Anthem Blue Cross and Blue Shield has selected Community Health Network to be the “exclusive provider” for a new kind of health insurance plan—a sharp departure from Anthem’s typical strategy of offering the broadest network of hospitals and doctors.
Indianapolis-based Anthem, the state’s largest health insurer, informed other Indianapolis hospitals of its decision in late January, according to people with knowledge of Anthem’s communications.
And Community CEO Bryan Mills confirmed through a spokeswoman Feb. 14 that the hospital system is in talks with Anthem, although a deal is not finalized.
Anthem’s arrangement with Community would form a “narrow network” and market it via online marketplaces called exchanges. The plan would try to steer patients only to Community’s hospitals, outpatient centers and physicians. Anthem would sell health insurance plans based on Community’s network via online exchanges that will begin operating in 2014.
Community works with about 2,000 physicians, who practice at 200 sites of care in and around Indianapolis, Anderson and Kokomo. However, it is not certain whether the arrangement with Anthem will cover all of Community’s territories or only some of them.
Patients who enroll in the new exchange plans would likely pay significantly higher out-of-pocket costs if they visit a doctor or hospital not in Community’s network.
In exchange for the higher volume of patients this “exclusive provider” status could bring, Anthem wants to reduce the premiums it charges for the plan roughly 8 percent to 10 percent—either through lower reimbursement payments to Community or by having the health care providers devise a plan for reducing patients’ use of health care services.
It’s not yet clear how the Anthem-Community arrangement will be structured and what, if any, discounts Community will agree to. For at least two years, Community has publicly declared it is pursuing a low-cost strategy.
“It’s all going to come down to how it prices out. That’s what’s driving the market right now,” said Sheri Alexander, an employee benefits consultant at Indianapolis-based Gregory & Appel.
“If consumers conclude the access is adequate,” Alexander said, “I would think that even a minimum price difference would steer them.”
On Oct. 31, Anthem sent letters to Indiana hospitals and doctors asking them to participate in two new health plans, which it intends to sell via online exchanges in 2014.
One of those exchanges will be operated by the federal government, as part of President Obama’s 2010 health reform law. The other exchange will be operated by Anthem itself, and will be pitched to individuals shopping for health insurance.
The letter said that reimbursement to health care providers for those plans would be equal to rates Anthem pays in one of its broad provider networks, which is called Blue Access PPO.
But Anthem is clearly looking for its narrow-network plans to be cheaper than its broad-network plans.
A month before those letters went out, Anthem’s vice president of provider contracting, Dr. David Lee, told IBJ that Anthem’s internal research showed a narrow network plan would be embraced by consumers only if prices were about 10 percent less than broad network plans.
And in October, the Anthem health plan in Wisconsin signed a narrow-network plan with a hospital system and a grocery chain that promised 8-percent lower costs.
Narrow networks are not a new idea. They were used as part of HMO-style health plans, which were popular in the early 1990s but then sparked a backlash from patients. HMOs never achieved the penetration in Indiana they did in other states.
“Historically in Indiana, we know most patients prefer a broad network,” Lee said. “However, we have seen this increase in appetite from patients, because of the relative unaffordability of health care, to make some trade-offs.”
Anthem’s main rival in Indiana, UnitedHealthcare, also is considering bringing narrow networks to the Indianapolis area, after the Minnesota-based company has seen some success in other markets.
For example, UnitedHealthcare launched a product called Core in 2010 in Chicago and northwestern Indiana. The network includes 97 of the 121 hospitals in the Chicago market.
Anthem spokesman Tony Felts declined to discuss Anthem’s selection of Community, but he said conversations about narrow-network plans continue between Anthem and many health care providers.
“Anthem has been having discussions with numerous providers about setting up a narrow network insurance plan that would be offered to consumers who purchase insurance on the exchange,” Felts wrote in an e-mail.
“Affordability continues to be such a significant issue that we believe consumers, especially those purchasing on the exchange, would be willing to trade unlimited choice of providers for a better rate.”
But other than Community, Indianapolis-area hospitals have been reluctant to participate, since the narrow-network plans seemed to guarantee lower revenue in exchange for an uncertain level of demand from patients.
“It doesn’t surprise me that everybody would take a pretty conservative approach to it,” said Sam Odle, former chief operating officer of the Indiana University Health hospital system. He added, “If you have a large volume of the business, you don’t want to be the first one to start discounting your share of the business.”
In Indianapolis and the counties adjacent to it, Community has the second-largest market share among hospitals, with about 22 percent of inpatient admissions. IU Health has the largest Indianapolis-area market share.
But statewide, Community is the fourth-largest hospital system, trailing not only IU Health, but also St. Vincent Health and Franciscan St. Francis Health.
Community had $1.3 billion in revenue in 2011, the most recent year for which financial data are available. It turned a profit that year of $75.7 million.
What isn’t clear is how the agreement with Anthem will affect Community’s relationship with St. Vincent Health and the Suburban Health Organization hospitals, with which Community formed an accountable care consortium last year.
Accountable care refers to new kinds of contracts between health care providers and health insurance plans, under which the providers would attempt to save money by being more efficient and keeping patients healthier—and then would reap some of the savings from those efforts.
The goal of the group formed by Community and St. Vincent is to sign “narrow network” deals with employers and health insurers, promising to reduce overall health care spending by keeping patients healthier.
Mills declined to be interviewed for this story. But in a Sept. 29 interview with IBJ about the accountable care consortium, he said Community was looking for new kinds of relationships with both employers and health insurers.
“We’re looking for opportunities to partner with employers and payers,” Mills said. “It’s got to be good for all parties. It’s got to have the economics. It’s got to be sustainable.”
Mills also has bet that, as the 2010 health reform expands insurance coverage to an estimated 27 million more Americans, Community can prosper by using its existing assets more efficiently to serve a larger volume of patients—even if Community gets paid less per patient.
Community’s four Indianapolis hospitals operate at only about 60-percent capacity.
Mills told IBJ in 2011, “I believe that there’s enough demand, there’s enough capacity, and we can in fact provide this service.”•