With the goal of lowering costs by at least 6 percent in the first year, Kaleida Health and BlueCross BlueShield of Western New York developed Align, the first clinically integrated narrow-network health plan in their market. 


Narrow NetworkKaleida Health, the largest healthcare provider in the Western New York market, and BlueCross BlueShield of Western New York (BCBS), the region’s largest health plan, are blazing a trail that others will be expected to follow: They are lowering healthcare costs through a payer-provider partnership.

“We went into this knowing we have to find real, absolute cost reductions, and they need to be sustainable,” says Steve Swift, BCBS’s executive vice president and CFO. 

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Kaleida and BCBS formed a joint venture partnership called Kaleida HealthNow, Inc. that owns the new joint venture called Align. The health system and payer then recruited 500 physicians to form the Optimum Physician Alliance, an independent physician association that operates as a subsidiary of Kaleida HealthNow.  

“One of the principles that we adopted at the outset is that this relationship has to be a four-way win: a win for the physicians, a win for the health system, a win for the health plan, and a win for the employers and insured members,” says Donald Boyd, senior vice president of network development and operations at Kaleida. “Otherwise, this will not be sustainable long term. That is the lens through which we do all of our work.”

Success factors include:

  • Clinical integration between Kaleida and the independent physicians
  • A care delivery model that lowers costs so that the health plan premium can be 6 percent to 10 percent below other plans offered in the market
  • A tiered-benefit design that incentivizes patients to seek care from Kaleida and the Optimum Physician Alliance
  • Data sharing that allows the hospital and physicians to identify gaps in care and wasteful care 

The plan launched in January 2013 when Kaleida and BCBS, both of which are self-insured, began offering it to their own employees. Later last year, the Blues began marketing it as a fully-insured plan to the commercial market. It is sold on New York’s public insurance exchange and will be offered on private exchanges in the future. In the first months of early enrollment on the New York exchange, about 40 percent of purchasers chose Align.

A New Mindset

Developing an effective payer/provider relationship starts by identifying like-minded organizations in your market, Boyd says. “This is motivated by people coming together who believe that we have a responsibility to our community to build something that is going to be sustainable for the future,” he says. “If you have that as a guiding principle, it’s amazing what people can do in collaboration.”

With that perspective, payers and providers must stop arm-wrestling over unit costs and reimbursement rates, and work together to improve value, says Swift. “This is a fundamental mind shift in terms of the way we all are thinking about the business. We all must be focused on a collaborative win/win mindset as opposed to a win/lose.”

Believing that up to 30 percent of healthcare dollars are currently wasted, the partners are focused on eliminating unnecessary utilization, which would typically mean lower revenues for most specialists and health systems. However, Kaleida and the Optimum Physician Alliance expect to make up revenues with additional patients gained through the narrow network plan, which is attracting members with a lower premium and the promise of high-value providers (see the exhibit below).  

BCBS Western New York Plan Design Steers Utilization to Narrow Network

The partnership moves reimbursement away from fee-for-service to pay-for-performance, with financial incentives based on physicians’ patterns of specialty referrals and generic prescriptions, their patients’ use of urgent care and the emergency department, and other metrics. Physician performance is evaluated each year to determine the provider network. 

Kaleida and BCBS negotiated specific reimbursements for the Align plan. All profits created by the joint venture are shared equally by the two parties. 

Boyd and Swift shared these tips on negotiating details of a narrow-network health plan:

Start with the end in mind. For Kaleida and BCBS, the goals were:

  • A health plan that could be offered at 6 percent to 10 percent below other plans in the market
  • A clinically integrated provider network 
  • A sustainable business relationship for all stakeholders

Recruit the right physicians. Kaleida and BCBS first recruited 15 independent physicians whom they knew to be value-minded to form a Physician Leadership Board. 

“Forming this board was important because we wanted to hear from physicians who were independent and had choices in the marketplace,” Boyd says. “A lot of these conversations started with, ‘What are the challenges you’re facing? What ideas do you have about changing it?’”

The Physician Leadership Board is key to Align’s success because it identified the performance metrics needed to align physician incentives with those of the health system and the insurer. The Leadership Board was responsible for identifying 500 physicians—250 primary care and 250 specialists—to be in the Optimum Physician Alliance, and it is the entity that drives clinical integration. “We give them the authority and the responsibility to fulfill the set of objectives that we’ve established,” Swift says. 

Those objectives are:

  • Improving clinical outcomes and operational efficiencies
  • Coordinating better care and reducing errors and redundancies
  • Lowering healthcare costs

Collaborate. “This was a very collaborative, iterative process, whereby we met as a triumvirate of the physicians, the health plans, and the health systems to describe the different levers that we believed we could influence to deliver value to the community,” Boyd says. “And we worked to understand, quantitatively and qualitatively, how we would implement strategies that use those levers to deliver improved quality and reduced cost.”

  • Kaleida offered up the financial and quality data related to the services provided in its system. 
  • BCBS provided claims data that show duplicated and potentially unnecessary tests and procedures, as well as gaps in care (e.g., failure to perform foot exams on patients with diabetes) that may lead to higher costs down the road. 
  • Physicians shared information about their financial, operational, and clinical performance.

“We met and worked regularly, team to team, for nine months,” Boyd says. The executive committee, comprised of C-level leaders, met every two weeks for two hours. In addition, payer-provider teams were assigned to develop specific aspects of the relationship, including clinical integration, legal and governance issues, the physician network, and data/analytics.

The teams shared information about each other’s operations and took part in new kinds of decisions. For example, the providers helped develop the benefit design of the new health plan.

“Historically, we would talk to customers and maybe to our broker partners to try to develop offerings that would meet their needs,” Swift says. “The thing that was really new about this is the fact that we had very explicit input from the delivery system.”  

A New Model

Based on early data from the health plan’s performance, Boyd is optimistic that the partnership is working as envisioned. The partners have agreed that, if any of the stakeholders are threatened financially by the arrangement, adjustments to the financial model will be made.  

“There has to be an open-mindedness and willingness to try things because this is breaking new ground,” Swift says. “The recipe hasn’t been made, so there’s going to be some trial and error. We are going into this with that understanding.”

Lola Butcher is a freelance writer and editor based in Missouri. 

Interviewed for this article:

Donald Boyd is senior vice president for network development and operations, 

Kaleida Health, Buffalo, N.Y. 

Stephen Swift is executive vice president and CFO, HealthNow New York Inc., the parent of BlueCross BlueShield of Western New York, Buffalo. BlueCross BlueShield of Western New York, a division of HealthNow New York Inc., is an independent licensee of the BlueCross BlueShield Association.  

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Publication Date: Tuesday, January 28, 2014