WellPoint, other health insurers race to join accountable care groups

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Long before health reform passed in March, doctors and hospitals were scurrying to form themselves into what the new law
calls accountable care organizations.

But now health insurers, not wanting to be left out of the latest craze in medicine, are trying to get in on the ground floor
of these ACOs.

WellPoint Inc. was a founding member in May of two accountable care organizations started by massive physician groups in
California. The Indianapolis-based health insurer is now in discussions with health care providers in seven states, including

Advantage Health Solutions, a health maintenance organization based in Indianapolis, also is in early conversations with
several Indiana health care providers to help them form accountable care organizations.

The trend makes for interesting negotiations, since it’s axiomatic among health care providers that other doctors and
hospitals are the competition, but health insurers are the enemy.

“Historically, the relationships between payers and providers haven’t been chummy. In fact, at times they’ve
been downright adversarial,” said Colin Drozdowski, WellPoint’s vice president of enterprise contracting and payment

Perry Perry

“What I particularly like about the accountable care organization is, it really starts to change that dialogue. It
starts to focus on what’s really best for this patient, not just what is going to increase revenue.”

Accountable care is a lot like managed care, which was prevalent in the 1990s, in that it pays health care providers to take
responsibility for the total health of a specific population of patients.

Managed care sparked a backlash from doctors, who preferred to be paid a separate fee for each service they perform. Accountable
care tries to combine principles of both the managed care and fee-for-service systems.

The federal Medicare program has proposed contracts with accountable care organizations that would be paid fees for each
service, but would also be offered a bonus if the doctors showed they provided high-quality care and saved Medicare money.
Under the health reform law, these “shared savings” contracts will begin in January 2012.

But there’s wide room for doctors to negotiate other payment arrangements, both with Medicare and even more so with
private health insurers.

“We have the ability to be very flexible with our payment model,” said Vicki Perry, CEO of Advantage Health.
“It really would have to be a point of negotiation with the provider or the system.”

Advantage Health is owned by three Catholic hospital systems: Indianapolis-based St. Vincent Health, Mishawaka-based Sisters
of St. Francis Health Services Inc. and South Bend-based St. Joseph Regional Medical Center.

Other health care systems that are forming themselves into accountable care organizations also are looking to start their
own health plans, in competition with Advantage and WellPoint.

Indianapolis-based Clarian Health is pitching a new health plan to self-funded employers. And Indianapolis-based Community
Health Network is contemplating the same thing.

The reasons are simple. The goal of accountable care organizations is to reduce health care spending. The fastest way to
do that is to have doctors keep patients healthier so they avoid expensive hospitalizations.

But fewer hospital visits is a bad thing for hospital finances—unless they also have a stake in a health insurer that’s
collecting the premiums from patients.

Perry expects Clarian’s health plan to be a “player” in the local marketplace, because, until two years
ago, Clarian was the dominant owner of the M-Plan managed care health plan in Indianapolis.

But for most other hospital systems, Perry predicted, the startup costs will be too high.

“Health systems that have not had health plans before, I think it’s going to be difficult, because it’s
a huge investment, and it diverts money out of the health system,” she said.

If Perry is right, it’s good news for WellPoint, which, Drozdowski acknowledged, has some concern about being cut out
of the process by accountable care organizations contracting directly with employers.

But since the health care world has been dominated by the fee-for-service payment system for 40 years, WellPoint is finding
that most accountable care organizations that are forming have little experience tracking the health and spending of a population
of patients. But health insurers do have such experience.

Even organizations that do have that experience, such as Indianapolis-based physician group American Health Network, say
that if they form an accountable care organization, they might work with a health insurer to handle the claims payment process.

That desire to share resources and expertise is driving many health care providers to talk with WellPoint, which operates
Anthem Blue Cross and Blue Shield plans in 14 states, including Indiana.

“What we’re finding is, because Medicare is pushing a lot of providers in this direction, a lot of providers
are scrambling, saying, ‘I want to be an ACO. I want to partner with you, Anthem,’” Drozdowski said.•

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