By Christopher Guadagnino, Ph.D.

Published October 1997

• React to this article in the Discussion Forum.

Patricia Liebman is chief operating officer, and Mark Schmidhofer, M.D., is vice chairman of Tri-State Health System.

PND: Can you describe the new health products that Best Healthcare of Western Pennsylvania hopes to develop?

PL: Best Health Plan is a licensed entity in Pennsylvania, currently delivering a Medicaid product line. Best Healthcare has applied to the Insurance and Health departments in Pennsylvania to do an integrated delivery system arrangement with Tri-State Health System. In addition, Best has also filed commercial HMO and point of service products for approval. They’re new products under the current licensed plan. The enhanced access HMO product allows an individual member the choice to bypass the primary care physician and go directly to a specialist. There will be a co-payment for that.

PND: What do you hope to achieve with these new insurance products?

PL: We hope to achieve better, more consistent health care results for the populations that we serve at the right cost. In order to demonstrate our capability we must have a defined population or membership attached to our delivery system in order to measure results. The insurance component (Best) sells product and delivers membership, the provider component (Tri-State) delivers health care. We believe that by bringing the insurance and provider components together for joint business planning, we will be able to define the results we want to achieve and focus accountability to the appropriate component. As an example, the provider network must lead in the development of clinical guidelines and outcomes measurement, care management, provider contracting and reimbursement models. In addition, the provider network needs to participate in product development and underwriting in order to understand the product requirements and to assure that product enhancements are based on provider and member feedback. Tri-State’s arrangement with Best brings the insurer and provider together for joint planning. In the very near future we will add a community advisory component to assure consumer representation. This type of insurer/provider joint planning arrangement is new in this market. The IDS arrangements of HealthAmerica and U.S. Healthcare have been global capitiation or percent of premium arrangements without the benefit of joint planning.

MS: With HMOs and managed care products, what you are really selling is a network of providers more than ever before. With indemnity insurance, you’re selling a way to pay for provision of care selected by the individual. Here they’ll be selecting a plan because of those providers within it. So it makes a lot of sense, for the first time, for those providers to be a part of the business plan, of the development of clinical care guidelines, development of marketing strategies, to decide whether a certain treatment modality should or shouldn’t be present within the network, which one should be contracted for and outsourced. Virtually all of the clinical decision planning is devised and implemented under the auspices and only with the approval of physician committees formed by representatives from each of the member institutions of Tri-State. That kind of interrelated planning between the insurance arm and the provider arm hasn’t taken place. That’s one of the things we think will result in a better product for the insurance company, the providers and the consumers.

PND: These new insurance products will compete with those of Highmark. How do you think that will affect your relationship with Highmark?

PL: We are meeting the mission we have at Tri-State. If we can demonstrate, for a defined population, that we can improve health status cost effectively, then there’s not going to be a payor in the marketplace that won’t want to deal with us as part of their provider network. Over the next year to two years, we are going to measure resources that it takes to manage care and demonstrate outcomes that we are able to achieve. Payors are going to want to say, "Well that’s good for me as well, because if I deal with a Tri-State and they are able to tell me what it is going to cost me, and the results are good, why wouldn’t it make sense to work with them?"

MS: Ours is going to be a system in which physician satisfaction will be higher than we’ve ever seen under any insurance product because the kind of guidelines to which they’ll be subjected and held will be developed by the physicians themselves and, as a result, they’ll know they’re getting a fair shake. So we think that patients will be happier with the providers because the providers will be happier with the product they’re delivering.

PND: Tri-State has publicly stated its willingness to form an exclusive arrangement with Highmark. Does this venture signal that you’re no longer seeking an exclusive relationship, or are you trying to further induce Highmark to develop a exclusive relationship with you?

PL: We never said that it had to be only Tri-State. There are other provider organizations that have formed out there that they may need because of product design issues and what the market wants in terms of choice.

PND: Would that include Allegheny?

PL: It could. You have West Penn, you have Quorum, you have others out there. We just wanted to be more than a provider-only to Highmark.

MS: No one has the muscle at this point to ask for exclusive relations, even Highmark doesn’t. No one has a big enough chunk of the market that anybody else can afford to give up 40 percent of their business. And we weren’t asking anyone to do that.

PND: If it’s not an exclusive arrangement that you are hoping for with Highmark, how is it different from your present relationship?

PL: Our present relationship is one of a provider to Highmark’s insurance products. We are interested in a partnership with joint business planning. We want to contract with Highmark as an network and participate in the decisions that impact the providers and consumers of health care. Today Highmark holds contracts with individual doctors, hospitals and ancillary providers in the Tri-State network. They determine the product design, the premium, the pricing, the provider reimbursement schedules and how incentives, if any, will be distributed. As an example, the region’s current managed care reimbursement model is capitation to primary care physicians, fee-for-service to specialists and per case or per diem to hospitals. There is no alignment of incentives in the current model for providers to work toward a common goal of improving the health status of a defined population utilizing a predetermined budget. Reimbursement is just one example of a process or methodology that would benefit from a joint planning partnership arrangement.

MS: And in product design: what benefits are paid for what are not? In provision of care: what are the guidelines? When should you do certain kinds of tests or screening? When are certain surgical procedures indicated or not indicated? Currently, there is modest—but to our view insufficient—provider input into those decisions. From the physician standpoint, I think that’s what’s most critical. I’m not saying that money isn’t important. Of course it is, and we’d love to have some input into how one capitates, how one gets held responsible for the services of other physicians and hospitals. But what’s really important to us are issues of product design, what one can do and can’t, and how many hours a day you have to stay on the phone asking someone for permission to do something that anyone in their right mind knows you should just do.

PL: We would be looking for that same type of arrangement with any outside insurance partner. And this is really no different from what we have proposed to Highmark.

PND: Tri-State has expressed an interest in forging such a partnership with an outside entity such as Kaiser Permanente. These negotiations are still ongoing?

PL: That’s correct.

PND: Wouldn’t that interest, combined with the development of commercial insurance products, appear to be threatening to Highmark?

PL: From where Highmark would sit, yes.

PND: Might that risk driving Highmark to Allegheny in response?

PL: Highmark has publicly stated that they’re not interested in an exclusive arrangement with any one network. They set their strategy to do individual contracts and to get the best deals that they can from providers in terms of reimbursement. I think if Tri-State stands up to their requirements and is able to meet their expectations as a provider organization, I don’t see where’s there’s a threat. Allegheny has done their deal with Coventry. I have not seen that ten-year deal—where they have partnered with Health America and Coventry—as driving Highmark to Tri-State. I can’t imagine why our doing a similar type of arrangement with a Kaiser would drive them to Allegheny.