Will tiered health plans lower costs?

In Massachusetts, health insurers have begun to create a system of tiered insurance plans as a way to deal with hospitals charging widely varying rates for the same procedure.
The idea is to make the actual costs of medical services more transparent, so employers – and their employees – can opt for the same services at a lower cost.
As the pieces of the new health care landscape in Rhode Island are being put together, some observers of the health care industry have wondered whether similarly tiered plans to those in Massachusetts – created either by insurers or by preferred, integrated networks of providers – could create market pressure for hospitals to reduce their prices.
The health insurers in Massachusetts have structured these plans so that members pay higher copayments at hospitals designated as high-cost hospitals, to create incentives for members to seek out hospitals that pay a less expensive reimbursement rate to the health insurer. As a further incentive to employers, health insurers offer companies a smaller annual increase in premiums that sign up.
Since it began offering its two-tiered plan in January, Blue Cross Blue Shield of Massachusetts has said that about one-third of its small-business customers have switched to the tiered plan as contracts came up for renewal.
“It’s one of the fastest-growing products in the history of our company, which I think is a measure of how urgently our customers are experiencing the affordability crisis,” Andrew Dreyfus, CEO of Boston-based Blue Cross Blue Shield, told The Patriot Ledger in a story published June 11. Dreyfus said his hope is that hospitals grouped in the high-cost tier will be motivated to reduce their prices.
Tufts Health Plan of Massachusetts and Harvard Pilgrim Health Care are now offering their own versions of similarly tiered health plans.
In Rhode Island, as the state begins to build its infrastructure for its R.I. Health Benefits Exchange, plans are for the new exchange to serve as an online, transparent marketplace, enabling more than 840,000 Rhode Islanders under age 65 to research and compare competing health-insurance plans. Rhode Island’s commercial health insurers currently offer their own, distinct versions of tiered plans, providing incentives to employees who select specialty physicians based upon cost and quality metrics. These tiered plans are not tied to the use of specific hospitals, as they are in Massachusetts. In preparing for the opening of the new R.I. Health Benefits Exchange, both UnitedHealthcare of New England and Blue Cross & Blue Shield of Rhode Island say they will offer products with increased levels of transparency and quality metrics targeted to compete in the new marketplace.
But not everyone sees tiered insurance plans and integrated networks of providers as a potential tool to reduce high medical costs.
Consumer advocate Amy Whitcomb Slemmer, executive director of Massachusetts group Health Care for All, told Providence Business News she is worried that the tiered system, if based solely on cost and not quality, will create a system of haves and have nots. “We need to watch these new business relationships being formed, in anticipation of the next wave of health reform, through a patient’s lens,” said. “There are concerns about tiers being established solely on cost. Right now, consumers are making choices without the benefit of transparency, without reference to the quality of care.”
Larger hospital systems – faced with the new realities of reduced reimbursements from Medicare and Medicaid under health care reform – are finding new ways to increase their revenue, as small, financially fragile community hospitals are forced into receivership or alignments with larger systems. Steward Health Care, a for-profit hospital system based in Boston that is owned by a private equity firm in New York City, has been aggressively adding doctors’ groups to its Massachusetts network at the same time that it has moved rapidly to add community hospitals to its overall system. In the last year, since Steward purchased the six hospitals in the Caritas Christi Health Care group, it has added four new hospitals. Here in Rhode Island, Steward’s bid to purchase the nonprofit Landmark Medical Center is now under state review under the Hospital Conversions Act. (On Dec. 5, PBN reported that sources with knowledge of the discussions say that Steward is considering seeking a legislative fix to remove a three-year ban on for-profit hospitals purchasing additional nonprofit hospitals, so it can move sooner to acquire other nonprofit community hospitals.)
In Rhode Island, the two largest hospital systems, Lifespan and Care New England, have also begun to compete for physicians’ allegiances.
In September, Lifespan announced its Women’s Medicine Collaborative, a comprehensive, multidisciplinary outpatient health center formed by 16 former physicians from Women & Infants Hospital with a focus on the health care needs of women, with women practitioners.
In turn, on Dec. 7, Women & Infants announced that it had created a new hospital-physician alliance, purchasing the practices of 24 independent obstetrician-gynecologists in private practice, with plans to expand that number to 40 by January 2012. The arrangement allows the doctors to maintain control of the day-to-day operations while receiving a salary from Women & Infants.
Hospitals will be required to demonstrate quality, said Constance A. Howes, president and CEO of Women & Infants, explaining the move: “We will better serve our patients and be able to respond to changes in the reimbursement system.” Rhode Island’s Office of the Health Insurance Commissioner is not actively monitoring the development of integrated provider networks, as there seem to be none that are being offered as a commercial product, according to R.I. Health Commissioner Christopher F. Koller.
Both Blue Cross and UnitedHealthcare say that a key component of future health-insurance plans in Rhode Island will be the level of transparency available to consumers to compare quality metrics for both hospitals and physicians.
The aim, according to Anayo Afolabi, spokeswoman for UnitedHealthcare, is to support greater transparency of health care information, enabling consumers to better understand how much specific health care services cost.
UnitedHealthcare of New England will be releasing an upgraded version of its Treatment Cost Estimator in March 2012. The enhancements will marry quality data with cost estimates to ensure that consumers are placing just as much importance on quality as they are on cost, according to Afolabi.
Blue Cross has introduced quality metrics in its reimbursement contracts with 10 of 11 acute-care hospitals in Rhode Island – with comparison charts available to consumers. Blue Cross also has introduced the framework for quality metrics for physicians as part of its pilot program for promotion of electronic health records.
Lt. Gov. Elizabeth H. Roberts has described the current cost of buying health insurance much as “having to buy a new car every year.”
Tiered health-insurance plans, as well as integrated provider networks, promise to offer incentives to consumers of lower costs, better quality metrics and greater transparency, say supporters.
The still-unanswered question, framed by former hospital-executive Levy, is whether or not these networks and tiered plans will continue to “cause the patient to spend more money than necessary.” &#8226

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