New Marketplace

Effective Consolidation: A Model for Reform Through Payer-Provider Integration

Article · June 14, 2018

A central focus of the health policy debate today is on how much the government should invest in providing health care coverage to Americans and how much coverage to mandate; there is a lack of attention to policies that foster alignment of incentives to promote better health at lower costs. We encourage policymakers to examine a unique natural experiment in Western Pennsylvania — a story of consolidation and then integration — as a potential model for reform.

Marketplace structure meaningfully influences health care costs and quality. Numerous studies indicate that provider consolidation increases health care costs and concentrated health plan markets can counteract these price-increasing effects. While it is true that both providers and payers often consolidate to strengthen their respective negotiating positions, this is only part of the story. In the transition from volume to value, many are now joining forces to establish integrated delivery and finance systems (IDFSs). This type of consolidation can improve health care, particularly in the context of more (not less) market competition.

Consolidation of Providers

For many years, Western Pennsylvania was one of the nation’s least competitive health care environments. One insurer controlled approximately 65% of the market, making it difficult for other national insurers to compete in the region. Beginning in 1986, UPMC (University of Pittsburgh Medical Center) began to consolidate providers, and after a decade of mergers and acquisitions, solidified its position as the largest hospital system in the region with a 60% market share.

With UPMC tied to a dominant insurer that controlled costs by paying the lowest possible unit prices for care, the region lagged most of the U.S. in implementing changes that improve quality while reducing costs. Hospital utilization was higher in Pittsburgh than Pennsylvania as a whole and increases in health insurance premiums exceeded both the rate of inflation and the rate of increase in health care costs nationally.

Launch of the Health Plan

The situation began to change in 1997, when UPMC decided to launch its own health plan. Unlike independent hospitals and insurers, IDFSs are accountable for both the quality of care provided to patients and the cost of coverage purchased by consumers. With direct access to financial resources for innovation and greater incentives to take risk, UPMC invested in developing technology, preventive services, and care management systems to promote population health. The aligned payer-provider strategy focused on reducing low-value treatment and over-diagnosis, shifting services to the most appropriate lower-cost settings, preventing and managing chronic disease, and implementing more efficient, coordinated models of care.

At the outset, UPMC faced challenges in starting an insurance company. The health plan had to contract with a large network of providers, both part of the UPMC health system and non-UPMC, and had very little leverage as the plan’s market share was low. The complex regulatory environment required substantial investments in technology and expertise to ensure compliance. Most important, the plan needed to make major investments in data analytics, a population health technology platform, and care managers to deliver on the vision of better care at lower cost for the population served, and to better integrate and coordinate care for those patients cared for across the IDFS.

Transformation of Market

By 2010, Pittsburgh was identified as one of only 16 U.S. cities providing high hospital value for both Medicare and commercially insured patients. Case-mix adjusted costs at UPMC Presbyterian Shadyside, the system’s flagship hospital, were also shown to be lower than the majority of Western Pennsylvania hospitals. Between 1998 and 2016, the UPMC Insurance Services Division saw annual increases in revenue and membership of 14% and 11%, respectively, in part supported by Medicaid expansion and participation in the individual exchanges. In addition, UPMC and University of Pittsburgh were more deeply aligned to create innovations in science and medicine, creating a robust environment for experimentation and improvement.

True marketplace transformation would require a more competitive regional insurance marketplace. In 2011, UPMC entered into contracts with four major national health insurers to provide care at market rates, creating the foothold needed for these new entrants to compete in the region. The dominant insurer then announced its plan to acquire the area’s second-largest hospital system, creating a second IDFS within the region. This system now competes directly with UPMC for health plan members and patients on the basis of quality, cost, and access to services.

With two competing IDFSs and competitive national insurers in the market, Western Pennsylvania has among the lowest-priced insurance products in the nation. In the Pittsburgh market, fully insured commercial premiums for employer groups and premiums for individuals covered through commercial insurance products are less expensive than almost every other major market nationwide. In a survey by the U.S. Department of Health and Human Services of 59 cities, UPMC had the lowest-priced silver benchmark plan.

Emergence of Competition

Today, the insurance market in Western Pennsylvania is highly competitive; the managed care insurance market is dispersed among UPMC and the previous dominant insurer (each with about one-third of the population), and other national insurers represent the remaining third. Enrollment in UPMC insurance products now exceeds 3.3 million members, with more than 1.2 million receiving their health insurance in the 29 counties of Western Pennsylvania.

UPMC providers and the UPMC health plan collaborate in all aspects of care; the Insurance Services Division invests heavily in care management, technology, and wellness services to support UPMC patients, along with implementing progressive, value-based payment models to further alignment. Based on enrollment, UPMC is now one of the largest and fastest-growing provider-owned health plans in the nation, with a suite of commercial and government insurance products that consistently earn National Committee for Quality Assurance star ratings of 4 to 5 out of 5 and member retention levels of 95% or higher. With an after-call overall satisfaction rate of 96%, our Health Care Concierges have received numerous national service excellence awards, including International Customer Management Institute’s Best Large Call Center of the Year in 2017, and the J.D. Power and Associates Call Center Certification for 5 years in a row.

Impact on Opioid Prescribing

Arguably, the most compelling feature of integration is illustrated by describing how the payer and provider can work together to address a critical public health concern. For example, payers and providers across the U.S. are struggling to solve the opioid epidemic. Fragmentation of data and mission compound this challenge. At UPMC, the payer and provider are working together to drive reductions in inappropriate opioid use and member safety.

The health plan has leveraged the formulary and benefit design to limit quantity and dose of opiates, and to reduce barriers to naloxone (the opiate antidote). These decisions were driven in partnership with UPMC clinical leadership. Providers receive data from the health plan profiling and benchmarking their opiate prescribing behavior, identifying patients with opiate use patterns suggestive of dependence or abuse, and providing all emergency department physicians with a comprehensive view of opiate prescription fills at all pharmacies.

Payer-provider partnership allowed the typical data silos to be integrated to make real-time data available to support improved clinical decision-making. Culturally, this deeper partnership is fostered through routine payer-provider clinical leadership meetings and focused workgroups integrating stated goals of clinical content experts from the payer and provider sides. The partnership generally focuses on opportunities to improve care first and is then followed by the development of payment models to support those efforts.

To address the opioid problem, our providers have implemented centers of excellence for substance abuse disorder across Western Pennsylvania with support from the health plan, pregnancy recovery centers for mothers with substance abuse disorder, and bridging therapy from the emergency department for those requiring medication assisted therapy organized by the health plan. The health plan follows these members and their families with telephonic outreach or home visits; health plan care managers use motivational interviewing and engage caregivers in close follow-up to prevent remission and reduce harm. Again, partnership between the payer and provider has delivered capital support to providers to optimize clinical services and coordination of services that are typically fragmented, with the goal of driving better clinical care and financial performance for all parties.

Through these efforts, reductions in opiate prescribing have exceeded national trends, and are considerably more pronounced in UPMC providers than non-UPMC providers in the UPMC health plan network. During the third and fourth quarters of 2017, opioid prescribing statewide was 12% lower than the same period of the prior year; but internal studies of UPMC Health Plan data indicate that there was an 18% drop in opioid prescribing over the last year by UPMC providers.

The Road Ahead

As policymakers consider options to improve the health of our nation and reduce health care costs, marketplace structure should be central. As Western Pennsylvania illustrates, when consolidation involves the integration of providers and payers working together to improve quality and reduce costs, good things can happen — for the organizations, the patients, and the communities they serve. Improved quality and lower costs can, and should, coexist. In markets where providers are already taking financial risk in the management of substantial patient populations, the path is clearer. Even in the absence of that experience, such a transition likely makes more sense than maintaining the status quo.

In the continued effort to stimulate the transition from volume to value, the recent proliferation of provider-led plans offers reason for optimism. But the road ahead is not without hurdles. Provider-led accountable care organizations often struggle with assuming payer roles and responsibilities, and some major hospitals and health systems are now dealing with losses at health plans that they recently started.

Policymakers and CMS ought to consider ways to support new models of consumer engagement and member management processes, risk analysis, and reimbursement modeling that are essential for improving clinical quality, patient satisfaction, and costs within an IDFS. One thing is certain: Provider-led plans that are sustainable are outperforming their non-integrated counterparts on both quality and consumer satisfaction. As competition accelerates and cost reductions follow, the end goal of a high-value health care system may just well be in sight.

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