An­them’s Viv­ity ven­ture with seven sys­tems her­alds new era of com­pe­ti­tion

Modern Healthcare - - NEWS - By Melanie Evans

The de­liv­ery sys­tems them­selves now have made a com­mit­ment and they’re try­ing to project where this will take them over time. But there are still, ad­mit­tedly, many un­knowns.”


An un­usual joint ven­ture be­tween An­them Blue Cross and seven com­pet­ing Los An­ge­le­sarea hos­pi­tal sys­tems to of­fer em­ploy­ers a low-priced HMO plan un­der­scores the ea­ger­ness of in­sur­ers and providers to try novel and risky strate­gies to sur­vive in the rapidly chang­ing health­care mar­ket­place.

The new company—An­them Blue Cross Viv­ity—will seek to repli­cate Kaiser Per­ma­nente’s suc­cess in con­trol­ling costs and en­sur­ing qual­ity—but with­out the sin­gu­lar own­er­ship Kaiser has over its in­surance and provider arms. To do so, par­tic­i­pants in the joint ven­ture agreed to share equally in prof­its and losses.

Start­ing next month, the ven­ture will mar­ket a new health plan to em­ploy­ers with no de­ductible and pre­mi­ums 10% be­low com­peti­tors, ac­cord­ing to An­them Blue Cross, a di­vi­sion of pub­licly traded in­surer Wel­lPoint. Pa­tients who se­lect the plan will be limited to a se­lect net­work of providers, which in­cludes 6,000 doc­tors and 14 hos­pi­tals. The Cal­i­for­nia Pub­lic Em­ploy­ees’ Re­tire­ment Sys­tem has agreed to in­clude the Viv­ity net­work in its HMO plan.

Re­gional mar­kets are see­ing a wave of merg­ers, part­ner­ships and cre­ative ar­range­ments like Viv­ity. Th­ese al­liances are pro­duc­ing net­works that com­pete head to head with each other and could trans­form mar­kets along the lines en­vi­sioned by health­care re­form ar­chi­tects. The deals link­ing lo­cal com­peti­tors—such as the Viv­ity joint ven­ture and a merger ear­lier this month in Chicago—are unit­ing his­tor­i­cally sep­a­rate sec­tors in­clud­ing hos­pi­tals, in­sur­ers, physi­cian groups and post-acute care providers.

Last week, St. Louis­based As­cen­sion Health an­nounced it would launch a post-acute care joint ven­ture with a pub­licly traded part­ner. This month, Ad­vo­cate Health Care and NorthShore Univer­sity Health Sys­tem said the two would merge to cre­ate a mega-sys­tem in Chicago.

Deals have ex­ploded un­der grow­ing pub­lic and pri­vate pres­sure to con­trol health spend­ing growth, with re­sult­ing down­ward pres­sure on gov­ern­ment and pri­vate in­surance pay­ment rates. Deal­mak­ers say new com­bi­na­tions will re­duce waste and lower cost while bet­ter co­or­di­nat­ing care. But with the flurry of deals comes height­ened an­titrust con­cerns about re­duced com­pe­ti­tion and re­sult­ing higher prices.

On the other hand, the new com­bi­na­tions are de­signed to boost com­pe­ti­tion and lower prices in mar­kets such as Los An­ge­les which tra­di­tion­ally fea­tured rel­a­tively ro­bust com­pe­ti­tion among ma­jor in­sur­ers but not providers. Viv­ity seeks to com­pete headto-head with Kaiser—the Oak­land-based in­te­grated de­liv­ery sys­tem that holds the largest share of the Cal­i­for­nia em­ployer mar­ket—as well as Health Net and Blue Shield of Cal­i­for­nia, which also of­fer HMO and other nar­row-net­work prod­ucts.

“When it comes to health­care cost con­trol, if the mar­ket is go­ing to solve our prob­lems, it has to be through com­pet­ing sys­tems,” said Jonathan Gru­ber, a health economist with the Mas­sachusetts In­sti­tute of Tech­nol­ogy and an ar­chi­tect of the health­care re­form law. The Viv­ity ini­tia­tive in­di­cates that health­care prices have “reached the break­ing point,” Gru­ber said.

But hos­pi­tal sys­tems risk dan­ger­ously erod­ing mar­gins in mod­els that seek to re­duce in­pa­tient care, es­pe­cially in a pe­riod where the fee-for-ser­vice pay­ment model, which re­wards greater vol­ume, still holds pow­er­ful sway.

Some deal­mak­ers are bet­ting that in­vest­ment in care co­or­di­na­tion and health IT can yield enough sav­ings to make money un­der the new val­ue­based pay­ment mod­els. But the ev­i­dence so far is mixed. The CMS said last week that three-quarters of roughly 200 Medi­care ac­count­able care or­ga­ni­za­tions have failed to meet cost tar­gets and earn bonuses through the first two years of the ACO demon­stra­tion.

The new Viv­ity joint ven­ture raises the stakes by bet­ting that seven com­pet­ing hos­pi­tal sys­tems—some of which are among the higher-cost sys­tems in the mar­ket—can work jointly to re­duce costs and im­prove qual­ity. It will mar­ket an HMO to large, fully in­sured em­ploy­ers in Los An­ge­les and Orange coun­ties, with an an­tic­i­pated first-year en­roll­ment of 15,000. It has said it will hold pre­mi­ums 10% be­low cur­rent rates. Em­ploy­ers will pay a cap­i­tated pay­ment for each en­rollee. There will be no de­ductibles or coin­sur­ance, and co­pay­ments for med­i­cal

ser­vices will be mod­est.

Viv­ity’s part­ners will pool pre­mi­ums into one bud­get. Part­ners share equally in prof­its and losses. Part­ners that fail to meet qual­ity tar­gets won’t earn prof­its.

To­gether with An­them, Viv­ity’s provider part­ners—Cedars-Si­nai Health Sys­tem, Good Sa­mar­i­tan Hos­pi­tal and UCLA Health, all in Los An­ge­les; Hunt­ing­ton Memo­rial Hos­pi­tal, Pasadena; Me­mo­ri­alCare Health Sys­tem, Foun­tain Val­ley; PIH Health, Whit­tier; and Tor­rance (Calif.) Memo­rial Med­i­cal Cen­ter—will move to meld their health IT sys­tems, at first re­ly­ing on An­them’s claims data sys­tem. An­them in­di­cated it would ex­pand the model to other mar­kets and other states if it suc­ceeds.

Ex­ec­u­tives in­volved with the deal ac­knowl­edge the ven­ture’s am­bi­tion and un­cer­tainty. “The de­liv­ery sys­tems them­selves now have made a com­mit­ment and they’re try­ing to project where this will take them over time,” said Joseph Swedish, CEO of An­them’s par­ent company, Wel­lPoint. “But there are still, ad­mit­tedly, many un­knowns.”

“We’ve all done this be­fore, we just haven’t done this to­gether,” said Craig Leach, pres­i­dent and CEO of Tor­rance Memo­rial Health Sys­tem.

Viv­ity will of­fer CalPERS’ 210,000 mem­bers in Los An­ge­les and Orange coun­ties ac­cess to health sys­tems “that frankly, from a price per­spec­tive, would not have been avail­able” with­out adding $100 per month to pre­mi­ums oth­er­wise, said Ann Boyn­ton, deputy ex­ec­u­tive of­fi­cer for ben­e­fit pro­grams, pol­icy and plan­ning at CalPERS.

Nonethe­less, Viv­ity’s suc­cess likely will de­pend on tar­get­ing the high-cost care de­liv­ered in hos­pi­tals, some­thing which can threaten hos­pi­tal mar­gins. Providers said ex­ist­ing cap­i­ta­tion in Cal­i­for­nia’s mar­ket has spurred many cost­sav­ing trans­for­ma­tions that pre­pare them to ben­e­fit un­der the Viv­ity HMO.

“That is a pretty bold play,” said Leemore Dafny, for­mer deputy di­rec­tor for health­care and an­titrust with the Fed­eral Trade Com­mis­sion and pro­fes­sor at North­west­ern Univer­sity’s Kel­logg School of Man­age­ment. “It’s not ob­vi­ous how they’re go­ing to re­duce hos­pi­tal oc­cu­pancy and come out on top.”

Viv­ity ex­ec­u­tives said re­duced spend­ing will come through spe­cial ne­go­ti­ated rates for hos­pi­tal care and ef­forts to more closely man­age where pa­tients get care. “Prices are ir­rel­e­vant in this con­ver­sa­tion,” said Stephen Ralph, CEO of Hunt­ing­ton Memo­rial Hos­pi­tal.

Thomas Priselac, CEO for the CedarsSi­nai Health Sys­tem, and Dr. David Fein­berg, pres­i­dent of UCLA Health, were un­avail­able for com­ment.

Pam Ke­haly, pres­i­dent of An­them Blue Cross’ West Re­gion, said Viv­ity part­ners will have many con­sol­i­da­tion op­por­tu­ni­ties for re­duc­ing costs, such as op­er­at­ing a sin­gle nurse-call cen­ter for mem­bers. It also will be crit­i­cal to di­rect pa­tients to the most cost-ef­fec­tive set­ting across Viv­ity’s net­work of am­bu­la­tory-care cen­ters, com­mu­nity hos­pi­tals and aca­demic med­i­cal cen­ters.

That abil­ity to man­age across lowerand high-cost set­tings will be crit­i­cal to aca­demic cen­ters’ suc­cess in this and other ac­count­able care ini­tia­tives. “The idea is to pro­vide the right care in the least re­stric­tive set­ting,” said Dr. Scott Berkowitz, med­i­cal di­rec­tor of ac­count­able care for Johns Hop­kins Medicine and ex­ec­u­tive di­rec­tor of its ACO.

But to man­age that care, the part­ners will have to over­come many or­ga­ni­za­tional and cul­tural dif­fer­ences. “There are seven dif­fer­ent ways of do­ing things” among the sys­tems in­volved, said Steve Valen­tine, pres­i­dent of the Cam­den Group, a Los An­ge­les con­sult­ing firm.

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