BCBSA’s Robert Kolodgy: Transforming the Payor–Provider Relationship

Americans, giving senior VP and CFO Robert Kolodgy an excellent vantage point from which to view the economics of health care reform.

In “Transforming the Payor Provider Relationship to Improve Value” at the Healthcare Financial Management Association’s annual national institute meeting in Orlando, Florida, Kolodgy put reform into financial context, enumerating the costs associated with the benefits of the nation’s health care law and describing some of the innovative partnerships BCBS has entered into with providers as part of a four-part plan to address health care’s well-known problems.

As told by Kolodgy, a former hospital and health plan CFO, the challenges are of epic proportion and the stakes are high. Successfully implementing the health care law will not happen without a new kind of relationship between payors and providers, entities that have, in the past, been more adversarial than collegial.

“If we don’t do some of the things that we can do together, based upon trust, collaboration, and common purpose—if we don’t just do those market-based things we can do better—then someone will take us in a direction that we may not want to go.”

—Robert Kolodgy Blue Cross Blue Shield Association

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Having sat on both sides of the provider–payor relationship, Kolodgy acknowledges that he owns many of the problems that led to reform: the $2.7 trillion annual cost of health care, an estimated 98,000 deaths per year annually due to medical error, an estimated 400,000 documented medical errors, and the 30% of care that is ineffective, redundant, or harmful.

Nonetheless, he is as hopeful about the Affordable Care Act as he is wary: “We’re all going to be affected in some way, and there’s a lot of good things in there,” he says.

Costs of the Benefits

With reform poised to move into a higher gear, Kolodgy begins by describing the new set of health-insurance regulations about to go into effect and what can be predicted about the cost and effect of those benefits.

An estimated 25 million more Americans will qualify for Medicaid under ACA in 2014, but the number of people who will shop for coverage on the exchanges is less clear due to the relatively small sizes of the penalties and subsidies. The 25 million new Medicare recipients are likely to be a sicker population and in need of catch-up preventative care. “The benefit of those things takes years to prove up,” Kolodgy notes, “but the cost is today, the cost is real.”

In 2014, the insurance industry will be required to comply with new medical loss ratio requirements that insurers spend 80 or 85 cents of their premium dollar on medical care, or return the difference to policyholders.

New consumer protections going into effect ban denial of coverage for pre-existing conditions and restrict age banding to 1:3, meaning that risk for consumers newborn through 65 can be distributed across just three age categories.

“We typically price from 7 to 1, so depending on your age, the youngest members would pay one/seventh of what the older members would pay for the same product,” he explains. “When that is the typical age band and you compress as the law requires from 3 to 1, what happens? Things are more expensive for younger people and things are relatively less expensive for older people.

“Insurance is a risk business, it’s all about pooling,” he adds. “What’s going to happen is we won’t have as many young people because the prices are compressed in a way that is not typical in the market today.”

A Tax on Insurers

The excise tax on insurers also is scheduled to bow in 2014, beginning at $8 billion and escalating over 10 years to a projected $100 billion, a cost the industry has begun to build into premiums.

The $8 billion is divided by the number of insured and then applied to each policy. The tax will add an estimated 1.5% to 2% per policy, or approximately $350 to $400. Kolodgy says this will drive more employers into the self-insured market, where the tax does not apply.

Adding to the cost are demographic issues (10,000 Americans turn 65 daily), epidemiological factors (the obesity epidemic), and advances in medical technology.

“With the benefits of the ACA come the costs,” Kolodgy reminds. “Somebody is going to have to pay for the 25 million who are coming into coverage.”

This new fiscal responsibility comes atop the government’s existing promises to older people and people of modest means. “It’s important that they keep those promises, but how they do it is something we need to work on,” he says. “The part of this that really gets me, because I have children who aren’t children (25 to 29), it is going to be really hard for them to live with what we are doing.”

The BCBS Solution

The BCBS solution to the health care conundrum is multi-factorial and will require a balanced and concerted effort on these four fronts: improving access, improving quality, trying to maintain or improve affordability, and promoting individual accountability.

Improving access: While access is built into health care reform, it won’t happen without education. “There is a big push within the Blue plans and the government to educate people about what is there for them,” he notes. “We need to get education into our job descriptions.”

In the provider setting, that is not unlike what the hospitals Kolodgy worked for did years ago. “We had people who worked to qualify patients for Medicaid,” he says. “If we thought they were eligible, we walked them through the process, and if they were eligible, we got them on Medicaid and that got them some health care. There will be similar things with the new subsidized programs and the public exchanges that will be very important.”

The availability of primary care also is important, and the Blues are doing their part by providing scholarships to medical training programs for nurse practitioners and extenders, and offering scholarships to young people who want to go into medicine and may want to commit to a rural location.

Improving quality: Evidence-based medicine requires, first, the evidence, then the acceptance of that evidence, and then a method to spread the word to people making health care decisions. “First, it’s a definitional thing, and then it’s translating that to folks in the form of real actionable information,” he says. “This is not like buying a refrigerator.”

BCBS launched a national cost comparator website in 2011 that enabled policyholders to find the price of a knee surgery in their market or any market in the country in an initial step toward cost transparency. One of the drawbacks of such tools, Kolodgy says, is the variability among institutions in the definition of service.

Through its Blue Distinction program, BCBS identified those sites with superior outcomes for knee and hip replacements; building upon that, Blue Distinction Plus incorporates objective cost means in addition to qualitative measures. “They have fewer complications, readmissions, and generally are more efficient from a cost perspective, but delivering as good or better results,” Kolodgy explains. “We got a 23% savings with the knee replacement in the Blue Distinction program. We are pretty proud of that.”

This was made possible by partnering with providers, he emphasizes.

Maintain affordability: Kolodgy admits to a somewhat cynical perspective on the ACO: “I look at the ACOs and say, ‘That’s how you get more Medicare payment.’ I was a hospital CFO, I know you have to do those sorts of things, but they are not going to carry the day.”

What will succeed are patient-centered care models, such as medical homes, where there is opportunity to coordinate care, he believes. Medical homes are typically supported by alternate payment methods—for instance, paying a group of providers an amount for some services, paying them for things not happening, or paying for outcomes.

“We are working with providers in 40 states on patient-centered medical homes,” Kolodgy reports. About 5 million of the 100 million BCBS members are in a formal designated patient-centered medical home. “We hold a lot of hope for this, because it is creating a dialogue among all of you in the provider realm, and it’s creating a dialogue with us that’s a little different.”

Examples include the BCBS Michigan medical home, founded in 2008, with 1 million members and savings of $150 million through reduced use of imaging and the emergency department. Launched several years ago, the New Jersey Horizon BCBS medical home, with 200,000 members, achieved annual savings of 10%.

Transparency is directly related to affordability, Kolodgy says. Providing policyholders with the information they need to decide whether they will spend, for instance, the end of their lives deeply engaged with the health care system, or have a surgery to fix a rotator cuff injury that will immobilize their shoulder for a month.

“That’s your choice to make, I’m not going to make it for you, and you’re not going to make it for me,” Kolodgy says. “It gets personal really quickly, but we need to give folks information that is good information, that doesn’t have a political spin on it and allows them to think through what they are about to do in a much more concise way than they have in the past.”

Promoting individual accountability: Transparency also figures in accountability. BCBS is thinking deeply about how to provide members with the data they need to help them decide whether to opt for treatment, therapy, or watchful waiting and to develop incentives to encourage patients to seek care in the best, most cost-effective settings.

Patients also need to be made accountable for their own choices. “If I want to be relatively unhealthy or dangerous in my choices, you shouldn’t necessarily have to pay for that,” he says. “Maybe at the catastrophic level we might, but on a basic level, if I want to make those choices, there ought to be economic consequences for me making them.

“We need to put the data points out there, we need to design the products in a way that encourages folks to follow that data, and then we need to let them make the choices they want to make,” he says.

Transformation means change, and Kolodgy calls for a new kind of relationship between payors and providers that will require a common purpose and goals, the willingness to work together, and, perhaps hardest of all, trust.

“We need to move the dialogue away from the money,” he says. “It’s always going to be there, because if we are not fair and balanced with the money, someone is going to win and someone is going to lose, and that’s not good, that is not a basis for collaboration.”

Kolodgy concludes that talking about fixing health care is easy, but doing it is hard. “If you have ideas,” he says, “I’d be glad to route you to one of the Blues.”

Cheryl Proval is editor of HealthCXO.