Regence BlueCross BlueShield and TriZetto: What’s Happening to Health Insurance?

Public policy issues could have consequences for many Oregonians

OPINION – August 2, 2012 -- Recent pieces in The Lund Report and The Oregonian about ties-- both investment and governance-- between nonprofit Regence BlueCross BlueShield of Oregon and one of its major vendors, the for-profit TriZetto Group, raise important issues of public policy with consequences for many Oregonians.

Indeed, stories like these would be germane in virtually every state because new funding and governance arrangements have turned the entire health insurance industry upside down in ways which are both unpredictable and fraught with potentially questionable consequences.

The organization of the private health insurance industry in which Regence functions is currently shifting rapidly and in fundamental ways. The emergence of new players, different structural and financial arrangements, a changing legal environment and evolving assumptions about the ultimate role and objectives of health insurance, itself, provide a backdrop for understanding the Regence-TriZetto story.

To a degree not observed for many generations, state health insurance
regulators like the Oregon Division of Insurance, are being sidelined and forced to act more as observers than as active public overseers of many facets of the health insurance sector. This development is part of a long-term industry strategy for loosening what it views as unhelpful regulatory constraints on private sector innovation.

One of the sophisticated ways in which the industry has engineered de- regulation is through its investment policy. Regulated insurers, including Regence, have accumulated billions of dollars in “surplus” or “reserve”
funds (originally financed out of premium dollars) and have channeled them into ownership stakes in non-regulated companies like TriZetto.

TriZetto, a well-regarded IT developer and provider is responsible for an increasing share of Regence’s back-office transactions including the processing and adjudication of claims and many other administrative functions. According to a TriZetto study, outsourcing has been an efficient solution for health insurance companies and has reduced overall administrative expenses. At the same time, regulators in Oregon, Washington, Idaho and Utah discovered serious problems last year in billing, claims processing and other administrative transactions directly affecting Regence policyholders.

TriZetto is not subject to regulation by the Oregon Insurance Division or
any other state agency--and that is precisely the beauty of the strategy. To the extent more and more traditional insurance functions and a greater share of premium dollars are outsourced to unregulated entities like TriZetto, the more constrained is the oversight role of the state Insurance Department and the less encumbered is the insurance carrier, itself.

That is why this strategy is often referred to as "creeping deregulation." And as Regence has discovered, it need not lose effective control of outsourced functions and dollars. For yeaars, the CEO and president of its parent company, Cambia Health Solutions, has also served as a paid member of the TriZetto board of directors. 

And as Regence has discovered, it need not lose effective control  of outsourced functions and dollars since its CEO, Mark Ganz, also serves as a member of the TriZetto Board of Directors.

A recent example of one potential challenge stemming from the symbiosis of health insurance companies, medical practitioners and non-regulated outsource vendors like TriZetto was recently reported in conjunction with a Tennessee Blue Cross project. There, TriZetto, partially owned by Tennessee BCBS, was engaged to work with orthopedic surgery groups to design standardized medical procedures and bundled payment arrangements for joint replacements as a modification of traditional fee-for-service practice.

According to a Tennessee BCBS-TriZetto press release, “TriZetto has a seat at the table with the clinicians and with us. They provide valuable information, analysis and documentation that frame constructive dialogue to arrive at bundle definitions and quality metrics. As a third party, TriZetto helps move the medical practices and BlueCross toward consensus on best practices that can help ensure optimal patient care and outcomes, as well as cost efficiencies.”

These objectives appear to be sound and potentially important. With any luck they may work out. But it would be dangerous to disregard the legitimate concern that an unregulated vendor with a commercial interest in developing and marketing low-cost, efficient solutions to other insurance carriers may have different incentives than its venture partner, Tennessee Blue Cross or those of the public whose interests involve balancing quality, access and cost.

As unregulated, for-profit entities like TriZetto become more fully involved in core insurance functions affecting the public interest, tensions between public safeguards and competitive enterprise are certain to emerge with force. Before they do, it is vital that policymakers and regulators prevent insurance functions slipping away by default.

In the example of Tennessee Blue Cross, it is most likely that TriZetto
will assert a claim to protect the data underlying its proposals and analysis from disclosure. Policymakers and regulators need to assure the full transparency of data involved in the design of health insurance coverages and reimbursement--whether or not they derive from un-regulated entities owned or contracted by insurance carriers.

Larry Kirsch, a health economist in Portland, has consulted and written
extensively about the regulation of health insurance. He was senior author of a widely cited study of health insurance surpluses sponsored by Consumers Union, the publisher of Consumer Reports.

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The Trizetto relationship has seemed cozy to me, for some years already, operating results from it aside. Regence administers billing for the Oregon Medical Insurance Pool, known to me since our son (a healthy 34 year old with a pre-existing condition "walled out" by our Oregon individual market) became an OMIP member a few months ago. Regence has apparently been unable to bill my credit account for his premium yet, for coverage which began in May; one must wonder if this is another piece of the Trizetto part of their system? Larry Kirsch has written a thorough and balanced opinion piece (above), so balanced that the concern is almost obscured. The idea that many millions of dollars of reserves from premiums of a "non-profit" insurer become investments in for profit entities, with lucrative board memberships for executives of the non-profit, and the possible other compensations for such relationships, should incite some legitimate anger in those whose scarce income was used (or exchanged for employee benefit costs) to generate the reserves. It reminds me of a former senior physician executive with Regence who was fond (in our meetings) of calling its non-profit status "quaint." One must wonder how widely held that view may be.

Correction: it only took two months extra for the Regence/OMIP premium billing: all 3 of the initial months were billed as a lump sum in July; a bit less tardy.