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Is A Kinder, Gentler HMO On The Horizon?

This article is more than 9 years old.

When Indiana University Health ran the numbers on back surgeries its orthopedic surgeons performed, the eighteen-hospital system noticed they were way above national benchmarks. Imaging for lower back pain was more than twice acceptable norms. Confronted with the data, doctors devised an evidence-based set of instructions to help their colleagues determine whether surgery is necessary. The rules are printed on a laminated card and posted on the wall next to work stations in the clinic, along with the phone number of an in-house consulting service where surgeons can seek a radiologist’s recommendation.

Imaging orders fell 15%, and back surgeries are down 25% since IU Health implemented this approach three months ago. Although it meant less revenue, the hospital spared patients needless surgery and a large bill.

As hospitals across the country face payment reforms brought on by the Affordable Care Act, their business model and culture are being upended. Health care providers long accustomed to charging for each service, have to learn how to keep their patients healthy and out of the hospital. In some instances, the money they save is shared with Medicare and commercial insurers. “We don’t see fee for service as sustainable,” says Ryan Kitchell, IU Health’s chief financial officer.

It’s a slow and bumpy process. Only a handful of hospitals, especially the large integrated systems, have moved in that direction, and the bulk of their revenue still comes from fee for service.

To aid with the transition, so-called population health management companies have sprung. They hawk software that allows providers to diligently focus on patients with chronic diseases and coordinate care to prevent hospitalization. However, dropping a piece of technology in a database by itself is not enough says Frank Williams, co-founder and chief executive of Evolent Health , a start-up that helps hospitals cross the chasm from fee for service to payment tied to performance. “The worst thing is to put in that investment and not get a return,” he says.

At IU Health, which employs more than 2,000 physicians, nearly 100 Evolent employees are embedded with the hospital’s staff. They are clinicians, pharmacists, and case managers who were formerly IU Health employees. Working with physicians, they comb through clinical areas to uncover gaps in care and wasteful spending.

Managing patients might not squeeze enough savings. “We’re left with empty beds and less revenue,” says Kitchell. To create new revenue, Evolent offers hospitals that can attract at least 100,000 members the option to get into the insurance business, a path that raises some skepticism. Hospitals don’t know how to price premiums anymore than payers know how to treat patients. Williams says that the right infrastructure has to be in place. For customers that don’t launch health plans, Evolent does the hand-holding by negotiating favorable profit sharing terms with payers.

IU Health is making another go at a health plan. It abandoned the first one amid the market’s rejection of HMOs in the 1990s, with their restricted choice of doctors, and reputation for denying care. With renewed pressure to bring down health care costs, narrow doctor networks are making a comeback. WellPoint , the Indianapolis-based insurance giant excludes IU Health doctors from its exchange plans, for example.

John Fitzgerald, who heads IU Health Physicians, says it’s different this time. “In the 1990s, the emphasis was on trying to reduce care to reduce utilization. The difference here is to intensify care to improve health, and cost and utilization will fall.” Hopefully, those savings will be passed on to patients.

The first quarter of this year offers a glimpse at results, which IU Health attributes partly to Evolent. Hospital admissions are down 29% for its Medicare Advantage patients, while its health plan which covers 133,000 members, posted $6 million in net income, compared to a $3 million loss during the same period last year.

Evolent brings University of Pittsburgh Medical Center’s know-how. UPMC runs the second biggest provider-owned health plan in the country after Kaiser Permanente, and has developed technology to support its insurance business. Being in possession of claims allows it to track patients, and to marry financial and clinical data to create a complete picture.

In 2011, UPMC co-founded Evolent with the Advisory Board, a hospital consulting firm, helmed at the time by Williams. The start-up has 15 customers. It generated $40 million in revenue last year, and expects sales to more than double in 2014. To date, Evolent has raised more than $126.5 million from its founders and TPG Growth. “We’re giving health systems the confidence to transform,” says Williams.