California Health Insurance Exchange Targets Costly Hospitals

March 22, 2016 - The health insurance exchange from the state of California has some news to report. The exchange is considering the elimination of hospitals from its network that have shown subpar performance or had reported rising medical costs, according to Kaiser Health News.

Many healthcare providers along with payers are finding this move by the California health insurance exchange unacceptable. However, Peter Lee, the Executive Director of the Covered California exchange, has stated that this plan will boost the quality of patient care as well as make health insurance more affordable to consumers.

“The first few years were about getting people in the door for coverage,” Lee told the news source. “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.”

This proposal will be voted on in April by the board of the health insurance exchange. If the proposal passes upon first inspection, it will require payers to measure hospitals on cost and quality beginning in 2018 while medical practices and physicians will receive a rating following this initial roll-out.

If this proposal is passed, it will mean providers could lose their insured patient base and lose business via employers or other consumers. This could also potentially harm patients if there are few hospitals or medical practices in their area and the ones left are not part of the health insurance exchange. It would essentially reduce healthcare access in parts of California, which is the opposite of what the Affordable Care Act and health insurance exchanges aimed for.

“California is definitely ahead of the pack when it comes to taking an active purchasing role, and exclusion is a pretty big threat,” Sabrina Corlette, a research professor at Georgetown University's Center on Health Insurance Reforms, told the source. “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.”

The California exchange is looking to ensure that health plans would eliminate poorly performing providers from its networks. Physicians and hospital leaders are calling out the proposed ruling for failing to address some of the criteria they would be measured on.

“The devil is in the details, and the rapidity of this concerns us,” Dr. David Perrott, Chief Medical Officer at the California Hospital Association, told the news source. “We understand value-based purchasing is here in some form and we do not oppose that. But Covered California is charging ahead with this assessment and trying to figure out the answers when it hasn’t been worked out.”

It is also important to note that health insurers have joined providers in opposing this action from the California health insurance exchange. In particular, payers find it troublesome to be required to disclose private information about negotiated contracts with hospitals and providers.

However, price transparency could be a very useful method of lowering medical costs and out-of-pocket expenses for consumers. Ensuring payer-provider contract costs are transparent to the public could reduce healthcare spending, the California health insurance exchange argued. For instance, patients who need to undergo an operation or a diagnostic test like an MRI will be able to compare and contrast different prices at multiple hospitals.

The Executive Director of Covered California believes that health payers have not posed enough measures or pressure on hospitals and provider, Kaiser Health News reported. Lee feels that other state health insurance exchanges along with large employers should hold more hospitals and medical practices accountable for their quality of care and medical spending.

In order to make this strategy workable for the healthcare industry and the patient community, there would need to be exceptions granted. Health payers should have a right to appeal a decision while eliminating a poor-performing provider from a network should not be allowed if it would significantly impact healthcare access.

Since the Affordable Care Act was passed, health insurers have focused on developing innovative insurance plan solutions such as high-deductible plans and narrow networks, as these would keep costs lower among payers. If the proposed ruling is passed, however, it will not be only the insurers’ responsibility to manage the composition of networks, as health insurance exchanges could play a much bigger role.

Dan Polsky, Executive Director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania, told the news source that Covered California will have to take steps in the finalized regulations to ensure that hospitals serving either sicker patients or low-income regions will not be penalized on quality of care or healthcare spending.

“I don't know of anyone even close to trying this,” Polsky mentioned. “I applaud Covered California for being bold to improve quality and reduce costs, but I worry about the implementation.”

Covered California aims to reduce hospital-acquired infections, adverse drug reactions, and rising rates of hospital readmissions. Regardless of the outcome of this proposal, health insurance companies, medical providers, and exchanges will need to work together over the coming years to ensure that population health outcomes are achieved, the quality of healthcare delivery is improved, patient health outcomes are stronger, and healthcare spending is minimized.