By Christopher Guadagnino, Ph.D.

Published March 1998

• React to this article in the Discussion Forum.

PND: Why are you expanding your Medicare HMO beyond Delaware County?

JM: As one of HCFA’s Medicare Choices demonstration sites, over the first three years we have the obligation to be in the five-county Philadelphia region. To be effective in offering a product, I think you have to be regional. That argument was accepted by the Health Care Financing Administration. We’ve been pleased with the interest that the product has attracted in the market; we’ve enrolled about 2600 people since last April after eight or nine months of active marketing. While that puts us a far cry from Keystone or U.S. Healthcare, I think it does demonstrate that people respond positively to a provider-sponsored offering where they’ve grown up with that provider and the physicians involved in that system. And it demonstrates that people feel more comfortable moving from an indemnity Medicare relationship into a managed care relationship.

PND: What is your enrollment goal for the five-county region?

JM: We would ideally set as our target a ten percent market penetration. There are just over 600,000 Medicare beneficiaries in the five-county Philadelphia region. That would suggest 60,000 enrollees. A ten percent market share in Delaware County, where there are 95,000 people, we think is achievable. Whether you could achieve 60,000 in the five counties is probably going to be influenced more by how we expand outside of Delaware County and the product itself and its sponsorship.

PND: Do you hope to expand coverage beyond the Medicare population?

JM: Our strategic interest is to not go beyond marketing a product to Medicare beneficiaries. We have no interest in the commercial market. We have no interest in competing with Aetna U.S. Healthcare or the employed population or with Keystone Health Plan East. That’s really why we wanted, from the get-go, to partner with an HMO. We tried every potential HMO in the Philadelphia marketplace—asked if they wanted to joint venture in this effort with us. We just weren’t able to get anybody to want to partner. Our proposal is to take Health Plans of Pennsylvania and its single product, which is MedCare Plus, and market it directly ourselves in the communities we serve. And then, through either joint venturing, affiliation or contract, somehow arrange for similar health systems in the five counties to sponsor the product.

PND: How would that affiliation work?

JM: We have yet to work out precisely how that relationship would work. What we have suggested in the discussions we’ve had with PennCare is that it’s as much up to them as it is to us. If they wanted, they could be just a contractor to our Health Plans of Pennsylvania (whose sole product is MedCare Plus), just like we are a contractor to Keystone Health Plan East. On the other hand, if they wanted they could be part owner of Health Plans of Pennsylvania. In the middle is a relationship that has you more at risk and more committed to how that product—MedCare Plus—works in your community. It would be a great advantage to Crozer-Keystone if we had partners around our MedCare Plus product in other counties. Then, as people that sign up for the Crozer-Keystone MedCare Plus product get care outside of Delaware County or choose to go for specialty reasons to a Philadelphia hospital, we’re all part of a network. So we can follow that patient through someone else’s system and get a preferential kind of price and treatment. That’s going to be very important to us, as well as to other partners like a PennCare as they see people with whom they’ve established their private label identification getting care outside of their immediate network.

PND: Do you see this affiliation concept expanding into other types of affiliations?

JM: Consolidation is not something that’s a conscious part of our strategy, other than we will continue to try to consolidate how we do business as Crozer-Keystone. I hope what you will see is more of the systems in this marketplace looking at re-engineering themselves to meet market demand rather than just collecting a whole bunch of hospital beds and thinking that makes a health system. We’re not out trying to be the biggest system. We’re concentrating on making sure we have a coordinated, integrated delivery system with a common information system, governance structure, management structure. And that’s very different from some of our competition, which looks more like a trade association than it does a single organization. But I don’t think we are aggressively trying to expand into markets where there’s already an established set of players. They would be very hard to displace.

PND: By partnering with a large health system, is there a danger of being bought by them?

JM: Delaware County has a population of 550,000 people. It’s a large city in its own right; it is exactly one-third as big as the whole city of Philadelphia. We are without question the most dominant health system in Delaware County, probably 60 percent dominant. While you always worry about the big guy, I’m not so sure that when you look at it through their sights—when they look at us—we aren’t pretty big. Maybe we’ll stop this arms race where everybody has to belong to one of the downtown medical school systems.

PND: What is the role of physicians in your partnering plans?

JM: We have a parent board of 17 plus myself, of which seven are physicians. Our strategic planning committee is chaired by a physician and has a majority of physicians. There are five physicians out of nine on our HMO board. If we’re going to be in the business of managing health status, we’ve got to have tight working partnership relationships with our physicians or we can’t be in that business. It’s physicians that manage health status. As we move Crozer-Keystone, we obviously are going to be looking for system partners who feel the same way. If all we do is partner with someone that’s a hospital system, they’re going to go broke, and we’re going to go broke. We’ve got to reverse things and keep people out of hospitals, at home, well, and feeling independent and good about themselves, particularly as seniors, if we’re going to try to live within the premium dollar that HCFA gives us to spend on every Medicare beneficiary.

PND: Who will credential the physicians in a MedCare Plus network?

JM: A licensed HMO in Pennsylvania has to do the credentialing of all the physicians. So, the actual stamp of approval has to be given by Health Plans of Pennsylvania which, for the moment, is 100 percent owned by the Crozer-Keystone Health System. Let me just speculate. If we had a relationship with PennCare, what we have proposed to them is, "You do the credentialing, you determine what physicians you want, what privileges they should have. Give us that information and, unless we really have a problem, we’ll put the legal stamp of approval on it. But it’s really your network, your physicians and your risk. So why shouldn’t you have the bulk of that decision making?"

PND: On a different note, why did you cancel your risk contract with Aetna U.S. Healthcare?

JM: We did not believe that there was sufficient premium dollars to ever break even. We also knew that we had not learned as well as we needed to how to manage care. The combination was just costing us too much money. Would we do it again? Yes, and we hope to. We do believe that assuming risk is not only where the market’s going, but is also what really changes behavior when you’re in a risk/reward situation. We would like to see U.S. Healthcare come back with a different arrangement. Why should we conclude that something that’s shrinking—the Medicare dollar—should then be further shrunk so that only 80 percent of it is spent on care? Probably something like 90 to 92 percent would be a much better target for providing care.