Michigan Blues, hospitals save $50 million through value-based contracts

Blue Cross Blue Shield of Michigan has been a leader in the value-based payment movement, with many contracts already in place with its physicians. Now, the insurer is expanding its focus on value to hospitals, having signed value-based reimbursement agreements with 18 health systems in the state, including 71 hospitals in all.

The value-based contracts pay hospitals for covered services but give participating doctors incentives to work closely with the hospitals to reduce unnecessary care, including unnecessary tests, procedures, hospitalizations and emergency department visits. When the hospitals collaborate with their physicians to provide quality, efficient and effective care, Blue Cross rewards everyone involved with a share of the savings.

So far, five of the contracted health systems have shared $50 million in total savings with Blue Cross for services rendered in 2013.

To learn more about Blue Cross's value-based contracting, FierceHealthPayer spoke with Steve Anderson (pictured right), Blue Cross vice president of provider contracting and network administration, in an exclusive interview.

FierceHealthPayer: Could you describe the value-based contracts you have in place?

Steve Anderson: The overarching call to action here was on behalf of employers asking for the provider community to deliver more value. Employers were just starting to ask providers to be accountable for collaboration with the physician community and finding opportunity to reduce unnecessary medical use.

On the physician side, we've been using value-based reimbursement methods for about 10 years. We've been strategizing how to bring the hospital community along. In 2012, we really started those conversations in earnest with a couple of really big systems in Michigan for them to commit to delivering value, being accountable for the overall cost and committing to working with their physician partners at the population health level.

FHP: These value-based contracts have brought in $50 million in savings. Do you know what actions specifically brought about those savings?

Anderson: Getting into these contracts, we have set up project plans with significant milestones, and we meet with the hospitals quarterly. We provide them the plan-level detail they need to identify opportunities [for savings]. It's all these little levers that they're working on--avoiding unnecessary admittance and working on high-tech radiology and generic prescribing rates, for example--that will hopefully reduce total cost of care.

But it's really the physician-hospital collaboration that's happened over the last three to five years and identifying those opportunities together to work on that has really led to large savings.

FHP: Do you help the hospitals mine the data that you provide?

Anderson: We provide claims-level detail on our members to the hospitals. There are varying degrees of sophistication at the hospitals. A number of the hospitals have robust teams that absorb this data and throw it into their database and are really effective at data mining. Others don't have that level of sophistication, so they ask us for more specific initiatives or opportunities to work on. Some hospitals say, "Give me five things to work on." They address that for a year, and go down to the next five.

It's the hospitals that have really committed the infrastructure to building a team of population health analysts that can dive into and find the opportunities from the data we provide. Sometimes they can identify screenings where, from a population level, they underperform in terms of care provided. Secondarily, they identify those members who are in need of some sort of intervention, whether their case isn't being managed effectively or they need more outreach. Those sort of frequent fliers--whether it be people who frequently visit the ER or are admitted to hospitals over and over again who need more effective intervention than they have been given--are opportunities to deliver more value.

We sort of flex as necessary to the hospital's ability and capacity to mine the data.

FHP: Have you seen any correlation in the hospitals with more sophisticated data mining capabilities and greater savings?

Anderson: I don't know that precisely, but those organizations are working on all payer databases. I would assume they are a lot more effective at the opportunities.

FHP: Would you say the data analysis is key to all the savings resulted from the contracts?

Anderson: Yes. I would say it's No. 1--and No. 2 is the collaboration between hospitals and physicians.

FHP: Do you think the healthcare industry as a whole is ready to completely shift to a value-based payment model?

Anderson: There has also been a lot of development in Michigan in terms of this accountable care concept. We have had a number of health systems hire new CEOs who have come out of the other entities who are quite committed to population health. I would say that, generally, the industry is really pivoting toward this concept and away from a fee-for-service mentality. Industry-wide, the shift is really happening and will take hold, but it's a big industry, so I think change happens slowly.

FHP: What has been the biggest challenge in your value-based reimbursement program?

Anderson: Moving hospitals into a world of pay-for-performance has really been the challenge. But once they get into the program, organizationally, there is a large commitment to population health and value delivery by the industry. Moving them from "I just need X percent going forward each year" to them committing to being accountable in order to earn dollars is where the challenge is really.

It's a pretty typical negotiation in terms of give-and-take and trying to find a way to enter into this sort of arrangement. Employers have been really involved in this conversation at large (not in the negotiations), so we try to find opportunities for both parties to enter into these arrangements. Really, it's about doing what's best for the member--having that positive outcome with the least cost possible to create the most efficient health system. We're always thinking about the member and what works best for them and how we can help them save or a better efficient. It helps the hospitals save money, too.

FHP: You mentioned that you have had a successful physician program. Has there been a difference in working with the physician and hospital communities?

Anderson: Because the hospital program is so rooted in the physician program, there have been a lot of similarities. We don't negotiate with physicians as intensely as we do with hospitals, so that conversation--trying to move the hospital off of the simple base rate increase and into accountability--is probably the biggest difference between the two. It was much more of a challenge to move the hospitals than the physicians to the value-based contracts.

FHP: What are your plans going forward? Are you planning to move more hospitals onto these contracts?

Anderson: We have roughly 85 percent of our contracted hospitals under a value-based contract at this point. That leaves small and rural hospitals where the volume isn't that big and the membership isn't that big. What we're focusing on going forward is continuing to support hospitals and delivering more opportunities for them so we can maximize our efforts in accountable care. It will be diving deeper and wider into the data, starting with low-hanging fruit and branching out along the tree. There's a lot here to accomplish, so we're not afraid there won't be work to do.

[Editor's Note: This interview has been edited and condensed for clarity.]