In addition to potentially increasing volumes, health insurance exchanges may boost payer-provider collaboration around value-based insurance offerings. Jon Kingsdale, PhD, managing director, Wakely Consulting Group, Boston, has unique insight into exchanges. He helped set up the exchange for the state of Massachusetts when he served as the executive director of the Commonwealth Health Insurance Connector Authority, an independent authority established under Massachusetts' landmark healthcare reform legislation of 2006. Kingsdale recently talked with hfm about some of the benefits and challenges of these exchanges and how hospitals and health systems can prepare for them.
Q.What are the biggest benefits the exchanges offer to hospitals and health systems?
A. By themselves, the exchanges will probably not have a huge impact on hospitals and health systems. However, when you consider the exchanges in the context of the Affordable Care Act-which is also expanding Medicaid and providing insurance subsidies-then clearly, the big advantage for healthcare providers is that there will be millions and millions more insured patients.
By improving access to insurance, the exchanges will enable many patients to obtain care they may not have been able to afford previously. That has significant business implications in terms of increased volumes for physicians, hospitals, and other providers.
It also has some very tangible benefits for patients. After Massachusetts implemented the exchanges, some physicians told me they no longer had to find charity care for their patients or beg a specialist to see a patient. Physicians say they have less trouble getting patients to come in for routine preventive care visits or obtain prescribed medications.
Q.Will improving access help hospitals reduce the number of people seeking routine care from the emergency department?
A. The ED is generally a poor setting for primary care, but if patients are used to going to the ED to get care, and there's not another primary care alternative in their neighborhoods, then it's going to be a tough uphill climb to get those patients to use different access points. That's been our experience in Massachusetts, and frankly, I don't think it's reasonable to expect patients to change their access points simply because you give them an insurance card.
It's possible to reduce inappropriate access, but that will require reorganizing the delivery of medical care. We're talking about ensuring that primary care clinicians are available in the evenings and on weekends. We're talking about having enough primary care physicians to provide routine care in neighborhoods where they're not very plentiful right now. We're talking about all the other obstacles to getting good primary care-of which being uninsured is only one.
The care delivery and financing systems also need to be aligned. In other words, insurance plans need to point patients clearly to the most appropriate access routes for various types of care-and use financial rewards or penalties to encourage patients to get care at the right time and place.
Q.What other business implications are there for hospitals and health systems?
A. Another possible benefit will be more payer-provider alignment around value-based plans and business propositions.
The exchanges will give individuals (including employees of small employers) the ability to shop for insurance. Individuals tend to make different choices than groups or employers buying on behalf of a group.
The majority of private insurance sold today is group insurance, purchased by employers. Typically, employers want a health plan that has every provider in the book. Employers don't want to buy a select network that forces employees to give up their current providers.
The downside to offering broad networks is that it is difficult to judge a health plan-and the individual providers in that plan-in terms of quality and costs. When a health plan offers access to thousands of physicians and dozens of health systems, the behavior of any one of those providers doesn't really have any major ramifications for the health plan.
For instance, let's say Health Plan ABC has 50 hospitals, including Hospitals 1 and 2. Hospital 1 is inefficient and has low quality scores. But Hospital 1's poor performance doesn't really affect the ranking of Plan ABC. Conversely, Hospital 2 is doing a tremendous job at improving quality and efficiency. Yet Hospital 2's efforts are essentially lost in Plan ABC's broad network of hospitals.
The introduction of the exchanges should add more individual purchasers into the insurance market, which will begin to change the dynamic and the financial incentives of the market. Entering this new insurance store will be newly insured individuals who may not have a provider or are willing to switch providers-if they can save on their own premium dollars. These patients will be "in play," if you will, and if they see that they can get a lower premium and good quality scores from a limited network plan, they will likely go with that plan.
This likelihood gives hospitals and health plans a new business opportunity. Hospital finance leaders will no longer be thinking only about how much their organizations can extract from every health plan. They will also be asking, "How can we partner with a payer around a select network that's effectively marketed to individuals, so we can attract more individuals to our delivery system?"
A health system might approach a health plan and say, "Let's get together and offer a lower cost, higher quality alternative on the health insurance exchange. Let's offer a better value proposition.
It won't appeal to everybody, but we don't have to appeal to the whole group to attract value-conscious individual shoppers."
Moreover, the small-group and individual insurance markets that exchanges are required to serve will have risk-adjustment mechanisms to help balance the premiums. Thus, some select-network health plans might even target sicker enrollees-if the health plan gets more premium dollars for them, and its select provider network excels at managing care for sicker patients cost-effectively. You can save a lot more on good care management for a 40-year-old diabetic than for a perfectly healthy one-if you can get more premium dollars through risk adjustment.
Now, of course, this vision is going to play out very differently in different locales.
Q.What markets are most likely to see a shift to more value-based select networks?
A. This change will probably come more rapidly to competitive markets than to markets that have one dominant health plan or provider system. However, there are always exceptions.
I've not seen as much change in the Massachusetts market in 30 years as we've seen in the past two years here. It's unbelievable. We're seeing provider systems align with health plans around a whole new value proposition for patients, which is exciting.
All sorts of network-dominated health plans are popping up. For example, Partners bought Neighborhood Health Plan, which is a relatively small HMO. Steward, an old Catholic health system converted to for-profit, is partnering with Tufts Health Plan to offer a limited network called Steward Community Choice.
Q.What are some of the challenges associated with these exchanges for hospitals and health systems?
A. The exchanges will be like retail stores. The shelves are stocked by insurance companies that manufacture health plans. Somewhere between 80 and 90 percent of the cost of those health plans represents covered services purchased from medical providers. The logic is that if the store is a big store, it'll have a significant impact on providers. If the exchange isn't very big, who cares?
If there's not a lot of volume to your state's exchange, it may be business as usual for your hospital or health system. However, if there is a lot of demand on your state's exchange, if it affects competition among payers, or if it starts to create new kinds of relationships between health plans and providers, then by not anticipating and responding to these changes, your organization risks being "left behind."
Q.Are hospitals going to see their payments from payers decrease as a result of the exchanges?
A. Probably not decrease, but I think providers will experience some downward pressure. The exchanges tend to emphasize price competition, and they will introduce more price transparency. Price-based comparisons are the easiest ones to make for individual consumers.
Q.How can hospitals model potential volume and payment changes that may occur from the exchanges?
A. The insurance exchanges are going to vary substantially by state. And there is still a lot up in the air, including how the federal exchange is going to operate in states that decide not to offer a state-based exchange. For example, CMS is inviting states to play an active role in certifying qualified health plans, even on the federally operated exchanges, but is leaving the states with the discretion to be selective or not in their criteria. Each state's policy on plan certification will affect the plans' contracts with clinical providers.
Hospital leaders need to consider how this will play out in their particular markets. Leaders need to ask some basic questions about the strategic objectives of their state exchanges. One question might be: Is the exchange going to be aggressive about pursuing a reform agenda, or is it going be more like an automated Yellow Pages for the existing health plans? Exchanges with reform agendas might, for example, require qualified health plans to rate each participating hospital on relative costs and quality. Or these reform-minded exchanges may offer a select network of higher-value providers or lower patient cost sharing for lower-cost providers.
In addition, hospital leaders need to conduct a classic competitive analysis to ensure that they proactively respond to any market changes that result from the exchanges. Questions to ask include: Which are the established health plans? What is our relationship with them? Which are the hospitals and other providers that we compete with? Are these competitors likely to make a move that is going to be a game changer?
A whole other critical piece of analysis and set of questions to ask is: What are we good at? Where are we vulnerable as a health system or provider entity?
This is not so much a quantitative analysis as it is mapping a field force, an analysis of the competitive dynamics among your own peers, among existing health plans, and any new entrants who might be coming in to compete. You have to ask where your organization wants to play in this whole chain, and how you want to distinguish your organization. It really comes down to business strategy.
Q.How will the Supreme Court's decision on the individual mandate affect the launch of the exchanges? If the Supreme Court votes down the individual mandate, will the exchanges still happen? How might hospital leaders address this potential question as they try to determine how to respond to the exchanges?
A. I'm not a lawyer, but what I read suggests a better than 50/50 chance that the requirement that individuals have coverage, if affordable, will be upheld. If so, health plans and hospitals had best be prepared.
If not, there are at least two possibilities. The first possibility is that much of the rest of Title I of the Affordable Care Act, including exchanges, remains intact, meaning that some "fix" (other than the mandate) will need to be found for the "free-rider" problem of folks waiting to get sick before they buy insurance. In this case, hospitals and health plans will still need to prepare, but I expect that any "fix" will not receive serious congressional consideration before we learn the national election results of November 2012. The second possibility is that much of the insurance reform-government exchanges included-will be invalidated along with the individual mandate because the mandate is a keystone of reform.
Almost as much uncertainty hangs over health care as over our financial markets. In such uncertainty, leaders can focus on necessary change in anticipation of likely long-term developments. These are relatively safe "bets." For example, we are going to repay the Chinese, which means the ever-escalating trend of government spending on health care will be cut. So it is not too soon to figure out how to run a leaner operation. Whether through exchanges and select-network plans or otherwise, the cost and quality of hospital services will be made transparent, so it is not too soon to focus on systematically improving both.
about Jon Kingsdale
Jon Kingsdale, PhD, is managing director and co-founder of the Boston office of Wakely Consulting Group. Prior to his current position, he was the founding executive director of the Commonwealth Health Insurance Connector Authority, an independent authority established in 2006 under Massachusetts' landmark healthcare reform legislation. In that position, he led key initiatives to make health insurance universally available and to reform healthcare financing in Massachusetts. The Massachusetts experience was the model for insurance reform and exchanges under the federal Affordable Care Act of 2010.
Background on Health Insurance Exchanges
Under the Affordable Care Act, state-based health insurance exchanges are scheduled to begin operating in 2014. Designed to enable consumers to easily compare qualified health insurance options and select plans that best meet their needs, these exchanges are expected to support choice in the healthcare market, as well as make health coverage more affordable by providing premium and cost-sharing subsidies to low and moderate-income individuals, according to a Kaiser Family Foundation issue brief.
A Congressional Budget Office fact sheet estimates that more than 24 million people will enroll in a health plan purchased through a state-based health insurance exchange by 2019.
Publication Date: Monday, April 02, 2012