Regence, PacificSource Among the Losers at PEBB: Providence, Moda, Kaiser and CCOs Win Favor

It came as no surprise when the Public Employees Benefit Board decided to sign contracts with their current insurers – Providence Health Plan and Kaiser Permanente – rejecting a joint proposal by Regence BlueCross BlueShield and PacificSource – for the state’s 130,000 employees, their dependents and university employees.

It came as no surprise when the Public Employees Benefit Board decided to sign contracts with their current insurers – Providence Health Plan and Kaiser Permanente – rejecting a joint proposal by Regence BlueCross BlueShield and PacificSource – for the state’s 130,000 employees, their dependents and university employees.

But that’s not the whole story of what happened at this week’s PEBB meeting. Starting next January, a quarter of state employees will get the chance to have their care delivered through coordinated care organizations – an approach fostered by Gov. John Kitzhaber who envisions this model expanding into the private employer sector as well as the Oregon Educators Benefit Board, which includes school teachers and administrators.  

PEBB could be considered a test case because – for the first time – the CCOs, which provide coverage to people on Medicaid -- have a chance to show whether they can reduce healthcare costs compared to traditional insurers and, perhaps more important, improve the overall health of the population. Under this approach, the CCOs are given a global budget to administer physical, dental and mental healthcare, and, sometimes, the management of pharmaceuticals.

Benefit design will remain the same; it’s the delivery and the cost-sharing structures that may vary. “Our benefits are our benefits and we’re going to have to manage them in a different way if we’re going to meet our goals,” said PEBB chairman Sean Kolmer, discussing the concept for the contract at a brainstorming session in July.

PEBB plans to sign contracts with three CCOs -- Trillium in Eugene, Mid-Rogue in Medford and the Eastern Oregon CCO run by Moda Health.

The details and rates of the contracts still need to be hammered out between PEBB staff and the insurers, with the help from the New York-based human resources and actuarial firm Mercer, which helped in the selection process with consultants from offices in Portland and Seattle. The new contracts, which are for one year, can be extended through 2017.

The dollars at stake are enormous. Although the revenue projections for the coming year have not yet been determined, in 2013 alone, Providence Health Plan was paid $31.1 million solely in administrative fees for a self-insured contract that had $550.1 million in medical claims. Kaiser Permanente separately received $116.8 million in premium dollars for its share of public employees. Of the PEBB population, Providence covered 108,679 employees and dependents, while Kaiser insured 21,367 lives.

Not only did Providence beat out Regence and PacificSource, it also drew higher scores than either the statewide Moda or LifeWise health plans, which were estimated to have much higher administrative costs, according to Ali Hassoun, PEBB’s director of operations. Providence calculated its administrative overhead at $5.7 million for 2015 compared to $8.1 million for LifeWise and $11.4 million for Moda. Over the entire three year contract – 2015 to 2017 – Providence estimated $18.6 million, LifeWise, $26.4 million and Moda, $36 million, according to data shared by Hassoun with The Lund Report.

In all, 11 contenders representing the largest hospital systems and insurance companies in Oregon bid for the PEBB contract. It’s relatively simple to understand why, according to one observer who had a stake in the process but preferred to remain nameless.

“PEBB is the highest commercial payer for hospital services in the state,” the insurance insider, wishing to remain anonymous, told The Lund Report. “That’s common knowledge, and hospitals rely on those dollars to offset their losses from Medicaid and Medicare. Otherwise, their bottom line would be wiped out. It’s all about the cost shift. Why is it that the state of Oregon won’t dictate a price for hospital care? Everyone’s complicit in this -- even the governor.”   

No CCO Option for Salem or Metro Area

Only about a quarter of state employees will have a CCO option, but not in the Portland metro area or Salem’s two counties, where 30 percent of the state’s employees live. The CCO test model will instead take place in the state’s third and fourth largest markets -- Eugene and Medford, as well as Eastern Oregon, which has a high number of state employees in the Oregon Youth Authority, Department of Corrections and the mental health delivery system.

Dr. Jeanene Smith, the Oregon Health Authority medical director and a member of the PEBB board, had high praise for the winning CCOs:

“The Mid-Rogue really offers close relationships with providers. … Mid-Rogue had a very strong patient-centered primary care emphasis,” said Smith. Mid-Rogue Health Plan will serve Jackson, Josephine and Curry counties while Trillium Community Health Plan delivers care throughout Lane County. “Trillium has a strong relationship with public health as well as mental health.”

In Salem and the metro area, PEBB opted to keep Kaiser Permanente as a second choice for these employees and added a third choice -- a Moda Health Plan option called Synergy that has a strong contractual relationship with Oregon Health & Science University, Portland Adventist Medical Center and Salem Health.

Two health plans with strong links to CCOs -- FamilyCare and ATRIO Health Plans -- were passed over, as well as moves by Legacy Health and ZoomCare to join the field. FamilyCare’s bid covered metropolitan Portland’s three counties while ATRIO would have provided services in Salem and Roseburg downstate.

“ATRIO is disappointed that we were not selected,” CEO Ruth Bauman wrote in an email to The Lund Report. “Our approach of wide physician networks that seek to improve care and quality across the entire community did not carry the day. We hope PEBB's approach will lead to lower costs across the state rather [than] fuel current drivers of cost.”

Can State Improve Upon Zero Growth?

The global provider payment budgets that mark the CCOs have been championed by Kitzhaber as the best means to rein in medical inflation, but healthcare costs at PEBB have mirrored the historically low inflation in healthcare nationally since President Barack Obama took office.

These local delivery systems would have to actually cut costs -- not just growth -- to show improvement on the existing contract. Like the CCOs, PEBB’s budget is capped at 4.4 percent inflation this year and 3.4 percent starting next year -- but with Providence, inflation had already shrunk to zero.

“The rate in January will be a flat increase. We've never had that before in the history of PEBB,” former PEBB administrator Joan Kapowich told The Lund Report in September. Kapowich left her longtime post Nov. 30 in the middle of the contract process. Publicly, she voluntarily retired, but insider sources, speaking on condition of anonymity, said she resisted Kitzhaber’s wish to move PEBB into the CCOs, and was shown the door.

Additionally, Hassoun told The Lund Report in October that 75 percent of PEBB employees were already enrolled in primary care homes -- a key component of integrated care in the CCO model.

A statewide contract was still necessary, however, because three counties in Oregon had no other option. With much of the innovation in the new PEBB offerings coming from the regional players, the health delivery model for state employees is decentralizing in the same way that the Oregon Health Plan delivery was broken up into 16 coordinated care organizations in 2012.

Shannon Conley, the chief administrative officer at Trillium, the Lane County CCO, said her organization has the advantage of being community-oriented. They have a public-private partnership with the county health department, and most of the healthcare professionals in Eugene already coordinate care, including mental health.

“Behavioral health is embedded in our health plan,” Conley said, adding that primary care homes are encouraged to hire psychologists and behaviorists who work closely with family physicians and nurse practitioners. “It seems to be an outlet for seeking care without the stigma that comes with it.”

The state’s Oregon Prescription Drug Program will provide medications for the Trillium and the Moda offerings, but not for the other health plans. Mid-Rogue Health Plan spokesman Freddy Sennhauser said integrating pharmacy benefits with medical benefits was key to his organization’s ability to lower costs and improve outcomes.

“Those two have to be under one umbrella, one roof,” Sennhauser said, explaining the medical plan has added incentives to ensure patients adhere to their prescription drug regimens. His organization would rather pay for the drugs than face higher more expensive care downstream. “When folks take their drugs with COPD (chronic obstructive pulmonary disease), they don’t end up in the hospital.”

Mid-Rogue, like Kaiser and Moda, will be a fully-insured health plan. Trillium and Providence chose to operate as third-party administrators of self-insured plans, where the state is responsible for paying claims.

Bend Area Limited to Providence’s Second Option

One area where choice will be lacking is Central Oregon. PacificSource runs the CCO in this part of the state, but didn’t submit any regional bids, leaving state employees in Bend, Prineville and Madras with the option of two proposals from Providence.

“We felt our best opportunity to serve PEBB was through our partnership with Regence on the statewide contract,” PacificSource President Ken Provencher told The Lund Report. “We’ll evaluate future opportunities if and when they arise.”

Interim chief PEBB administrator Kelly Ballas left open the possibility the state could add options in the future if someone else made an offering. “I don’t think there’s anything to prevent us from having that discussion,” he said. However, only about 3 percent of the state’s employees live in Central Oregon.

PEBB deputy administrator Kathy Loretz explained that Providence’s second bid will be its own entry into the primary care home model. Employees will have the choice of the traditional plan, which includes 15 percent for coinsurance, or the new model, which will encourage primary care visits with just a $5 copayment.

Like the CCOs, Providence’s new plan is designed to augment primary care so that patients make fewer trips to the emergency room and have a better relationship with their family doctor to avert chronic health problems.

And that’s far better than what employees in The Dalles are getting. Neither Providence’s regional plan in Central Oregon nor its Portland Metro area plan extends into Wasco County, keeping them with just the status quo. The same will be true in Tillamook and Clatsop counties, which includes Astoria. Public employees in Columbia will have the option of Kaiser, which has facilities across the state line in Longview, Wash.

Providence’s medical home option will be available in most of Oregon, although not in the mentioned counties or parts of Eastern Oregon. The option will be available for Oregon employees in Clark and Walla Walla counties in Washington and Payette County in Idaho. Both Washington and Idaho each have about 700 PEBB members, while California has eight state employees.

PEBB Ignored Plea About Providence

In choosing Providence Health Plan once again, PEBB board members apparently ignored a plea by Morgan O’Toole, CEO of the Kartini Clinic in Portland. He informed board members, in an op-ed article in The Lund Report -– that Providence outsourced mental health administration to a third party, based in California, known as PacificCare Behavioral Health. He said the carve-out falls pitiably short of the coordinated care approach model favored by Kitzhaber.

“Virtually everyone agrees that an essential component to realizing the goals of the Triple Aim is an idea known as “coordinated care,” O’Toole wrote. “The idea is fairly straightforward: providers should work together to prevent illnesses (wherever possible) rather than simply being asked to treat illnesses once they have occurred. In other words they should also be rewarded for keeping us healthy and out of the hospital or doctor’s office, and not only for patching us up when we get sick.

“Carve outs essentially make a mockery of coordinated care. In the case of physical and mental health treatment, carve outs deliberately and arbitrarily - from the perspective of the provider or the patient - fragment treatment into two independent (and entirely uncoordinated) systems. From pre-authorization to ongoing clinical review to claims processing, everything is duplicated; once on the Providence or “medical” side, and again on the “mental health” side for PacifiCare Behavioral Health.

“Meanwhile, the inconvenient truth is that practices such as mental health carve outs can have real and lasting negative effects on patients’ health by preventing truly coordinated care, creating bureaucratic barriers to treatment, and leading to inferior clinical outcomes and higher out-of-pocket costs. In other words, carve outs embody the very opposite of the Triple Aim.

“All Oregonians should come to understand how poorly served they are by carve outs and similar business practices; practices which only serve to undermine the very basic premise of coordinated care and, ultimately, contribute directly to the dysfunctional and ruinously expensive system of healthcare in this country,” he concluded.

Christopher David Gray can be reached at [email protected]. Diane Lund-Muzikant can be reached at [email protected].

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