Six New Jersey Health Systems Borrow a Page From Amazon

By combining their self-insured plans for a third-party administrator bid, the health systems hope to reduce administrative costs, but that's just the beginning.

Six New Jersey health systems that self-fund their employee health benefits are combining their nearly 50,000 employees and dependents under a single health plan that they hope will be able to cut costs and improve access to high-quality healthcare.

Atlantic Health System, CentraState Healthcare System, Holy Name Medical Center, Hunterdon Healthcare, St. Joseph's Health, and Saint Peter's Healthcare System, all of which will remain independent, formed the Healthcare Transformation Consortium, which will select an insurance carrier as a third-party administrator through a competitive bid process.

The six systems liken their combination to the recent announcement that Amazon, Berkshire Hathaway, and JPMorgan Chase will join forces to attack high healthcare costs and inefficiency.

The consortium says it thinks it will be able to reduce administrative fees associated with providing healthcare benefits.

Moreover, it will eventually serve as a model for other self-insured employees and could be replicated nationally, says Kevin Joyce, vice president of insurance networks for Atlantic Health System, a six-hospital health system based in Morristown, New Jersey, who proposed the deal.

"It certainly hasn't been done in this state before," he says.  

Value-based strategies

It's ironic that health systems that are in part responsible for high healthcare costs are themselves victims, but that truth represents the pernicious and complex reasons healthcare costs so much.

Atlantic Health System, for one, has already implemented several value-based strategies on the healthcare delivery side and has made great strides in value through its ACO, which has more than 390,000 attributed lives.

While the ACO is one way to help reduce costs and improve efficiency, Joyce says this effort is another bold attempt by the health system to leverage its heft as an employer along with other large employers in the state to improve value.

"We're really looking at it from an employer's perspective," says Joyce. "We're self-insured, so we spend a lot of money there, and we're looking to reduce those costs and hit the triple aim for our employees and families."

Combined, the six health systems spend more than $250 million a year for health benefits.

Even though many of them have had limited success in improving value through benefit redesign and better use of analytics to determine appropriateness of certain care protocols, the ability to bring together a quarter billion dollars in annual spending should bring benefits right away, says Kevin Slavin, president and CEO of St. Joseph's Health, a three-hospital health system based in Paterson, New Jersey.

"Each of us have had our different strategies to reduce costs and improve care for our beneficiaries, but now we have six systems that can share those ideas and harness power together," he says. "We believe we'll see immediate in savings cost per enrollee."

The consortium will be expected to further develop ideas for improving utilization and implementing population health strategy. Committees with representatives from all six health systems have been set up and are meeting, Joyce says.

"We're a small state, yet there are variances," he says. "We'll be developing best practices around some of those variances that will help drive the value proposition for us but also for other payers who use us as providers."

Though it's early, part of the strategy may involve forming a narrow network of healthcare organizations making up the consortium, because as a contiguous group of non-overlapping health systems, many employees from all six systems can be found in each other's markets and seek care there already, says Slavin.

"Our employees live in each other's marketplaces," he says. "There's potentially a network there in the central and northern part of the state."

Joyce has spent the past 18 years on the payer side in New York before joining AHS, and sees the consortium as a way to work with like-minded organizations to share best practices and learn from one another.

He says he sees this partnership not as a vehicle toward consolidation, but as a way to learn from each other—using their own benefit plans as proving grounds—to lead the transition from fee-for-service to a more value-based reimbursement environment.

The consortium has sent out requests for proposals and expects to get bids throughout the spring. It will make a decision on a third-party administrator by late May. Open enrollment in the new plan will take place in the fall.