How Allina, Blue Cross define the 'value-based' trend sweeping the health care industry

A new deal between Allina Health and Blue Cross and Blue Shield of Minnesota may be a long-promised fix to incentives in health care that create higher costs without making people better.

In health care jargon, the fix is called value-based care, a term that's close to meaningless to an industry outsider.

The idea is that Allina will get a significant amount of its revenue based on how well it keeps 130,000 members of Blue Cross and Blue Shield of Minnesota healthier, as opposed to the volume of services provided.

The leaders of Allina and Blue Cross "have been envisioning a day like this for a long time," said Penny Wheeler, a physician and CEO of Minneapolis-based Allina.

She recalled a moment years ago when she heard an industry executive blame disappointing financial results on a flu season that wasn't as bad as expected.

Good health shouldn't be bad for business.

One unusual aspect of this new relationship between Allina and Blue Cross — each of which is the largest player in its respective field in Minnesota — is that it is a six-year contract, maybe twice as long as arrangements between insurers and providers typically last.

Arriving at a signed deal took longer than a year and wasn't an easy journey, Wheeler said, particularly at first when they had to air out grievances they called trust busters.

Insurers look at spending growth for health care and just know unnecessary costs should have been taken out. For a big provider like Allina, the frustration comes from what seems like artificial roadblocks put up by insurers to hold down costs, like "site of service" requirements meant to drive procedures to places Blue Cross insisted were cheaper and just as safe.

Last year providers grew so aggravated with the practices of Eagan-based Blue Cross and Blue Shield of Minnesota that the Minnesota Hospital Association asked the state to investigate it for improperly denying care.

Of course there's bound to be conflict, with big organizations and a lot of money at stake. But the patient always stands in the middle, powerless and usually without a clue on what's even happening.

There have been different models proposed for paying for health care besides a patient being treated and then getting billed for the service, hopefully with some of it reimbursed by insurance. Known as fee-for-service in its simplest form, that's the model that's on its way out.

It's the model used in lots of service industries, yet medical patients are not really in the best position to know what might be best for them or what the fair prices are for things like a hip replacement.

"Don't ask the barber whether you need a haircut," investor Warren Buffett has famously advised Berkshire Hathaway shareholders.

The opposite approach is simply paying a provider a monthly flat fee to take care of a group of people, and that doesn't work well, either.

Health care organizations don't take all the financial risk of the health of a patient population. That's what medical-plan companies such as Blue Cross and Blue Shield of Minnesota do.

The industry has been working on this problem for a long time, and provisions were included in the Affordable Care Act that encouraged a different model called accountable care organizations.

Yet accountable wasn't quite accurate, said Craig Samitt, CEO of the Blue Cross and Blue Shield of Minnesota. "I'm not sure they really made anyone any more accountable for health and wellness," he said. "The other thing is, accountability is a partnership, a team sport in health care."

As Wheeler pointed out, almost all such deals that tried to inch the industry in the new direction of paying for something besides service volume, at least with federal government funding involved, had no real risk to the provider. A missed target just meant losing out on a relatively small amount of bonus money.

This new deal with Allina lies in a different category, with at least five times if not 10 times more money at risk for Allina than comparable contracts in the country, as estimated by Blue Cross.

It has money at risk, too.

"This model is specifically designed in a true win-win fashion," Samitt said. "The most important win is for the patient. If the patient is healthier, if the quality is higher, if the service improves and if we're able to bend the cost curve for the people we serve, then both organizations will benefit comparably from that."

The details of how much money is at risk is based upon which measures lie inside a black box that outsiders aren't supposed to see.

But in addition to a big piece of more or less conventional payments for services, it will pay Allina a big slice of its annual revenue based on service and quality measures, providing financial incentive for things such as more effective preventive care.

An example, with money attached, is reducing avoidable hospital readmissions, achieved in part through better coordination of care when patients are sent home.

If it all works as planned there will be at least three good outcomes — healthier and happier Blue Cross members who are patients of Allina, slower growth in overall medical costs and a comparable operating profit margin for Allina.

This is not some pilot program, with 130,000 members of Blue Cross who use Allina for their care covered by the contract. And Allina is using its whole system to execute the contract.

"It's rare to see the largest [health] plan and the largest provider agree that we need to fix a broken model and become jointly accountable," Samitt said. "That was really attractive for us both, that we are not going to dabble in this partnership, we are actually going to go big."

"We do not mean for this to be exclusive," Wheeler added. "We actually want this to be catalytic for the whole market to move more towards getting rewarded for the highest quality, and safety, and access, and patient experience."