropriate, less-costly places to get care. The Oregon Health Leadership Council, a body comprising representatives from most of the state’s largest health care organizations, is championing the initiative.
“If somebody comes to your emergency department and they’ve been to four different ERs in the last few months,” explains council president (and former CEO of Providence in Oregon) Greg Van Pelt, “we can figure out a way to get that person on a path to where they quit using the ED for their primary care.”
In the hyper-efficient, quality-centric environment of transformed health care, providers will also need the knowledge and talent to gather and interpret enormous amounts of data on their patients. The potential of big data is huge, but many in health care don’t have those analytics capabilities — at least not yet. “We need to move there, and I think there’s a growing appetite to move there,” Davidson says.
|Dawn Bonder, CEO of Health Republic|
Health care reform is about more than collaboration and prevention. New organizational models are also part of the shifting landscape. For example, as a compromise alternative to the hotly debated “public option” — a proposed government-operated insurer that would have competed with private companies — the ACA created a new, nonprofit type of insurance carrier called a CO-OP, a Consumer-Oriented and Operated Plan. These new entities were intended to improve competition in the insurance market — especially in local markets where just a few carriers dominate. As nonprofits, CO-OPs’ surpluses must be used for purposes such as lowering premiums or improving benefits; as “consumer-operated” plans, at least half of their board members must be policyholders.
Oregon is the only state with two CO-OPs: Health Republic and Oregon’s Health CO-OP. That puts these organizations in the unique situation of competing directly with each other. “Head to head,” says Health Republic CEO Dawn Bonder, a straight-talking ex-attorney who served as senior advisor on health information technology to former Gov. Ted Kulongoski.
The reality, however, is that the CO-OPs’ greatest threat comes from entrenched market players. The new entrants were supposed to get a boost in visibility by being presented alongside established carriers on the insurance exchanges. But in Oregon and elsewhere, of course, those exchanges never functioned as intended. “It’s been very difficult,” Prows says. “Our intention was that most of our enrollment would come through the exchange, and it didn’t.”
As Cover Oregon’s failings became evident, the CO-OPs pivoted toward more outreach to insurance brokers. Many agents, though, were leery of the newcomers. “It took a while for brokers to feel comfortable with this out-of-nowhere health plan,” Bonder says.
Cover Oregon’s failure notwithstanding, Health Republic and Oregon’s Health CO-OP fared decently in the 2013-14 enrollment period: The former enrolled more than 5,000 members, while the latter expects to hit the 5,000 mark by year’s end. Of course, compared with Moda, the 800-pound gorilla of the Oregon insurance industry, both CO-OPs are small fry. The regional insurer, with revenues of more than $2 billion, boasts more than 414,000 medical-plan members in Oregon.
Still, Bonder and Prows contend their organizations have structural advantages over traditional carriers. CO-OPs are legally required to reinvest surpluses in their organizations; in addition to touting their member-driven governance structures, both chief executives take potshots at Moda for spending premiums on building up big reserves or buying the naming rights to the Moda Center.
“We have a very consumer-focused mission,” Prows says. “It is not to build huge reserves. It is not to rebrand sports centers. It is only to build care the way people want it.” Moda spokesperson Jonathan Nicholas responds: “None of the money spent on partnership endeavors with the Portland Trail Blazers has any impact on Moda’s insurance rates in Oregon.”
Perhaps the biggest competitive advantage for CO-OPs is the fact that the insurers are indigenous to health care reform; they have, as it were, no preexisting conditions. “Trying to move a brand-new startup organization isn’t easy,” Bonder observes, “but it’s a lot more feasible than trying to move a behemoth.”
Healthy Business Alliance
Nationwide, President Obama and the business community haven’t always seen eye to eye on health care reform — perhaps understandably, considering the hefty financial burden the ACA’s employer mandate represents for medium- and large-size businesses. In Oregon, though, a tradition of health care innovation and a progressive, health-conscious ethos has nurtured a more proactive dynamic between business and reform advocates.
For example, when the president last year delayed the employer mandate, giving businesses with 50 or more workers additional time to provide health coverage to their employees, his decision came in response to stiff opposition from larger employers across the country. But in Oregon, it appears these bigger businesses aren’t waiting for the mandate to go into effect to offer benefits. “My sense is that they know it’s coming, so they’re just getting ahead of it,” says D.J. Vogt, vice president of government affairs for the Oregon Business Association.
Even some employers with fewer than 50 workers, who were never required to provide coverage, are doing so here, anecdotal evidence suggests. More than 200 smaller businesses, for instance, have signed up with Health Republic. “My guess would have been that now that there’s individual coverage with guaranteed issue, and maybe a subsidy, small employers would say, ‘Go out there! Good luck to you!’” says CEO Bonder.
But in this labor market, she continues, employers need to offer coverage to be competitive: “To get your choice of the best and the brightest, you’re competing with companies that are offering health benefits,” Vogt concurs, adding that many Oregon business owners simply see providing coverage as the right thing to do. “It doesn’t surprise me that people are doing that,” he says. “I feel that’s just part of an ethos that comes with the territory here.”
Some insurance executives predict that once Cover Oregon is fully functioning and there’s more certainty in the individual market, under-50-employee businesses in Oregon may do exactly what Bonder imagined they would. Prows, of Oregon’s Health CO-OP, says the “prevailing prediction” in the industry is that smaller employers will opt to offer a defined contribution for individual insurance instead of sponsoring their own health plan.
For these businesses and their workers, that would mean the end of employer-provided health coverage as we know it. “I think it’s early to just have small employers say, ‘OK, good luck,’” says William Johnson, president of Moda. “But I do think that may happen in the future.”
As the fate of small-group insurance — like that of CO-OPs, hospitals and CCOs — hangs in the balance, reform proponents underscore the potential for meaningful change. If nothing else, Johnson says, the ACA has started a far-reaching, industry-wide discussion: “We’re all engaging in a conversation now that’s going to change health care as we know it.”