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Quality: Shedding (Not Shifting) Costs

Janice Simmons, for HealthLeaders Magazine, October 8, 2009
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This pilot program aligns hospital, physician, and insurer and creates incentives to cut costs and boost quality.

During the past five years, controlling healthcare costs has become challenging for the California Public Employees' Retirement System (CalPERS), the nation's second largest public purchaser of healthcare services, says Gregory Franklin, assistant executive officer for the CalPERS Health Benefits Branch.

CalPERS, like other insurance managers, is "always looking for ways to provide better service and quality healthcare" for its members, Franklin says. In reality, that has meant finding new ways to control costs rather than increasing copays or changing benefit design. But come January 1, 2010, CalPERS members in the Sacramento area will be able to participate in a unique pilot where selected healthcare providers and an insurer will assume the risk in keeping costs down while improving quality care.

The initiative will be led by Blue Shield of California, Hill Physicians Medical Group, and Catholic Healthcare West, which operates the local Mercy hospitals, in a three-county area around California's state capital. The idea is that CalPERS members can elect to use a "virtual integrated model" in which the three entities will share patient data and coordinate patient care.

It also will become a demonstration on taking unnecessary costs out of the healthcare system by using shared savings as an incentive. Starting in January 2010, all three organizations have agreed with CalPERS to maintain healthcare costs for the pilot project at rates at or below 2009 levels in the Sacramento area. If they deliver care in 2010 at rates less than 2009 levels, they will keep that difference—sharing in the savings; if costs climb above 2009 levels, the entities will be responsible for paying for the differences.

Under the current delivery systems, "the plans, the hospitals, and the physician groups still operate in silos," says Tom McCaffery, vice president of Blue Shield's CalPERS sector. It's where "provider reimbursement largely promotes further utilization ... [with] either limited or no tie to quality outcomes for clinical improvement."

The basic goal of this partnership, which was first discussed about two years ago, removes those silo walls and emphasizes integration, McCaffery says. "Rather than just shifting a cost that one of the parties can avoid to another [party], they're collectively agreeing to take it out of the system altogether," McCaffery says.

"Our assumption is that by doing more in terms of integration, in terms of collaboration, in terms of joint management of members, we're going to be improving their quality of care and improving their outcomes," McCaffery says. "That's what is going to be driving the efficiency of the system."

"Today's healthcare system is very much a Frankenstein monster of different bits and pieces piled together based on a methodology," says Raymond Chan, MD, director of clinical services and quality with Hill Physicians Medical Group, one of the nation's largest independent physician associations. "It's not geared toward the optimum quality handling of the patient."

In sum, the healthcare delivery system is very disjointed—especially when a patient is admitted to a hospital. That patient, for instance, may no longer see his or her primary care physician on admission—with a hospitalist assuming care. But patients are exposed to multiple situations in a fragmented system that provides many opportunities for them "to fall through the cracks," Chan says.

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