California Insurance Marketplace Wants To Kick Out Poor-Performing Hospitals

By Chad Terhune
California Healthline, March 18, 2016

California’s insurance exchange is threatening to cut hospitals from its networks for poor performance or high costs, a novel proposal that is drawing heavy fire from medical providers and insurers.

The goal is to boost the overall quality of patient care and make coverage more affordable, said Peter Lee, executive director of the Covered California exchange.

“The first few years were about getting people in the door for coverage,” said Lee, a key figure in the roll-out of the federal health law. “We are now shifting our attention to changing the underlying delivery system to make it more cost effective and higher quality. We don’t want to throw anyone out, but we don’t want to pay for bad quality care either.”

It appears to be the first proposal of its kind in the country. The exchange’s five-member board is slated to vote on it next month. If approved, insurers would need to identify hospital “outliers” on cost and quality starting in 2018. Medical groups and doctors would be rated after that.

Providers who don’t measure up stand to lose insured patients and suffer a black eye that could sully their reputations with employers and other big customers.

By 2019, health plans would be expected to expel poor performers from their exchange networks.

The idea has already sparked fierce opposition. Doctors and hospitals accuse the exchange of overstepping its authority and failing to spell out the specific measures they would be judged on.

Health insurers, normally at odds with providers, have joined them in the fight. The insurers are balking at the prospect of disclosing their negotiated rates with providers. Health plans have long resisted efforts that would let competitors or the public see the deals they make with doctors and hospitals.

But scrutinizing the negotiated rates would help the exchange identify high-cost providers and allow policyholders with high deductibles to see the differences in price before undergoing a surgery or imaging test.

Lee said it’s time for the exchange to move beyond enrollment and flex its market power on behalf of its 1.5 million members. He said insurers haven’t been tough enough on hospitals and doctors.

“California is definitely ahead of the pack when it comes to taking an active purchasing role, and exclusion is a pretty big threat,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms. “There may be a dominant hospital system that’s charging through the nose, but without them you don’t have an adequate network. It will be interesting to see how Covered California threads that needle.”

A study last year found that 75 percent of Covered California plans had narrow physician networks, with more restricted choices than all but three other states.

“I don’t know of anyone even close to trying this,” said Dan Polsky, the study’s author and executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania. “I applaud Covered California for being bold to improve quality and reduce costs, but I worry about the implementation.”

Polsky said measuring quality can be complicated, and steps must be taken to ensure hospitals and doctors aren’t penalized for treating sicker patients or serving lower-income areas. Most quality-boosting efforts use financial bonuses and penalties rather than exclusion.

Under the Covered California plan, hospitals would be judged on a wide range of performance and safety measures, from rates of readmission and hospital-acquired infections to adverse drug events. The exchange said it will draw on existing measures already tracked by Medicare and other groups, and it will work with hospitals, consumer advocates and other experts over the next 18 months to finalize the details.

California physicians warn that the exchange’s proposal could further reduce networks that are already too thin for patients.

Charles Bacchi, chief executive of the California Association of Health Plans, predicted that Covered California’s idea will backfire, discouraging hospitals and doctors from participating in the exchange and driving up premiums as a result.

“It’s the right goal but the wrong approach,” Bacchi said. “Covered California is proposing a top-down, arbitrary measurement system that carries a big stick. This can make it difficult for health plans and providers to work together constructively.”

California has been an “active purchaser” of health plans for its ACA exchange – Covered California. To help keep insurance premiums down, it has contracted with plans that have amongst the narrowest provider networks in the nation. Now they want to measure quality and costs and expel providers, beginning with the hospitals, that rank poorly on these measurements. What could be wrong with this?

Choosing physicians and hospitals is much more involved than merely exercising personal preferences. Impaired accessibility, instability, lack of continuity with changing contracts, lack of integration of services, surprise out-of-network billings, and the like are just a few of the reasons that narrow networks are disadvantageous for patients, and, after all, shouldn’t the system be designed primarily to take care of patients?

The purported reason for active purchasing is to obtain higher quality at lower cost. But we don’t even know how to measure quality beyond token star-type ratings. Outcomes are much more dependent on socioeconomic factors than they are on the quality of the delivery services. So then is cost alone an adequate reason to pursue active purchasing? The traditional Medicare program is far more effective at controlling costs than are the private sector health plans, including those offered through the exchanges. So forget quality and cost as determinants of optimal provider networks.

Dedicated physicians and hospitals who care for some of the sickest and most deprived patients do not score as high on quality measures simply because the measurements are more focused toward the carriage trade. What an injustice it would be for the poor and sick if we expelled their physicians and hospitals merely because they failed the tests of some naive policy wonk from behind the scenes.

Patients should have free choice of their physicians and hospitals in a system that is affordable for all. We could have that by changing to a single payer national health program – an improved Medicare for all.