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Covered California May Block 'Outlier' Hospitals From Health Plans

By Doug Desjardins  
   March 29, 2016

The policy would establish quality and cost standards that would weed out hospitals that don't meet minimum benchmarks. The plan has raised concerns among groups representing health plans and hospitals who question how the standards would be developed.

This article originally appeared in California Healthfax.

Plan would weed out high-cost, low-performing hospitals Covered California officials are considering a plan to eliminate underperforming and high-priced hospitals from health plans through a new policy that would go into effect in 2019.

The policy, which could be considered by the Covered California board as early as June, would establish quality and cost standards that would weed out 'outlier' hospitals that don't meet minimum benchmarks. The plan has raised concerns among groups representing health plans and hospitals who question how the standards would be developed.

Covered California executive director Peter Lee said now that the health insurance exchange is established, the exchange needs to start focusing on how to improve the value and care provided by its health plans. "We are now shifting our attention to changing the underlying delivery system to make it more cost-effective and higher quality," said Lee. "We don't want to throw anyone out but we don't want to pay for bad quality care either."

The new policy would require health plans to "exclude hospitals that demonstrate high outlier costs" and ensure that "all providers meet minimal quality standards" to remain part of health plans sold on the exchange. Lance Lang, MD, chief medical officer for Covered California, said the policy would include provisions that allow hospitals to improve if they are not meeting cost or quality standards.

"The policies would allow insurers to retain providers who are not meeting minimal standards as long as they can show there is an improvement plan in place," said Lang.

He said quality standards and payment standards have not yet been defined but will be based on "national benchmarks" and established with input from hospitals and insurers. "We need to work together with providers to establish standards that can be used to define outlier designations," he said.

Several groups raised concerns about the proposed standards. The California Hospital Association (CHA) said it agrees with the concept outlined by Covered California but that it has to be executed correctly. "We agree in general with the goals of the policy proposed by Covered California," said David Perrott, MD, senior vice president and chief medical officer for the CHA. "It is how we reach those goals that we're struggling with."

Perrott said it's important that Covered California adopt clear, achievable goals for hospitals and that the goals be fair and equitable to all types of hospitals. "For instance, the metrics that are used will also have to address low-volume hospitals," said Perrott. "If a low-volume hospital has one bad incident in a specific category, it will affect their annual score far more than it would a high-volume hospital."

The California Association of Health Plans (CAHP) said that, in its current form, the policy could strain relations between insurers and providers. In a statement, the CAHP said that "Covered California is proposing a top-down, arbitrary measurement system that carries a big stick. And that can make it difficult for health plans and providers to work together constructively."

Gerald Kominski, director of the UCLA Center for Health Policy Research, said the basic premise of the policy is good and will set Covered California on a path toward developing "value-based contracting" with hospitals.

"Of course, the 'devil is in the details' as others have commented, but the healthcare system will never become more efficient if we continue to delay action because we don't have perfect measures of quality," said Kominski. "We've been conducting research for more than 30 years on healthcare quality and by now, we should be able to start using quality measures to influence purchasing decisions."

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