Anthem, Seven California Health Systems Team Up To Form HMO

On Wednesday, Anthem Blue Cross announced it will form an HMO with seven health systems in Los Angeles and Orange counties in an effort to rein in health care costs, the New York Times reports.

The health systems will continue to contract with other insurers, and Anthem still will offer other health plans.

Details of New HMO

The new HMO will be called Anthem Blue Cross Vivity. The insurer is teaming up with:

• Cedars-Sinai Medical Center in Los Angeles;
• Good Samaritan Hospital in Los Angeles;
• Huntington Memorial Hospital in Pasadena;
• MemorialCare Health System in Orange County;
• PIH Health in Whittier;
• Torrance Memorial Health; and
• UCLA Health (Abelson, New York Times, 9/17).

The HMO will include all of the hospitals' affiliated clinics, doctor's offices, surgery centers and other outpatient centers. Vivity will include a total of 6,000 physicians and 14 hospitals within the seven health systems (Terhune, Los Angeles Times, 9/16).

The health systems must meet certain quality standards and have agreed to provide care at a price that is equal to or below the actual cost. They also plan to eventually share patients' health records and take part in care collaboration.

Member health systems will share in any profits or losses related to the HMO (New York Times, 9/17).

Pam Kehaly, a senior executive at Anthem, said the HMO is expected to make a significant profit by reducing hospital and emergency department admissions and unnecessary services. Kehaly said, "Under the current model, hospitals want to keep occupancy rates up. This is in complete opposition to that," adding, "For this joint venture to succeed, we have to keep occupancy rates down."

For coverage beginning in 2015, the HMO is expected to cost about 10% less than Anthem's current standard HMO plan, according to the insurer (Los Angeles Times, 9/16).

Moving Forward

Kehaly said the plan initially will be limited to about 15,000 enrollees, but could later be expanded and potentially sold through Covered California, the state's health insurance exchange under the Affordable Care Act (Wolfson, Orange County Register, 9/16).

CalPERS already has signed on as the new HMO's first big customer.

If the new HMO model proves effective, Anthem said it likely will replicate the offering in other states where Blue Cross coverage is sold.

Potential To Compete With Kaiser HMO

According to the Los Angeles Times, Anthem's new HMO could have the potential to compete with Kaiser Permanente's HMO. According to Citigroup, Kaiser accounted for 40% of the state's individual and employer insurance market share in 2011, while Anthem accounted for 23%.

Barry Arbuckle, CEO of MemorialCare, said the plan will "have a price point similar to Kaiser or better," adding, "This is the next major step for managed care" (Los Angeles Times, 9/16).

Ann Boynton, a benefits executive at CalPERS, said the HMO is "such a completely different way to come at the problem," adding that it has "the potential to operate very much the same way as Kaiser does" (New York Times, 9/17).

However, Steve Valentine, president of the health care consulting firm Camden Group, said, "Kaiser is a brutally tough competitor with a tremendous brand," adding, "Anthem is stringing together a bunch of hospital brands with good reputations and strong facilities. But we don't know if it will really save any money or if the public will like it."

Kirby Bosley, senior vice president at consulting firm Aon Hewitt, said Anthem's new HMO "may be a credible threat to Kaiser" but that "remains to be seen" (Los Angeles Times, 9/16).