Health care systems vow savings for exclusive contracts [Milwaukee Journal Sentinel]

May 31--Health systems in eastern Wisconsin are taking the first steps toward revamping the way they are paid, laying the groundwork for head-to-head competition on price and quality as well as sweeping changes in the health insurance market.

Aurora Health Care is promising employers guaranteed savings if they offer a health plan that requires employees and their families to use only Aurora hospitals, doctors and other services.

Froedtert Health, Wheaton Franciscan Healthcare and Columbia St. Mary's Health System are part of a partnership with other health systems in eastern and north-central Wisconsin and northern Illinois that plan to do the same.

The initiatives are in the earliest stages. But over time, they could lead to the narrow networks common in the 1990s, when managed care remade the health insurance industry. That would force many patients to change doctors.

But changing the way health systems are paid could help slow the rise in health care costs. It al so could result in better care by improving coordination, closely managing patients with chronic conditions and encouraging better adherence to clinical guidelines.

"This is the engine for making health care better," said Peter Pruessing, chief executive of Quality Health Solutions Inc., the partnership that includes Froedtert, Wheaton Franciscan and Columbia St. Mary's.

The initiatives by Aurora and Quality Health Solutions are known as accountable care organizations, or ACOs -- an acronym that someday could be as much a part of the health care vocabulary as HMO.

Accountable care organizations would be accountable for the cost and quality of care for a defined group of patients. In exchange, physicians, health systems or both would share in any cost savings provided they met specific quality measures.

The goal is to give doctors and hospitals a financial incentive to focus on how they deliver care rather than on revenue.

The current system, known as fee-for-service, typically rewards hospitals and doctors for providing more services -- procedures, imaging tests, office visits -- that may not improve a patient's health.

At the same time, doctors and nurses often aren't paid for care that would benefit patients, such as the time-consuming care needed to keep a patient with congestive heart failure out of the hospital. In addition, when a health system does provide that care, the drop in hospital admissions means less revenue.

That paradox is one of the reasons economists, health policy analysts and some chief executives of health systems have pushed for changes in the way doctors and hospitals are paid.

The idea is to pay health systems for doing the right thing, Pruessing said.

Medicare is encouraging health systems and independent physicians to set up accountable care organizations under provisions in the Affordable Care Act, the federal health care reform law.

So far, Bellin Health in Green Bay, ThedaCare in the Fox Valley and Independent Physicians Network, which includes about 950 doctors in the Milwaukee area, have been selected to participate in Medicare pilot programs.

Aurora has applied to participate in one of the programs. Other health systems also are expected to participate. ProHealth Care and physicians in Waukesha County, for example, have formed an accountable care organization.

The organizations also will contract with health insurers and employers in addition to Medicare.

Lower increases

The Aurora Accountable Care Network will guarantee that an employer's costs will rise at a slower rate than the overall market, putting a cap on how much costs increase in a given year.

The guarantee will vary based on the employer's past medical claims. But Aurora will be on the hook for any medical bills that exceed the cap. It also will be eligible for bonus payments if it meets certain targets.

For now, the employers must have 250 or more employees and must self-fund, or pay most of the medical claims of employees and their families.

The employers, which must sign three-year contracts, would be required to make changes in their plan design and to offer health and wellness programs. Their employees and families could go only to Aurora hospitals and doctors.

Aurora, which began marketing the accountable care organization last year, is convinced it can provide quality care at a lower cost based on its health plan for its own employees.

"What we are building off of is the 15 years experience we have with managing our own employee health plan," said Rick Klein, executive vice president of growth, marketing and development for Aurora.

Costs for that plan, which covers more than 40,000 people, rose about 1.5% a year from 2008 through 2010, according to Aurora.

Part of Aurora's confidence also stems from its analysis of what it spends on an episode of care for someone in its own health plan compared with other health plans.

Aurora's costs are 7% lower than other health care providers, Klein said.

Competitors and others may question that. But Aurora is willing to risk its own money to prove it.

That will give Aurora an added incentive to use health care resources wisely. But assuming risk is the domain of insurance companies.

To avoid having to get an insurance license from the state, Aurora is expected to arrange a multistep transaction involving an insurance company and its in-house reinsurance arm incorporated in the Cayman Islands.

Overestimating its ability to manage risk is one of the potential pitfalls for Aurora and other health care organizations willing to experiment with new types of reimbursement. But several top Aurora executives have extensive experience in the insurance business.

Health insurers could see the Aurora Accountable Care Network as a potential competitor to their own networks. But it could help Aurora gain market share -- and market share could become crucial in coming years given that payments from Medicare are expected to increase at a much slower pace.

The network also could enable Aurora to prove to the marketplace that it provides care at a lower cost than its competitors.

"Aurora does have high quality and low cost," said Joe Holt, vice president of sales and marketing for Auxiant, which administers health plans for employers who self-insure.

Holt has requested bids from Aurora for about nine clients.

Aurora, the state's largest health system, also has made a number of moves in recent years, buying several large physician practices and opening hospitals in Summit and Grafton, to position itself to contract directly with employers.

"Their footprint is so big that it makes it a viable option," Holt said.

A complicated task

Quality Health Solutions is moving more slowly but expects to have pilot programs in place with a few employers this year.

"It is more important to be successful than to be quick," said Pruessing, who also is an executive vice president at Froedtert Health.

Quality Health Solutions consists of seven health systems, the Medical College of Wisconsin and independent physicians. In addition to the Milwaukee-area health systems, it includes Agnesian Healthcare in Fond du Lac, Aspirus in Wausau, Bellin Health in Green Bay and Centegra Health System in McHenry, Ill.

The goal is to create an integrated network with common quality standards and clinical guidelines.

That will be much more complicated for Quality Health Solutions than for an integrated system such as Aurora. The network's members have different systems for electronic health records. They also include some independent physician practices that have not moved to electronic health records.

Quality Health Solutions plans to use software from California-based Intelligent Healthcare that can aggregate and analyze information from different electronic health systems and claims data.

"It's too early to tell whether it's going to control costs," said Scott Schultz, a benefits consultant with Hays Cos. "But I like the concept."

HMO roots

The concept has some similarities to health maintenance organizations that paid a set amount for each patient.

"We've been down this road once before in the early 1990s," said John Oliverio, chief executive of Wheaton Franciscan.

HMOs and managed care did control costs -- a brief period in the 1990s was the only time health care spending grew at a slower pace than the economy. But it also prompted a fierce backlash when some patients were denied needed care.

Much has changed since the 1990s, including better quality measures, advances in health information technology, better clinical guidelines and, not the least, the cost of health care.

But employers have been wary of narrow networks since the backlash against managed care. And whether they are willing to switch to a health plan that offers a narrow network in exchange for lower costs is a question.

"Human resource managers are loath to make people change their doctors," said Jon Rauser of the Rauser Agency, an insurance broker.

This is one reason accountable care organizations are expected to take hold slowly among employers.

"I don't think this is going to be like flipping a switch," Pruessing said. "I just think the direction is inevitable."

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