Regence Loses Major Public Employee Contract

Regence, which has insured state employees for 20 years, acknowledges losing the heart of its business

April 23, 2009 -- Regence BlueCross BlueShield has suffered a major defeat, losing a statewide contract worth millions of dollars to Providence Health Plans.

 
When the Public Employees Benefit Board met on April 21, it selected Providence as its single statewide PPO over the next two years. Its decision brings to a close Regence’s 20-year history with state employees and their dependents. 
 
Open enrollment begins in October, and Providence could gain up to 102,507 members who’ve had Regence coverage. Employees also can choose from Kaiser Permanente or an HMO run by Providence, both of which have limited networks outside Portland.
 
Last fall, Regence was also rejected by the Oregon Educators Benefit Board. Until then, it had been the sole insurer for the state’s 145,000 school teachers. Now the majority of those members – 68 percent – are covered by ODS Health Plans, with Providence having 17 percent. Regence lost this contract after asking for higher premium rates than its competitors.    

Decision rested on quality

PEBB’s decision came down to which health plan could fulfill its vision to improve patient outcomes and quality. “We’re changing our culture, and Providence is ahead,” said Diane Lovell, a PEBB board member.  
 
Money played a minor role. The proposals by Regence and Providence differed by a slight margin, $2.1 million. Regence had asked for $31.81 million to administer the PPO over the next two years, while Providence’s offer was $29.71 million.
 
Regence isn’t taking the news lightly. A day after the decisive 5-3 vote its president, Dr. Bart McMullan, filed a protest with PEBB’s board.
 
In a memo sent to brokers and agents the same day, obtained by TheLundReport.org, McMullan said: “We believe the selection process was flawed . . . based on incomplete and inaccurate information.” Regence intends to “redouble our efforts to grow the heart of our business,” he added.
 
The decision will lead to higher costs, according to McMullan, significant disruption to PEBB’s members and their providers and “stall PEBB’s vision.”
 
Unless the decision is overturned, Legacy Health System will also feel the crunch. Providence members cannot seek medical care at Legacy’s hospitals or clinics except for specialized services such as high-risk obstetrics, burns, trauma care, pediatrics and emergencies. Approximately 29,000 people living in the Portland metropolitan area could be impacted. However, fewer than 5 percent are expected to experience disruption, according to PEBB’s staff.
 
There will also be a shift in mental health services since Providence uses PacifiCare’s behavioral health plan which has fewer practitioners – 1,350 compared to 1,577 who contract with Regence.

Moving toward self-insurance

PEBB hadn’t intended to become self-insured until 2011 when it asked Regence and Providence to submit renewal rates in early February. Both plans knew the governor had urged them to keep their increases below 5 percent. Nevertheless Regence came in with a 16.4 percent rate hike, while Providence Choice, its HMO, produced a 1.7 percent hike for its 2,000 state employees.
Regence’s high rate request led PEBB’s board to rethink its philosophy. Realizing it could save money and have greater flexibility to develop an evidence-based plan, its board decided to become self-insured in 2010. Under such a plan, the insurer is primarily responsible for managing the utilization of medical care and the provider network, but is not responsible for the medical bills. 
 
PEBB has $78 million in uncommitted reserves to back up self-funding, and another $66 million for current and committed self-insured benefit plans, including vision and dental coverage. 

Providence rewarded for reform efforts

Both Providence and Regence submitted detailed proposals, with rates that hovered close to 7 percent. After reviewing the documents, Mercer, the consulting firm hired by PEBB, recommended Providence. PEBB’s staff concurred.
 
With its strong adherence to PEBB’s vision, Providence is also ahead of the industry standard in terms of e-visits, medical home, provider profiling and payment reform, according to Mikel Gray, principal with Mercer. “They have the tools in place; their clinics are ready. They’re also $2.1 million cheaper. It’s a small but important difference in these tough times. Providence provides the best value for PEBB in 2010 and 2011.”
 
Regence, on the other hand, is just starting to design pilot projects to focus on electronic medical records, medical home, evidence-based plan design, chronic disease management and an essential benefits package. “Regence’s programs are just being launched or will be launched soon, making them difficult to evaluate,” Gray said.  
 
Mercer’s consultants evaluated Regence and Providence based on four components: their administrative capacity including customer service, claims processes and audits; their ability to implement PEBB’s vision such as electronic medical records, provider profiling, medical home development, chronic disease management, evidence-based plan design and payment reform; their provider networks and rates. Regence only exceeded Providence in one area -- having greater network access.
 
Providence was also willing to set aside a $1.5 million “health fund” to partner with PEBB to advance the board’s vision, while Regence made a $1 million annual commitment to fund ongoing, multi-year pilot programs to evaluate the medical home model.
 
By selecting Providence, PEBB is responsible for paying Regence $3.9 million because of a non-renewal provision in its contract. 

Take Action 

For more information about PEBB read its vision statement here.
 
For more detailed information about the board’s decision view information about its plan to become self-insured, renewal responses, and plan design options.
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