New Breed of HMO Cuts Costs, Improves Quality in San Diego

Every employer in the U.S. is looking for ways to rein in rising employee health care costs. One San Diego-based employer group seems to have found the recipe for success in “narrow” or “high-performance” health care provider networks.

The California Schools Voluntary Employee Benefits Association (VEBA) – a trust representing 30 school districts throughout Southern California – partnered with United Healthcare and Sharp Healthcare to create an HMO in San Diego County that rewards employees who join lower-cost, higher-quality networks by charging them lower premiums, deductibles and copayments.

The plan, which went into effect in January in San Diego, gives approximately 86,000 VEBA members a choice of one of three network tiers categorized by performance on quality metrics and cost. Each tier offers a different level of benefits and out-of-pocket costs. Network 1 — the top tier — includes the highest-performing providers and provides the richest benefit package at the lowest price.

VEBA forecasted $12 million in savings for participating schools in the first year. In fact, schools offering VEBA’s United Performance HMO have saved $22 million in health plan renewals so far for 2011, in part by keeping premium increases to less than 8% as opposed to a more than 11% increase seen in previous years.

The Push for Change

The impetus for the VEBA United Performance HMO is the same one driving all employers to alter their health benefits design: double-digit increases in employee health care costs with no apparent signs of slowing, according to George McGregor, VEBA Trust administrator.

In an effort to gain control, the trust worked with an outside consultant to evaluate the core causes of the increases. “We found that like most large groups, 20% of our population accounted for 80% of our expenses,” McGregor said.

Among the 20% of employees with the greatest costs, one in five of the diagnoses were wrong and 60% of the treatments for those who were correctly diagnosed were ineffective, according to the analysis. Better treatments were available.

The answer to the problem seemed easy. “Get the correct diagnosis and the correct treatment,” McGregor said. The process for getting there, however, would require a new approach.

One of the greatest barriers to altering benefit designs, according to McGregor, was members’ perception. “We had to figure out how to build a delivery system that motivates our members to use higher-quality providers in a way that they would understand. The bottom line for that is in their pocket book,” he said.

McGregor said VEBA turned the benefits design upside down to offer members better benefits with lower premiums if they agreed to use a high-quality provider.

A Unique Approach

The idea of narrow or high-performance networks is not exclusive to VEBA. It has been a growing trend over the past few years, particularly in Southern California. But VEBA’s plan design is different in a number of ways.

One characteristic experts point to is that members are rewarded for choosing the highest-quality, most cost-efficient network but that they haven’t lost their choice of health care providers.

“What’s interesting is that there are incentives for the patient,” said Amy Anderson, a senior associate with consulting firm Booz Allen. “In the past there were not as many efforts to educate patients about the choices they make and how that can affect quality and cost,” she said.

Employees also have access to a wide network of providers throughout the three tiers. Typically, narrow-network HMO products limit members’ choice of providers. In this case, the provider network was not reduced, but simply redistributed.

“This network doesn’t restrict access at all,” said Steve Scheneman, vice president of Southern California UnitedHealth. “In some cases, if someone wants to maintain status with a tier two or three physician group it may mean a higher premium or less-rich benefit design. But they still have complete access to the network in its entirety,” he said.

Assessing Quality and Cost

In the interest of accuracy and in light of the California Medical Association having sued Blue Shield for making its quality indices on physicians public, the stakes were high to find the most appropriate way in which to measure quality when establishing the three network tiers.

In the end, VEBA used quality data from the California Office of the Patient Advocate to determine a provider’s tier. The data are self-reported by health care providers and verified by auditors.

The transparency of the data is one of a number of characteristics that make the United Performance HMO unique and is likely why both VEBA and UnitedHealth report minimal pushback from the provider community, according to Scheneman.

“A lot of times when carriers have built performance-based networks, they are generally relying on internal data that aren’t fully visible and public,” Scheneman said, adding, “Any member can log into the [California state OPA] website and look at every single group and understand their quality rankings and the specific measures that went into that quality ranking.”

VEBA also conducted an analysis of claims data to determine the actual costs paid by the insurance company for VEBA members.

While price and quality determined a provider’s tier, McGregor maintains that it wasn’t about money and that quality came first. “Even if you have the best price in town, if you have low quality standards, you were not in the chosen tier network,” he said.

According to McGregor, the trust learned several years ago that the lowest-cost hospital in the network actually turned out to be the most expensive. “The lowest-price hospital had a 40% post-operative infection rate and the most expensive hospital only had a 12% infection rate. When you did full costing, the more expensive was the cheapest,” McGregor said.

The tiering process helped the trust gain additional leverage with the provider community. Many health care providers placed in the second and third tiers wanted to understand why they didn’t make it to the top spot and inquired about how to change their status.

“A number of groups slotted in tiers two or three came back to us and asked ‘What do we need to do to get into a more favorable tier?'” Scheneman said. “It opened up communication between medical directors to have an outcomes-based discussion and to talk about how to improve,” Scheneman said.

Other discussions centered on price. “In year one, we took out $2.5 million on renewals for provider concessions alone,” McGregor said, referring to savings achieved during contract negotiations.

Health care providers with strong quality scores who are willing to come down in price or health care providers with less than stellar quality reports who are willing to make improvements to their practices have an opportunity to move among the three tiers.

Provider Partnership

VEBA turned to Sharp HealthCare as its leading provider; both Sharp Rees-Stealy and Sharp Medical Group can be found in the top tier — or Network 1 — in the Performance HMO. As a result, the provider has seen an influx of nearly 3,000 new patients.

Sharp is an integrated system that has long placed emphasis on physicians following clinical guidelines, coordination of care and patient satisfaction, according to John Jenrette, CEO of Sharp Community Medical Group.

“Sharp has been on this journey for 25 years,” Jenrette said. “The groups and the hospitals stay under a prepaid capitated system. The dollars are upfront and when you’re paid that way, you’re really looking carefully at how you spend the money. You want to keep the patients healthy and make sure they get their prevention screenings,” he said.

According to Jenrette, Sharp physicians are rewarded financially through performance and quality measures. “More than 10% of their salaries are based on quality scores. Doctors are keenly attuned to what percentage of the population is getting mammograms and has diabetes under control,” he said.

Financial, as well as clinical criteria, determine eligibility for the new HMO.

Scripps Clinic, which scores high on clinical quality and patient satisfaction, converted all its contracts from a capitated to a fee-for-service arrangement, which McGregor said, rewards the system for providing more care rather than the right care. One prime example: VEBA saw a 70% increase in radiology services after the provider changed to a fee-for-service payment system. Scripps was operating at 160% of San Diego county average.

As a result, Scripps has been left out of the Performance HMO networks entirely. It lost approximately 6,000 patients when VEBA made the switch at the beginning of 2011.

Continuing To Raise the Bar

The program has been a success thus far, but that doesn’t mean VEBA is resting on its laurels.

“We’re always tinkering with the benefits, and trying to get members to better engage in their healthcare,” McGregor said.

Bigger plans are in the works to evaluate the performance of the provider networks too. VEBA has engaged consultants to take a closer look at provider outcomes, moving beyond group performance to ultimately evaluate the quality of care delivered by each provider. Once those data are available, McGregor expects a move to pay-for-performance for physicians.

“We want to get down to both the member and physician level and intervene when care is not being appropriately provided,” he said.

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