Wednesday, October 1, 2014

How does Health Spring make money?

Founder Herb Fritch explains that it is all about aligning the incentives of physicians with the goals of payers using narrow networks (to increase bargaining power), physician incentives (to reduce costs), and a disease management registry (to guide physician behavior):

On narrow networks:
We stuck with the more restrictive HMO models, even though with the higher payments, it was certainly possible to do less restrictive PPO or private fee-for-service kinds of plans. We have always taken the view that at the end of the day, the fee-for-service system costs too much and we need to be able to deliver care where the beneficiary can get an incentive to join a more structured program. But the government needs to share in some of those savings, too, and we have to be prepared ultimately to get paid at FFS Medicare rates and to share savings with the government and the beneficiary.

On physician incentives:
We organize doctors into delivery systems, typically around a hospital. They are doctors that refer to each other routinely anyway. ... We share risk on a targeted budget that is based on a percentage of the premium we collect, so there’s a shared savings based on economics and performance. 

On disease management registry:
 We also have a disease management registry tool that makes the doctor aware of which patients are due for a visit and what they need. You can actually look at the diabetics who haven’t been in for a visit and be proactive in making sure they come in and get the screenings that they should have. ...

We believe that when chronic disease is managed appropriately we can measure reductions in emergency room visits and hospitals admissions at the same time. That’s ultimately the payoff.



    Putting together a narrow network of providers is usually only cost effective for the plan and employer. Hospitals and physicians are added to the plan after carefully scrutinizing their ability to deliver high-value, low-cost care, he says. Since 2006, Health Net has successfully developed such narrow networks in California and now it seeks to replicate that success in Arizona.

    Health Net is not alone. Aetna, Harvard Pilgrim Health Care, and Blue Shield of California, among other managed care organizations, also have developed narrow networks in response to demands from employers seeking low-cost options that do not sacrifice quality. Since 2009, a slow economy has fueled much of the desire for these low-cost networks, although other factors are at work as well.

    Burns, J., (2012) Narrow Networks Found to Yield Substantial Savings.

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