Taking aim at HMO giant Kaiser Permanente, insurer Anthem Blue Cross is joining forces with several big-name hospitals and their doctors to create an unusual health plan option for employers in Southern California.
The joint venture being announced Wednesday brings together seven rival hospital groups in Los Angeles and Orange counties, including well-known institutions Cedars-Sinai Medical Center and the UCLA Health System. The deal reflects the pressure insurers and hospitals alike are facing to hold down healthcare costs for employers and their workers.
The California Public Employees' Retirement System, the giant pension fund and the nation's second-largest healthcare buyer, has already signed on as the first major customer in the Southland starting Jan. 1.
The new Vivity health plan also includes MemorialCare Health System, Good Samaritan Hospital, Huntington Memorial Hospital, Torrance Memorial Medical Center and PIH Health. In addition to their hospitals, this Anthem HMO includes all of their affiliated physicians offices, surgery centers, clinics and other outpatient facilities.
"We will have a price point similar to Kaiser or better," said Barry Arbuckle, chief executive of MemorialCare, which runs Long Beach Memorial and five other area hospitals. "This is the next major step for managed care."
The seven hospital partners and Anthem, the state's largest for-profit health insurer and a unit of WellPoint Inc., will share in any profits and losses from this joint venture.
The agreement marks a major departure from industry practice, in which insurers usually bear the financial risk and try to squeeze hospitals for lower prices — or exclude them altogether — from their insurance networks over cost.
The federal Affordable Care Act has pushed insurers and medical providers to collaborate in a variety of new ways in hopes of improving the quality of care at a lower cost.
In this case, Anthem and its allied hospitals are coming together to fight a common nemesis in Kaiser.
The Oakland HMO is the most popular health plan in many California workplaces and scores high on patient satisfaction. Its unique model of running its own hospitals and physicians offices allows it to coordinate care and provides an incentive to avoid extra lab tests and unnecessary hospital stays. It serves about 7.3 million Californians.
By one measure, Kaiser had a 40% share of the California insurance market for employers and individuals in 2011, according to the most recent data from Citigroup. Anthem was second at 23%.
But in recent years, some employers have chafed at Kaiser's rising prices and unwillingness to bargain or fully explain why its premiums are increasing so much. That could be an opening for Anthem's new gambit.
The Vivity health plan will be about 10% cheaper than Anthem's standard HMO available to many employers now, the company said.
But some skeptics say Kaiser will be hard to beat, with its deep roots and loyal customers.
"Kaiser is a brutally tough competitor with a tremendous brand," said Steve Valentine, president of the Camden Group, a healthcare consulting firm in El Segundo. "Anthem is stringing together a bunch of hospital brands with good reputations and strong facilities. But we don't know if it will really save any money or if the public will like it."
For its part, Kaiser said it offers seamless, integrated healthcare — at some of the most affordable rates available.
Peter Andrade, a Kaiser senior vice president, said that "our system is not just stitched together from existing parts" and that it "will be difficult for others to copy."
Nationwide, employers are frustrated with footing the bill for so much waste in the country's $3-trillion healthcare system. Researchers estimate that up to 30% of U.S. healthcare spending might be wasteful or unnecessary because of overtreatment, poor preventive care and bloated administrative costs.
That has added up to skyrocketing medical costs for many firms and their workers. In California, the premiums for family coverage have soared 185% since 2002, more than five times the 33% increase in the state's inflation rate.
In response, employers have shifted more medical costs onto workers in terms of higher premium contributions and soaring deductibles. Many companies invested in employee wellness programs with mixed results.
Anthem's new plan "may be a credible threat to Kaiser. It remains to be seen," said Kirby Bosley, a senior vice president at Aon Hewitt, a benefits consultant to big employers. "It's not a slam dunk for Anthem."
This new arrangement will look very much like a regular HMO, in which patients are responsible for one simple co-pay at the doctor's office, for a medical procedure or a prescription.
Anthem has sought to overcome the negative stigma some patients associate with a limited HMO network by including some of Southern California's biggest names in healthcare and their array of top-notch specialists. Overall, Vivity will comprise 6,000 doctors and 14 hospitals across the seven health systems.
But Anthem wants to work with these medical centers to keep as many patients as possible from ever setting foot inside the hospital.
"Under the current model, hospitals want to keep occupancy rates up," said Pam Kehaly, Anthem's west region president and a key architect of this deal. "This is in complete opposition to that. For this joint venture to succeed, we have to keep occupancy rates down."
Susan Ridgely, a senior policy analyst at the Santa Monica think tank Rand Corp., said these hospitals are probably betting that they can attract enough new patients and referrals through Vivity to offset the gradual decline in inpatient admissions.
She also sees an opportunity for these hospitals to split the costs of hiring more nurses and case managers to work with patients following discharge and counsel people suffering from chronic conditions such as diabetes.
"The really big money is in reducing hospitalizations and readmissions," Ridgely said.
If this health plan works in Southern California, Anthem said, it will try to replicate it in some of the other 13 states where it sells Blue Cross coverage.
The deal represents an about-face for Anthem, which in recent years has singled out Cedars and UCLA, in particular, for high costs that were burdensome to employers.
Kehaly acknowledged there was a legacy of distrust to overcome after years of hard-nosed negotiations and public stalemates over contracts. This venture also requires rival hospitals to work together on electronic health records and referrals.
"There were some points in the meetings when it got real uncomfortable," Kehaly said. "These are big, powerful hospitals."
Thomas Priselac, chief executive of Cedars-Sinai, said he always maintained a productive, working relationship with Anthem despite the previous criticism. He said he welcomed this new approach to curbing costs compared with the frequent tactic of insurers narrowing their network to providers willing to accept lower payments.
"Affordability in healthcare is one of the great domestic challenges of our time," he said. "We need to move in this direction."