Anthem Blue Cross, 7 CA Health Systems Create New Challenger, Business Model

Cedars-Sinai, MemorialCare Health System, and UCLA Health are among the health systems that have joined with Anthem form an integrated healthcare network expected to challenge Kaiser Permanente's dominance in Southern California.

Anthem Blue Cross and seven health systems serving Los Angeles and Orange County, CA on Wednesday announced the creation of an integrated healthcare network called Anthem Blue Cross Vivity that is expected to challenge Kaiser Permanente's dominance in that market.

"Vivity is a very unique collaboration. This is the first time in the country than an insurer and seven competing top quality hospitals have completely aligned around maximizing health," Pam Kehaly, west region president for Anthem Blue Cross said on a web conference.

"The business model of old for hospitals has been to keep their beds full. Under the new model the eight of us are successful only when we keep people healthy and out of hospital beds."

The seven "founder" health system for Vivity are: Cedars-Sinai, Good Samaritan Hospital, Huntington Memorial Hospital, MemorialCare Health System, PIH Health, Torrance Memorial Medical Center, and UCLA Health. Senior executives from the seven systems joined Kehaly for the announcement.

Vivity, a limited liability company, gets its name from the Latin verb vivere; "to live." The plan will begin enrollment on Oct. 1, but only for companies with 50 employees or more, with coverage to begin on Jan. 1, 2015. CalPERS, the nation's second-largest purchaser of health benefits, has signed on to access Vivity within its Select HMO network in Los Angeles and Orange counties.

"We want to keep growth fairly controlled until we figure this out," Kehaly said. "At the point that we have all the basics down and we are doing this right, this group will talk about how we are going to expand the population and potentially even the geography. But we don't want to mess this up by overwhelming it with volume."

Profit Distribution
Under the business model, Anthem will collect premiums from enrollees, and use the money to pay for the cost of care and administration. "What's left over is put into a pool that is distributed amongst all of the founders," Kehaly said.

"The financing mechanism is, at the end of the day, the profit that is left over gets put back into the LLC and is distributed to all of folks standing up here."

Savings achieved through alignment, economies of scale, and eliminating waste and redundancies with the systems' 14 combined hospitals and more than 6,000 physicians will allow the plan to offer what Kehaly says are "premiums that will be lower than what exists in the market today."

To attract enrollees, Kehaly says Vivity has tried to simplify the benefits package for consumers. "We don't have deductibles where people get confused about what share they owe and what the insurance company is going to pay," she says.

"What is different is the actual experience once they're past the initial enrollment. The experience will be coordinated. We will wrap programs around this to create a patient-centered experience. We are all invested and coordinated to make sure that end-to-end care is managed and that we are to keep people out of the hospital through wellness programs and communications. The difference that an individual would see is a much more consumer-centric approach to managing health than they would in a standard benefits plan."

A Budding Rivalry with KP
With the announcement., media attention focused on the budding rivalry that Vivity creates with Kaiser Permanente, the dominant integrated care system in the region that controls more than one-third of the market.

Kaiser Permanente Senior Vice President Peter Andrade did not appear overly concerned by the prospect of a new player on the block

"So many California businesses people choose to offer Kaiser Permanente care and coverage to their employees and their families because we've figured out how to deliver the highest quality care, in the most seamless, integrated ways, at some of the most affordable rates available," Andrade said in prepared remarks. "The fact that our system is not just stitched together from existing parts, but has actually been built with this integration as the goal, will be difficult for others to copy."

"I'd say the same thing if I were sitting in his shoes," says Barry Arbuckle, CEO and president of MemorialCare Health System, the only Vivity system with a presence in Los Angeles and Orange counties.

Arbuckle, reached for comment Wednesday, says Vivity has attributes that would be hard to match. "Kaiser is a very good model, but I think we can be more nimble than what Kaiser might be," he said.

"Since we are bringing together organizations that in many cases have luminary physicians and providers,  the market is going to say, 'So I can have Kaiser's good model and I can have access where I live and work.' Or, 'I can have hospitals and physicians who in many cases are the who's who in their field and for the same price point.'"

Arbuckle says physicians will be attracted to the diverse working models that Vivity offers.

"In our organization, we refer to it as wanting to meet the doctors where they are. It's not: 'You have to be employed. You have to follow this model,'" he says. "We all have integrated IPA physicians and integrated medical group physicians. These physicians are talking to each other now. It's an interesting series of opportunities in front of us."

Steve Valentine, president of The Camden Group, and LA-based national healthcare consulting firm, says Kaiser Permanente is "not going to be overly threatened."

"They will wait and see how this goes," he says. "We will certainly know by February or March because Vivity will be offered to CalPERS on Jan. 1. Then we will see how the enrollment goes and how much volume moved from Kaiser to Vivity."

Because it's a closed system, Kaiser enrollees generally don't access healthcare outside of the network, which means competitors can't access one-third of the market in the two county region.

"Now the systems that came together for Vivity are premier, well recognized, great reputation organizations," Valentine says. "They've teamed up with Anthem to offer what they've said is a no-deductible. You go see the doctor it doesn't cost money. Then they are saying their premium will be 10% below Kaiser. So it's good for consumers because it is now lower cost. And they removed a barrier to care by having these no deductibles going in."

Kehaly tried to downplay the rivalry with Kaiser. "This is not designed to go after Kaiser specifically. What we are recognizing is that the most effective delivery model is an integrated delivery model. The genesis of this initiative came from that recognition that we can reduce waste, improve quality of care, provide people access to the top facilities in the nation, frankly, and do that in an integrated way."

Arbuckle says he doesn't know what percentage of MemorialCare's patient volume will be made up of Vivity enrollees. "The answer to that question is something my board members want to hear as well," he said.

"It depends upon how the enrollment ramps up. We think this is going to work well together. We have the right people, the right systems, the right governance structure, but let's see how this thing goes before we try to get too big."