Allina Health CFO Details How the Pandemic Will Affect Value-Based Care

CFO Ric Magnuson discusses the value-based contract signed with Blue Cross and Blue Shield of Minnesota prior to the coronavirus outbreak.

Despite the current healthcare industry headwinds created by the COVID-19 pandemic, Allina Health is eyeing opportunities in a largely value-based environment, according to its CFO.

Earlier this month, Allina Health signed a six-year value-based contract with Blue Cross and Blue Shield of Minnesota (BCBS MN), as part of ongoing efforts by both organizations to transition away from the traditional fee-for-service environment.

Allina is a 12-hospital nonprofit health system based in Minneapolis with a net operating revenue of $4.3 billion, according to its 2018 financials.

Ric Magnuson, executive vice president and CFO at Allina, spoke with HealthLeaders about the landmark arrangement with BCBS MN and the future of value-based care in a world changed by the coronavirus outbreak.

Related: Allina Health Hospital Splits This Payroll Expense 50/50 With Local Payer to Curb ER Overuse 

This transcript has been lightly edited for brevity and clarity.

HealthLeaders: Can you walk me through reaching the agreement with BCBS MN?

Ric Magnuson: We use the word 'partnership' because there's a contract underneath, but [the agreement] is a coming together between BCBS MN, the largest payer in this community, and Allina, the largest provider, in order to do something pretty significant around improving quality and reducing overall cost trends for this community in a way that hasn't been done before. This [partnership] takes the best of both organizations and gives us synergies versus trying to work against each other.

To begin with, [the partnership] is aimed at the commercial population and helping to impact the cost trends around that population just because it's the largest source of attributed population that we have collectively, so that's what we're going to start with and then lead into other areas.

[The agreement] also helps align and start to reward incentives between the organizations so that Allina is rewarded for doing the right things, whether that's care management, telehealth, etc., versus trying to think through bringing people in for services.

HL: Earlier this month, Fitch affirmed your AA- rating and stable outlook. What do you attribute this rating action to and what can other health systems learn from what you're doing at Allina?

Magnuson: Fitch, like many of the rating agencies, look at your strategy, what you've been delivering on, and if you're executing on what you've said you're going to do. Also, Fitch looks at your balance sheet and gives a lot of credit to that, so Allina is an AA- with Fitch and we have a strong foundation, and even through this period of time, we've been able to keep that strong balance sheet.

[Before the pandemic], we had a strong last part of 2019 and that was through the deliberate work that we were doing. We were ahead of budget for the first couple months of this year, so [Fitch] took all of that into credit; they knew the work that we've been doing. Then everybody got impacted by COVID, and we were mandated to basically turn off the bulk of our revenue streams.

So [Fitch] looked at that as a short-term item when they think about the fundamentals of [Allina], and those fundamentals are built over time. In the fundamentals are a variety of things, from the strength of the balance sheet to the strength of your governance committee and doing what you said you're going to be doing. That's why we believe we were affirmed and we're appreciative that Fitch continues to see us that way.

HL: When you look at value-based care, what do you think that is going to look like post-pandemic, and what role does your organization have to play in that environment?

Magnuson: What's unique is that we've got these two CEOs [Dr. Craig Samitt and Penny Wheeler, MD] who are both passionate about moving toward being rewarded for outcomes versus the number of services, and whose visions are aligned at coming together with that intent. 

Value-based care is something that Allina has believed is the right thing to do for the last five years. It was part of our strategy, but the challenge that we had was we didn't find the payers receptive to it. While we've been in the value-based world for many years, we were in the Next Generation ACO Model, [payers] were not of the size or significance to make changes. 

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I think the pandemic emphasizes the need to share risk and rewards between the payers and the providers. We're grateful we've got this built because we believe the way care models changed through telehealth and virtual care, the way patients are coming in through so many different ways, were accelerated during this period. This helps leverage us toward a value-based payment model versus a fee-for-service model, and we're set up to be rewarded in that way.

HL: How has the pandemic affected the role of healthcare CFOs, and what changes do you expect to see in a post-pandemic landscape?

Magnuson: What you have to do is try to be open to possibilities of what this all means … and try to turn a challenging time into something that will be helpful in the long run. I'm grateful that we had this value-based arrangement completed just before the pandemic, so that as we're coming out of [the pandemic], we can strategically reposition the organization to adapt quickly and look for opportunities.

What you have to do as a leader is try to figure out how you harvest those opportunities and maybe things that you've tried to do for a period of time, but the environment wasn't there. [You’re] trying to leverage those opportunities that are out there to move them forward, strategically reposition the organization, and improve the health in your community. That’s what I tried to do over the last several months, helping [Allina] not just go back to where we were but think about what we could be coming out of this.

HL: Looking ahead, what are you most concerned about? And what opportunities are coming out of the pandemic?

Magnuson: In this community, we didn't see the surge that we expected but that doesn't mean it won't happen. I think what we're looking at and keeping an eye on is … employee morale; our teams have gone through a lot over the last several months and so that's a challenge in trying to keep people energized.

The other thing is we are quickly trying to adapt the organization to some of those new care models and where we think care is going over the next six to 12 months. I don't believe the amount of bricks-and-mortar [facilities] that we currently have is what we're going to need in the future.

People have gone through a lot in the healthcare arena, [so we have to] be open and sensitive to that and try to then think through how we leverage the business opportunities coming out of this. We're also watching how the consumer has changed and how we help make sure that we're meeting the consumer demand during this period.

Lastly, not only do we have a pandemic, we've also had community unrest right at the footsteps of our flagship hospital and our corporate offices [in Minneapolis], and so I think also about our role, especially now as a nonprofit, to help the community.

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