One of the more fascinating discussions of this spring that I was able to report on took place at the HLTH Conference, held at the Aria Resort in Las Vegas in early May. On Monday, May 7, I was able to attend a session that included Patrick Conway, M.D., the president and CEO of the Durham-based Blue Cross and Blue Shield of North Carolina (BCNC), and who had previously served as the Chief Medical Officer, Deputy Administrator, and Director of the Center for Medicare and Medicaid Innovation (CMMI), a division of the Centers for Medicare and Medicaid Services (CMS). Dr. Conway was interviewed onstage by Annie Lamont, managing partner at Oak HC/FT, a Greenwich, Conn.-based venture capital fund.
In addition to discussing his accomplishments at CMMI, Dr. Conway discussed at some length the payer-provider landscape in North Carolina right now. “Isn’t it true that five large multi-hospital systems dominate the state?” Lamont asked him. “Yes,” Conway responded, “five systems have the vast bulk of the market. And we’re looking at a new model, where” patient care organizations can partner more fully with Blue Cross North Carolina. “We’re saying, you can take this alternative pathway with us. And we’ll jointly be accountable for the total quality and cost of care. And we want you to go into two-sided risk. And we’re wondering, should we turn off all prior authorization? And documentation other than for risk coding and STARS measures, we won’t worry about how you document. And for people in the audience, those kinds of partnerships are very exciting, because you’ve now got a provider and payer that are no longer locked into rigid rules, but where you can innovate on quality and customer experience,” he added.
Meanwhile, Lamont asked, “How might the Blue Cross and Blue Shield Association be able to help facilitate healthcare system change among all the Blues plans, and beyond?” “I think the Blues system has a lot of potential, if we move past the traditional health insurance system,” Conway said. “The beauty is that we insure 100 million people—nearly as many as CMS. does And it’s mission-driven. And we have leaders like Mark Ganz [CEO of the Portland, Ore.-based Cambia Health, the parent company to four regional health plans] and Paul Markovich [president and CEO of the Sacramento-based Blue Shield of California], who really want to drive the system. The question is how you think about innovation, data and analytics, the customer experience, investments beyond the traditional ones, and think beyond being a traditional insurer.”
Later on in the interview, Lamont said, “You come in quickly and want change to happen fast in North Carolina. As you think about the things that can make the most change, I know you want to influence primary care. What are your thoughts about that” “I’d say a few things,” Conway said. “First, I’d reference our high-level goals as an organization: we talk about better care and outcomes, at lower cost, and with better service and experience. Buckets: working deep partnerships with providers, risk, etc. Second,” he said, “I’d talk about convenience: 24/7 access, telehealth-enabled, a real focus on higher quality and lower cost. And we’re like Medicare: we spend less than 10 percent of our costs on primary care, yet primary care physicians control most of the costs.”
“How do you do that—incent patients to show up in primary care?” Lamont asked. “First, there’s basic segmentation that has to take place in terms of Medicare, Medicaid, and commercial plan members,” in terms of thinking about how best to manage care and services for distinct populations, Conway said. And then, the providers who want to focus on discrete populations, are a factor as well, in planning, he said. “Some providers are involved in concierge-type care, which we’re looking at; other potential partners want to care for the sickest of the sick. There are different enablement capabilities,” and different levels of interest among different providers in terms of seeking to serve specific populations and sub-populations, he said.
“How do you define healthcare quality?” Lamont asked. “I was responsible for most of the measures from the federal government,” Conway said, “and always tried to move towards true outcomes measures rather than process measures, including patient-reported outcomes—process measures only if they have a real tie to outcomes measures. And then experience measures. I think healthcare, like other services, should have experience measures. And then I think about the total cost of care.”
Meanwhile, what about the proposed mergers and/or business alliances involving CVS and Aetna, Walmart and Humana, and Amazon/Berkshire Hathaway/JP Morgan Chase, that have emerged in the past few months? Lamont asked. “What’s your perspective?” “North Carolina is an interesting market, we’ve got every major health insurer,” Conway noted. “On the integration point, they all vary a bit. CVS-Aetna—can you actually integrate well and get the full value out of that relationship? But it’s got a PBM play and an integration play to it. Interesting. Walmart-Humana—is it actually real? But I view all of these things as overall positive; [the very creation of disruptive new alliances] forces change. In terms of the Amazon/Berkshire Hathaway/ JP Morgan Chase announcement, my biggest take with that is, they’re so upset with the current system that they want to disrupt it; and my reaction is, we should listen. Because they’re identifying a real problem.”
Rethinking market change in a health system-dominated state
I honestly found so much of what Dr. Conway told Annie Lamont about the North Carolina regional healthcare market (which itself is, of course, an amalgam of various metropolitan and other markets within the state) to be quite fascinating. With the major metropolitan areas in North Carolina dominated by a small number of relatively very large multi-hospital systems, it’s not going to be easy to force clinical transformation and value-based transformation in that state, even as Blue Cross Blue Shield of North Carolina dominates the market to some extent on the health insurer side.
Indeed, Blue Cross Blue Shield of North Carolina itself recently sponsored a study of the state’s health insurance landscape. And the insurer stated on its website last year that “A recent study showed that North Carolina pays more for health care than all the other states. Why is that? It’s a pretty simple question. Of course, when it comes to health care, simple questions often have complicated answers. But let’s take a look at some of the big-picture reasons that contribute to consumers paying more for health care here. Our state has large regions with only a few major health care providers. Some areas like Western North Carolina are dominated by only one hospital system. That lack of competition not only drives up the cost of care but also makes it much more difficult for insurers to negotiate lower prices with hospitals.”
Further, the health plan stated on its website, “The reverse is also true. For example, the Raleigh-Durham-Chapel Hill area is served by Duke Health, UNC Health Care and WakeMed Health Services. According to research by the Brookings Institution, that competition has resulted in the Triangle boasting some of the most affordable health care in the state. Unfortunately, North Carolinians aren’t as healthy as the rest of the nation. That’s especially true of our children, which doesn’t bode well for healthcare costs in the future. Obesity-related issues like diabetes and heart disease are major problems in our state. These conditions often call for the long-term use of expensive prescription medicines, not to mention costly medical testing and procedures. On top of that, nearly one-in-five North Carolinians is a smoker, which is higher than the national average of about 17.5 percent.”
And the study on which those statements were based, “A Study of Affordable Care Act competitiveness in North Carolina,” by Mark A. Hall of Wake Forest University, stated this: “Sources consistently said that health insurers’ potential entry into the market and geographic coverage are driven by provider contracting. North Carolina is considered to have fairly consolidated provider markets, as shown in the map below. Until a few years ago, Blue Cross included a “most favored nation” clause in its provider contracts. It required providers to give Blue Cross their best discount, but Blue Cross no longer does so and state law now forbids this. Providers in some parts of the state are still reluctant to give favorable discounts to Blue Cross competitors, several interview sources said. Sources also said that, considering the strong brand recognition that Blue Cross enjoys, it is not sufficient for competing carriers to simply match Blue Cross pricing; competitors need to offer prices that are lower to attract significant enrollment.”
What’s more, Professor Hall stated in the report, “Aetna and UnitedHealthcare were able to achieve competitive provider contracts in two ways. Aetna partnered with major health systems in several metropolitan markets to offer cobranded plans, such as with Duke Medical Center in the Raleigh area or the Carolinas Healthcare System in Charlotte. UnitedHealthcare sought risk-sharing arrangements of different types with providers throughout the state, including some accountable care organizations (ACOs). Also, UnitedHealthcare offered only a closed-network gatekeeper health maintenance organization (HMO) model in the individual market and no point-of-service or preferred provider organization (PPO) option. Cigna entered the Raleigh-area market for 2017 by offering a narrow network based on providers affiliated with the University of North Carolina.”
So what’s the bottom line here? It’s this: complexity. There is a dominant health insurer in North Carolina, but because of the dominance of individual, multi-hospital-based health systems in their individual metropolitan markets, hospitals have tremendous clout in North Carolina. So Dr. Conway and his colleagues at Blue Cross Blue Shield of North Carolina have proposed a “third way” type of collaboration—what he called in his interview at HLTH, an “alternative pathway” in which that insurer, and individual hospital-based health systems, agreeing to “jointly be accountable for the total quality and cost of care.”
That certainly is a reasonable proposition. What remains to be seen is the extent to which hospital-based health system leaders will take it upon themselves to participate in such arrangements. Only time will tell; yet one would think that any forward-thinking health system leaders would find themselves open to the prospect of such arrangements, in order to prepare for the nationwide value-based healthcare system that’s beginning to emerge.
And the North Carolina statewide market is absolutely one of the healthcare markets to watch, in the coming months and few years, because the pace at which it moves into change will also indicate the pace at which the nationwide U.S. healthcare market shifts towards value.
Frankly, my honest guess is that change will take place more slowly than one might hope, in North Carolina, because hospital-based health systems have far less incentive to shift quickly towards risk-based contracts. They have the market power to resist such arrangements, and their cultures have not yet developed towards the more advanced cultures of markets like San Diego, Minneapolis, or Cincinnati.
So only time will tell; but it will be important to watch North Carolina healthcare evolve, for clues as to how U.S. healthcare will evolve forward more generally. And the next few years will absolutely be a pivotal period of time in that regard.