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Secrets of Private-Sector ACO Innovation

May 1, 2012
by Mark Hagland
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What Blue Shield of California’s Juan Davila knows

Leaders at the San Francisco-based Blue Shield of California (BSC) haven’t been waiting around for the federal Medicare program to take the lead on developing accountable care programs; indeed, BSC has been in the lead among health insurers nationwide in collaborating with hospitals and physician groups to establish private-sector accountable care. In the past few years, BSC executives have created several accountable care contracts, with hospital and physician leaders in the Sacramento metro market, in San Francisco, in Orange County, and in California’s Central Valley.

The results so far have been very encouraging. For example, the Sacramento ACO (accountable care organization), which BCS created in January 2010 with the San Francisco-based multi-hospital system then known as Catholic Healthcare West (now Dignity Health) and the San Ramon-based Hill Physicians Medical Group, in 2010 created a 15-percent reduction in inpatient readmissions, a 15-percent decrease in inpatient days; a 50-percent decrease in inpatient stays of 20 or more days; and that year, saved nearly $25 million in healthcare costs in 2010-2011, and has allowed BCS to reduce premiums to CalPERS-based Blue Shield members (BCS members enrolled in the California Public Employees’ Retirement System), who are the health plan members who have participated in the program.

The San Francisco, Orange County, and Central Valley ACO programs are beginning to reap similar results; and the hospital and physician leaders involved have expressed great satisfaction in working with BSC in developing and extending these programs.

Juan Davila, senior vice president of network management for Blue Shield of California, spoke recently with HCI Editor-in-Chief Mark Hagland about the strategic opportunities and challenges involved in developing such programs, and the IT foundations required to be successful in them. Below are excerpts from that interview.

What is Blue Shield’s overall strategy in developing private-sector accountable care programs?

The overarching strategy is to partner with providers—hospitals and the doctors who use those hospitals, in a specific community—in order to collectively take risks and bring healthcare costs down, primarily by taking waste out of the system.

Juan Davila

In creating these programs, are you using any templates?

We actually built our own methodology. We started this process back in 2008, before healthcare reform was passed, and we signed our first contract in April 2009 for January 1, 2010, around a homegrown concept, which we developed with Catholic Healthcare West (now Dignity Health) and Hill Physicians Medical Group. It took 13-14 months to flesh out the details of the concept, and we finally put that pen to paper afterwards.

Did you have the same strategic vision overall?

The initial concept was from Steve McDermott, CEO, and Darryl Cardoza, COO (now CEO) of Hill Physicians Medical Group; the original concept was Hill’s. They had talked with senior people at CHW, and they mutually decided to bring Blue Shield in to work with them on it. We developed the straw man financial model that would make this come to life and laid that on the table. The real issue was that the hospital system, CHW, had to essentially agree that the fee-for-service payment system was essentially augmenting revenue at the hospital, but not in the right way. So they were the ones who had the longest distance to cover to agree to a change, because it was essentially out of their bottom line that their process had to change. So we were very aligned with Hill, and CHW was philosophically aligned, but needed to come along the longest way.

So the methodology we came up with was a three-way risk share, based on a global budget, with all three partners having upside and downside risk. And once we signed that, the first big hurdle was data-sharing. And frankly, to this day, we still have that as a complication. We don’t have a very good HIE platform. Hill Physicians had Relay Health essentially as their EMR; CHW had a few different versions, depending on the hospital; so their systems didn’t talk, and we didn’t have one at all, so the first challenge was data integration, and it remains the biggest challenge.

So what was the solution?

We still have a clunky process, where we strip out the patient identification information and drop our claims data, coverage information, and other data, into a couple of access databases, and then we code programs off that, and the hospital and the medical group put in data, and we then mine that data to build programs based on that. So we’ve started an RFP to build an actual HIE [health information exchange] platform for data-sharing. We finished the first couple of go-rounds. We now have it down to two or three vendors. And we’re trying to figure out how big this is in scope. And it is pretty eye-popping how expensive these things can be. Because we now have seven ACOs up and live or in the process of going live; and we wanted to use the same HIE platform for all of them. The problem is, we were a little surprised at the expense of these, so we’re working on finalizing that now.

What is the anticipated timeframe for that process?

We’re hoping to have something to share before the end of this year, at a minimum, in one or two locations, but it is still pretty fluid.


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