Hospitals and Insurer Join Forces in California

In a partnership that appears to be the first of its kind, Anthem Blue Cross, a large California health insurance company, is teaming up with seven fiercely competitive hospital groups to create a new health system in the Los Angeles area. The partnership includes such well-known medical centers as UCLA Health and Cedars-Sinai.

Anthem and the hospital groups plan to announce on Wednesday the formation of a joint venture whose aim is to provide the level of coordinated, high-quality and efficient care that is now associated with only a handful of integrated health systems like Kaiser Permanente in California, Intermountain Healthcare in Utah and Geisinger Health System in Pennsylvania.

Anthem, like those systems, will offer relatively low-cost health insurance coverage to patients who use hospitals and clinics that are part of the plan.

But the Anthem venture, for the first time, includes hospitals that are competitors and are not owned by the plan itself. Anthem will continue to offer other health plans, and the hospital groups will continue to have arrangements with other insurers.

The venture comes at a time of sweeping change in health care, set in motion by the federal Affordable Care Act and intense pressure to reduce the cost of care. Many hospitals are responding by merging and buying doctors’ practices, while some are beginning to offer their own health plans for the first time.

Among the challenges they face is finding the right balance between coordinating care and creating monopolies that squelch competition and actually result in higher prices.

The new network will be called Anthem Blue Cross Vivity and will be offered to large employers beginning in 2015 at what Anthem estimates could be 10 percent less than what they are already paying for coverage.

Anthem and two of the hospitals will also offer the plan as an option to their own employees. Other hospitals in the new joint venture are Good Samaritan, Huntington Memorial, MemorialCare Health, PIH Health and Torrance Memorial Health.

“It is really a brand spanking new thing,” said Ann Boynton, a benefits executive for the California Public Employees’ Retirement System, which insures 1.4 million public employees, retirees and their families, and plans to offer Vivity next year as one of several choices in the Los Angeles area. “It’s such a completely different way to come at the problem.”

As in a traditional health maintenance organization, or H.M.O., employees who participate in the plan will pay premiums but will have no deductibles and only modest co-payments when they go to a doctor or hospital. The details of the offerings will vary by employer. H.M.O.s were popular in the 1990s but fell from favor, largely because of restrictions over where members could go for care; only a few exceptions, like Kaiser, still flourish.

In an effort to contain costs, the insurers are again turning to the narrow networks. But the networks generally rely on the willingness of providers to discount their prices and often do little to aggressively manage care — a goal of the new Anthem venture.

Thomas M. Priselac, chief executive of Cedars-Sinai, said the hospital system was committed to working with Anthem and the other hospital groups to find ways to make care affordable while keeping quality high. “Cedars-Sinai has made its reputation on quality. We’re never going to abandon that,” he said.

The plan represents a potential alternative in California to Kaiser, popular in the state and a pioneer in managing patient care through sophisticated electronic health records. “I think it’s got the potential to operate very much the same way as Kaiser does,” said Ms. Boynton, who said many public employees now choose Kaiser.

Joseph Swedish, the chief executive of WellPoint, the large commercial insurer that owns Anthem and other Blue Cross plans, says the venture is a result of the demand by employers that insurers and providers work more closely on finding better ways of delivering care. “This integrated approach I would call game-changing in the Los Angeles marketplace,” he said.

While WellPoint and other insurers are experimenting with alternatives to the current practice of paying doctors and hospitals based on the volume of services they provide, hospitals in the joint venture have agreed to provide care at or below their cost and will share in all of the financial results.

The hospitals must meet certain quality standards to ensure that they are not stinting on care. But Pam Kehaly, a senior executive for Anthem, said the venture was expected to produce significant savings and profit by reducing unnecessary tests and unneeded hospital and emergency room admissions.

While members will select a primary care physician, they will have access to the different hospitals and specialists within the network. The various hospitals hope eventually to share patients’ medical records and collaborate on treatment.

“This is really a regional play,” said Dr. David T. Feinberg, the president of UCLA Health System, who said Vivity allowed the hospitals and doctors to care for patients over the entire Los Angeles and Orange County area.

What motivates the hospitals to collaborate is that they will all benefit if the care is better and less costly, said Ms. Kehaly of Anthem. “That is a discussion that would never occur if you didn’t have a shared P.&L.,” or profit-and-loss statement.

For employers, the venture also offers a welcome alternative to the creation of ever-larger hospital systems in what Ms. Boynton of Calpers describes as a pac-man approach.

While Anthem and the hospital executives were cautious about the venture, the expectation is that if this succeeds, it could be offered more widely.

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