Insurers don’t want to share savings from reduced utilization

“We wanted entrepreneurs who were more open to a different way of providing healthcare services.”

Since 2002, Dan Wolterman has served as president and CEO of Houston-based Memorial Hermann Healthcare System, Texas’ largest not-for-profit health system, which provides care in southeast Texas through 16 hospitals and has $4.2 billion in net operating revenue. Wolterman has been on Modern Healthcare’s 100 Most Influential People in Healthcare list six times, including the past three years. Modern Healthcare reporter Melanie Evans recently spoke with Wolterman about his system’s experience with accountable care, tensions with insurers over starting a health insurance arm, and Memorial Hermann’s shift to outpatient care. This is an edited transcript.

Modern Healthcare: What contingency plans have you made if the U.S. Supreme Court decides that Obamacare premium subsidies will no longer be available through the federal insurance exchange that Texas is using?

Dan Wolterman: Texas leads the U.S. in the numbers of uninsured in our population. It is a shame that our state political leaders have not listened to the business and provider communities to expand Medicaid. But as a result of that, this future ruling by our Supreme Court will not hurt providers in Texas as much as in other states. We have only had a fraction of our population enrolled in subsidized health plans on the federal exchange.

(Editor’s note: About 1.2 million Texans enrolled for 2015.) In Houston, we count about 250,000 enrollees out of a population of about 7 million. So it’s a pretty minimal impact on our system, and not a lot of planning has been done.

MH: What has been your system’s experience in the Medicare Shared Savings ACO program?

Wolterman: The Affordable Care Act gave us the opportunity to take our clinically integrated concept that we have been after since 2000 with our physician independent practice association. That IPA has approximately 3,000 physicians from across the Houston region. We were able to take that IPA, combine it with our system’s resources and form our ACO. That was a wonderful success. Medicare originally assigned us 24,000 Medicare lives in the Houston community, and we were able to demonstrate savings of approximately $58 million, the top performance in the U.S. Not only were the savings strong, but all the quality metrics were met and were in the upper 10% of the country in quality. We were very pleased. Today, we are up to 38,000 lives in that program.

MH: You also operate a commercial ACO with Aetna that, unlike the Medicare ACO, is a narrow network. What has that meant for your ability to manage cost and quality?

Wolterman: There is not much difference between how we run our narrow network under the Aetna ACO and how we operate our Medicare ACO. We run it all through our clinically integrated physicians in the IPA. All those physicians have committed to practice evidence-based care. They meet monthly by specialty across Houston to determine the evidence, the protocols they are going to follow, and what physician preference items they are going to use. They determine the drug formularies. Whether it is a narrow network or a broader network for Medicare, it’s the same physicians practicing medicine the same way.

MH: Do you expect to see Memorial Hermann take on additional financial risk under contracts?

Wolterman: We would love to take risk. The problem is this: Very efficient providers like Memorial Hermann with their doctors have been able to reduce inpatient admissions, hospitalacquired conditions and infections, and ancillary testing like MRIs and CT scans. With our total cost of care so low, we would love to go and take a risk contract. We would be much better off. We saved $58 million in the Medicare ACO. We received 50% of that from Medicare to divvy up between the physicians in our system. If they were all

under a risk contract, we would have received all $58 million of that. But carriers simply do not wish to share it with us. They say, “We love how you all are providing care, the quality is outstanding and the cost controls are wonderful. You just keep doing what you’re doing. You’re making us lots of money. We’ll stay under fee-for-service.”

So we felt that we needed to be more aggressive. A couple of years ago, we decided to start our own insurance company. It is a fledgling company today, but we are off the ground and we are now in the commercial and Medicare Advantage programs, and hope that will start the ball moving to where we can take risk.

MH: How have insurance companies responded?

Wolterman: At this point, they are not happy with Memorial Hermann being in the insurance business. But generally, they’re fine because we have been very good to work with. If they’re willing to work with our physicians and our system through an ACO, we are happy to do that with them. We try to be open to everybody, as long as it is a fair two-way discussion.

MH: What has been your experience with the shift to more care being delivered outside the hospital?

Wolterman: We saw that coming years ago. In 2005, we decided to take a couple of hundred million dollars of strategic capital out of the traditional hospital space and use it to set up an organization focused on ambulatory business that had nothing to do with the hospitals. You drive right up to the front door, go in and get your test and you’re out.

Today, we have over 220 sites of care in Houston. Twelve of those sites are our traditional hospitals, but the rest are these ambulatory services geared toward quick in, quick out, lower cost, and they’re run separately from the hospital. We decided in 2005 that no hospital executive could apply to work in this company. We wanted entrepreneurs who were more open to a different way of providing healthcare services. That has been very, very successful. So successful that, of our $4.2 billion of net operating revenue today, almost 50% of that comes from our ambulatory business.

MH: Why has your system seen inpatient admissions rise, which is different from what has been happening across the country?

Wolterman: Inpatient admissions have risen phenomenally in our system. A lot of it is driven by our strategies, and our moving the system more toward a retail focus and restructuring to be more service-line driven. Those service lines have been very attractive to physicians and patients, and have allowed us to have great centers of excellence. That has driven more volume to us. But it also is helpful to be in a wonderful community like Houston that has experienced population growth of a million people in the past eight years. It is predicted to grow by another million in the next eight or nine years.

That population is obviously going to have healthcare needs.