Editorial:  Anthem Blue Cross’ welcome new HMO idea

The 2010 federal healthcare law experimented with a number of ways to limit healthcare costs, but the real impetus to hold down spending has come from those who pay for coverage — most notably large employers and governments — and from doctors, hospitals and insurers seeking more sustainable business models. A good illustration is the HMO established recently by Anthem Blue Cross and several top Southern California hospitals, which will reward healthcare providers if they cut waste while improving patients’ results. It’s a welcome development, although the industry will have to go even further to rid itself of the perverse incentives that drive up costs.

At the heart of the problem is the long-standing practice of paying providers for each medical procedure they perform, which encourages them to maximize the number of tests and treatments they administer. Cost-control efforts often try to uproot this “fee for service” approach and give providers, insurers and consumers a common interest in reducing the demand for care. For example, some health maintenance organizations pay teams of providers a flat annual fee to care for all of their patients, encouraging prevention and more efficient treatment of chronic illnesses. One trade-off, though, is that these HMOs require their enrollees to stick to one primary-care doctor and affiliated specialists. Another is the risk that providers will skimp on care to preserve their profits.

The new Anthem Vivity HMO tries to address both issues. In a novel approach, it joins seven popular L.A. and Orange County hospitals and their affiliated physician groups into a virtual health system with a common budget and quality standards. If the costs exceed the budget, the insurer and the providers will jointly cover the losses; if costs stay below budget, the providers who meet the quality standards will share in the savings. The structure encourages providers to direct patients to the hospitals in the group that offer the best care for the lowest cost, while also discouraging them from performing unnecessary tests and treatments.

It’s not an ideal approach. One drawback is that, by involving multiple hospitals and physician groups, Anthem Blue Cross reduces the benefits that any one of them receives from saving money, as well as the penalty each faces for being wasteful or inefficient. Still, when health plans and providers join forces to reduce the incentive to spend ever more on healthcare, that’s progress.

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