Competitive Kaisers: The Future of American Healthcare Is Vertically Integrated Accountable Care Organizations Where Patient Members Pay for Health Care Instead of Health Insurance

Zusman, Edie; Reagan, Rex

doi: 10.1227/01.neu.0000430732.32997.71
Science Times

Healthcare reform is well underway. Excessive healthcare costs and imposed brakes on federal health care expenditures have forced stakeholders to shift and come up with new, innovative approaches to provide care—or risk loss of viability. Many hospitals are seeking mergers and affiliations that can secure strategic or financial success in a rapidly changing environment.

In “The Urge to Merge,” an article in Healthcare Financial Management, Daniel M. Grauman and Matthew P. Tam of DGA Partners report that hospital mergers and acquisitions have accelerated dramatically since passage of the Affordable Care Act. In 2009, just 52 deals occurred; that figure increased to 75 in 2010 and 86 in 2011. The trend is also being attributed to payment rates that have not increased as quickly as costs, unfavorable changes in payer mix and increased capital requirements for investment in technology, infrastructure, and strategic development.1

These new health system models are more likely to integrate hospitals with physician groups and other medical providers, emphasize preventive care, and utilize data collection technology for cost-effective and efficient healthcare delivery and population health management. The authors argue that vertical integration of hospitals and insurers also is on the rise, citing the arrangement between Kaleida Health of Buffalo and HealthNow (Blue Cross Blue Shield of Western New York), which is developing a physician-led network to improve care coordination, reduce duplication and increase quality.1

The desire for more healthcare dollars directed at care rather than corporate profits may eventually lead to a future in which individuals pay for membership in an integrated health system rather than pay premiums to health insurance companies.2

Nationwide, 1 well-established integrated health system stands out as a national model likely to be replicated in the era of healthcare reform: Kaiser Permanente. California’s healthcare giant, Kaiser commands 40 percent of the state’s $59 billion health insurance market.3 An analysis by Citi Investment Research reports that Kaiser operates 35 hospitals and has 5.5 million Californians as its commercial customers, collecting $23.3 billion in premiums annually.4 Already dominant in the marketplace, Kaiser was selected by the California State Legislature to be a model for other insurers to follow when they offer products through the state's health exchange to implement national healthcare reform measures.4 Health policy analyst Micah Weinberg of the Bay Area Council, a nonprofit economic advocacy group, explains that Kaiser is aligned with health care reform. “In a lot of ways, the world of health care is seeing the need to become more like Kaiser.”4

Kaiser was founded in 1945 and is now the nation’s largest non-profit health plan with 8.6 million members in 9 states and the District of Columbia.5 The health plan is different because it offers patients 1-stop shopping and does away with the third-party insurance middleman. Under the model, the health plan, hospital, physicians and medical group work together for the benefit of the patient. The integration is supported by sophisticated technology. This includes electronic health records to facilitate referrals and hospital admissions, and better tracking and management of patient health.

“Another American way,” an article in the Economist magazine, describes the Kaiser system as a “nugget of good practice” in the United States, whose business model integrates fixed-price health insurance with treatment at its own hospitals and clinics.6 “KP’s embrace of technology has resulted in fewer frivolous visits, better medical outcomes and soaring patient satisfaction.”6 The health system has an intense focus on disease prevention, and Kaiser physicians, who are paid salaries rather than fee for service, have no incentives to increase revenues by ordering excessive tests or conducting expensive procedures when lower cost alternatives may be available. Kaiser physicians can track specialists treating their patients, which improves quality of care, especially for patients with lasting and expensive afflictions such as metabolic syndrome, diabetes and heart disease.6

Within an accountable care organization (ACO), neurosurgeons may be encouraged to participate in multidisciplinary disease-centered patient care. Currently, in the fee-for-service environment it is difficult to support the finances for a brain tumor clinic, for example. Not all the specialists can bill, and the Medicare reimbursement is linked to the clinic site where the patient is evaluated. In an ACO, incentives can be aligned to have patients come to a single clinic with specialists and ancillary services available to address the complex aspects of care, track the patient through a database and keep costs down by coordinating care, linking quality of care and patient satisfaction with lowering costs.

Wendell Potter, senior analyst, industry watchdog, and author of “Deadly Spin,” an in-depth book that examines the health care industry, credits Kaiser for “breaking down the silos protecting and separating the self-interests of insurance companies, doctors and hospitals. …It's not perfect, but it's one of the best models of integration of care, the most effective way to improve costs and safety.”4

Kaiser patients, or members as they are referred to, pay for health care, rather than for the infrastructure required by the insurance industry, which represents about one-third of all healthcare expenditures in the US. Some pundits predict that the traditional health insurance model will be obsolete in a matter of years, as vertically integrated health systems take root.

In “The End of Health Insurance Companies,” a blog in the New York Times, opinion writer Ezekiel J. Emanuel and Harvard public policy professor Jeffrey B. Liebman, argue that more and more, insurance companies function solely as claims processors. Companies that do provide insurance under health care reform, by taking premiums and assuming financial responsibility for paying the bills, will face major changes in the way they do business, such as a prohibition against exclusions for pre-existing conditions.7

Emanuel and Liebman predict that with healthcare reform, “accountable care organizations” will make insurance companies unnecessary. Like Kaiser Permanente, ACOs emphasize a coordinated approach to patient care and focus on wellness rather than treating illness.7 Unlike fee-for-service medicine, in which care is organized around treating a specific episode of illness and insurance policies do not cover the types of disease management programs that reduce hospital admissions, ACOs are paid a fixed amount per person and are rewarded for reaching quality targets and keeping patients out of the hospital.

Like Kaiser, the Cleveland Clinic has been held up as a well-integrated system which to date does not offer its own commercially available insurance product, still successfully utilizing the traditional insurance model. This may prove an alternative to Kaiser as a model for the 21st century. The Clinic’s interlinked network of physicians, clinics, surgery centers and community hospitals mean quicker referrals from primary doctors to specialists, less time tracking down test results, and fewer readmissions for preventable problems.”8 The Cleveland Clinic also embraces the “patient-centered medical home” concept, which focuses “on the development of long-term doctor-patient relationships instead of episodic care, and creates a physician-led team that provides all the patient’s healthcare needs, and when necessary, arranges for specialty care with other qualified physicians to help manage chronic diseases.”

Within an integrated ACO system, the role of the neurosurgeon may be varied. Optimal use of specialists in capitated systems where doing less is more profitable, may include better triage before patients come to neurosurgical attention. In ACO spine programs for example, neurosurgeons work with multi-specialty practitioners to educate primary care doctors on how to manage low back pain in a quality driven and cost effective way in order to avoid neurosurgical procedures. In the same system based approach, there may be a physiatrist group who triage patients appropriate for neurosurgical care, thus increasing the yield of surgical patients seen by neurosurgeons. Additionally, it is often helpful for neurosurgeons to render a surgical opinion that a patient is not a surgical candidate - another way to reduce costs and raise quality, which may be achieved through case reviews at multidisciplinary conferences, rather than lengthy patient visits. Having access to expert specialists supports quality and brand for ACOs and this kind of patient-centered care fosters trust and loyalty. There is an inherent preference to being part of a trusted entity that provides quality care as well as maintaining support for long-term care onto and through the hospice stages of illness.

One concern for neurosurgeons is whether a model of “competitive Kaisers” will necessarily result in the shift from private practice to physician employment. While alignment with ACOs will be imperative for most neurosurgeons2, that alignment could be in the form of contracting with private providers of specialty care as well as employment. These negotiated contracts may be capitated flat fees for covered lives with risk sharing between the ACO and the specialists, or they may look like a fee-for-service contract similar to insurance agreements many neurosurgeons currently use. For the majority of neurosurgeons, it is likely that participation in such alignments with ACOs will be the primary way for neurosurgeons to have access to patient referrals. As ACOs align in each community, employment and/or contracting opportunities will be limited such that neurosurgeons may be wise to align earlier when they can participate in defining the terms of the relationship with new ACOs.

In shifting from a model designed to treat a patient’s single medical episode to one that looks after a patient’s overall health, vertically integrated health systems also assume new roles for health plan members—the patients, and their employers. In vertically integrated health systems, healthcare providers have a responsibility to ensure that consumers have access to the full range of care—and not just the treatment of disease. Employers have a responsibility to motivate employees to take good care of themselves. These systems may reward patients with lower costs of coverage—and better overall health—for practicing healthy behaviors, sharing the responsibility for their health with the other stakeholders.9

Patients, for example, may be incentivized to quit smoking, maintain healthy weight, participate in regular exercise programs or health education and chronic disease prevention and management programs. Healthy patients, as measured by regular checkups and laboratory test results, may pay lower employee premiums, co-payments or prescription costs.

This concept is a well-established business model in other industries. Life insurance companies, for example, reward non-smokers with lower rates; auto insurers do the same for safe drivers or young drivers who maintain good grade averages. Harvard professor Michael Porter who calls this concept “shared value,” recognizes that societal needs define markets and that social harms or weaknesses can be costly to business in terms of wasted energy or resources.9

Healthcare that is more focused on community and population health reflects the concept of shared value. The new world of healthcare reform will be less “hospital and encounter centric” according to Joe Lupica, chairman at Newpoint Healthcare Advisors, a healthcare management consulting firm.10 “Today’s healthcare CEO is told to fill beds. I think tomorrow’s CEO will be told to empty beds. You’ll have to keep your community healthy and out of the hospital,” Lupica said. “Hospitals will have to team up with other providers and payers to transform the service model – again.” He predicted that government and employer budget pressures will force payers to reward value, not just volume.10

Promoting and rewarding health will also give these health care systems a beneficial marketing edge. Health care systems like Kaiser Permanente, which invest heavily in public events such as farmer’s markets and fitness competitions—even environmental sustainability efforts, will increasingly enjoy the halo effect as consumers view them as “practicing what they preach” and therefore worthy of their business. Attracting health-conscious members can only benefit health systems seeking to profit through lower medical expenditures.

An emphasis on health is designed to influence physician clinical decision-making, at least in theory, to reflect evidence-based best practices rather than personal or patient preference or to meet hospital targets. One of the challenges for neurosurgery is that this specialty lacks prospective and controlled studies with outcome and cost analyses to validate many practices. Comparative effectiveness research may play an important—albeit controversial—role in defining best practices for this specialty.2

While healthcare reform measures have been criticized as major steps toward a single-payer, government-run system, a more likely result is competing vertically integrated healthcare systems that thrive in the US capitalistic, free enterprise system of government. Whereas American consumers would be loath to accept a 1-size fits-all healthcare system, they will vote with their dollars. In a country where competition and freedom of choice is far more popular than single-payer government-based healthcare, competition for members may occur among integrated health systems based on quality, service, cost, and outcomes.2

Ezekiel Emauel and Jeffrey Liebman, in the New York Times blog, predict that accountable care organizations will lead to a better form of competition in US health care markets. “Today, consumers have to choose among insurance plans with a bewildering array of copayments, deductibles and annual out of pocket maximums – choices that few of us are any good at making,” they write. “In the A.C.O. model, consumers will choose a primary care physician and the team of doctors and hospitals that are in the same group. Choosing a doctor and provider group is a responsibility that consumers want to have and are likely to much better at.”7 Stephen Brill, writing for Time Magazine, suggests that patients comparative shop to determine the best value for their care as one may do for a major appliance. He suggests that more transparency of costs will help patients become informed consumers implying in his March 2013 special report that the information used to select the lowest cost bandages may also determine the best medical care.11

Competition and integration are not necessarily in conflict and can be used together, argues Chris Ham, professor and Chief Executive of the King’s Fund. “In one version, this might mean using competition to drive improvements in performance in planned care, and promoting integration to do so in relation to unplanned care and care for people with complex needs. In another, it entails arguing that competition between integrated systems might offer the best of all worlds, if policies can be designed to support evolution in that direction.”12

Chris Ham, in an article entitled “Competition and integration in health care reform,” cites concerns that regulators may perceive integration as collusion between providers that inhibits competition. But Ham, a health policy and management expert in England, stresses that it can work with a market designed to support different forms of integration which evolve over time – rather than 1 approach at the outset.12 In the US market, integrated health systems will compete on cost of care, HCAHPS surveys of patient satisfaction, and Leapfront measures among other well-established quality benchmarks. This kind of competition represents an American solution that can only be seen as good for the economy, consumers and rooted in Capitalistic values.

Unencumbered as other health care models by extreme regulation, Stark laws and profit-driven stakeholders, vertically integrated systems may be 1 of the last frontiers for smarter operations, while maintaining the quality inherent in the American healthcare system.

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