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St. Francis-WellPoint deal is a sign of the times

November 27, 2010

Two years ago, St. Francis Hospital and WellPoint Inc. were hurling accusations at each other in a nasty contract dispute. Now they’ve struck a pioneering relationship based on little more than trust.

Welcome to the post-reform world of health care.

St. Francis, which operates three Indianapolis-area hospitals, and WellPoint, the Indianapolis-based health insurer, announced this month that they have agreed to jointly form an accountable care organization. That’s a key concept in the new health reform law passed in March, which includes various provisions aimed at getting hospitals, doctors and insurers to work better together.

The trouble is, federal regulators have yet to define precisely what will count as an accountable care organization. So any private deals now are merely good-faith commitments to work out the details later.

Brody Brody

“It takes a degree of trust in both parties to make this work. And we’re pleased to be at this point in our relationship with Anthem,” said St. Francis CEO Bob Brody, referring to WellPoint’s Indiana subsidiary, Anthem Blue Cross and Blue Shield.

Pulling an insurer into an accountable care relationship also requires trust because it puts more financial risk on the hospital’s shoulders.

Most insurance plans pay hospitals and doctors for each procedure they perform on one of the insurance plan’s customers. That system is called fee for service.

But accountable care would make at least a portion of hospitals’ and doctors’ payments subject to their meeting certain goals for quality and for saving money.

Right now, St. Francis and WellPoint merely signed a standard contract for St. Francis to serve the patients WellPoint administers on contract with the Indiana Medicaid program. St. Francis had previously served Indiana Medicaid patients via a contract with Indianapolis-based MDWise Inc.

Both of those contracts pay St. Francis a set amount per patient and rely on St. Francis not to spend more than that in taking care of patients—or else eat the losses if it does go over. That kind of “capitated” payment system was a key part of “managed care,” which surged in prevalence in the early 1990s but fell out of favor by the end of the decade.

St. Francis has continued to do some managed care contracts, via its St. Francis Health Network of doctors and hospitals, so it feels it is well-positioned to take on the extra risk likely to be part of accountable care contracts.

“It’s the direction we’ve been moving in, except we’re going to take it in a new direction,” said Jenny Westfall, director of the St. Francis Health Network, who negotiated the new deal. “Anthem was very interested in that.”

Indeed, it was, said Scott Markovich, WellPoint’s regional vice president for state-sponsored programs in Indiana.

“They’ve been running this kind of a model for over 15 years,” he said. “They have some expertise that we certainly can learn from. And they have some things they can learn from us, too.”

WellPoint’s accountable care project with St. Francis is its first in Indiana. It has also started accountable care pilots with two large physician groups in California. Other insurers—including Louisville-based Humana Inc.—are also active in forming accountable care arrangements with health care providers.

Health insurers are concerned that the forming of accountable care organizations by multiple groups of physicians and hospitals—sometimes through mergers—will be used only to negotiate for better payment in contracts with insurers.

St. Francis and Anthem went to the mat over payment rates in 2008—and the negotiations got nasty. St. Francis filed a lawsuit against Anthem, saying it had breached its contract by months-long delays in payments. Anthem soon fired back, saying St. Francis had been billing for a service multiple times when it had performed a procedure only once.

The two sides settled in August 2009. Since then, Brody and his top managers have made a point to meet several times with Anthem President Rob Hillman, as well as with Dr. David Lee, Anthem’s medical director, and other officials there.

“We’ve met with their leadership on several occasions and really have made the effort to get to know the people who are making the decisions,” Brody said. “Once you break down some of those barriers,” he said, both sides come to realize that “we’ve got very much the same interests to serve here.”

Many health insurers are coming to the same conclusion across the country, said Dhan Shapurji, an adviser to health plans and hospitals at Deloitte Consulting. That’s why he expects many more deals like the WellPoint-St. Francis one to be announced next year.

“By being part of it,” Shapurji said of insurers’ participation in accountable care organizations, “I think the view is, they can get more view and input into the direction of developing it.”•

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