Aetna’s Dr. Kennedy Opens the Health Plan ACO-Strategy Kimono

In the business world, one often hears the phrase “opening the kimono,” in the context of any businessperson or entity openly sharing their strategy with another businessperson or entity. Well, that’s pretty much what Charles Kennedy, M.D., did last week when he delivered a keynote address at the Health IT Summit in Washington, sponsored by the Institute for Health Technology Transformation (iHT2), a sister organization of Healthcare Informatics.

Dr. Kennedy, the CEO of the rapidly growing and evolving Aetna Accountable Care Solutions organization, a division of the Hartford, Conn.-based mega-insurer Aetna, delivered a keynote presentation entitled “Building a Sustainable ACO: Strategies for Success,” on Oct. 8, at the Westin Arlington Gateway.

Dr. Kennedy is a gifted thinker and speaker, and his presentation was clear, articulate, and thought-provoking.

The core contention of his speech—that health plans and integrated (hospital-based) health systems need to partner together to improve clinical outcomes and reduce cost and over-utilization—was exceedingly uncontroversial. In theory, it would be hard to find anyone to disagree with it.

“We try to forge collaborations,” Kennedy emphasized in his keynote address. “And the idea is that the payer has a certain set of expertise, and the payer has a certain set of expertise. And if we can come together, we should be able to reduce the risk associated with the transition from volume to value, for providers. But that is no small task: if you think of a health plan’s role, how does the provider see us? Denied claims, pre-authorization hassles, denials for not using prescribed processes… but moving towards value, the incentives become aligned. If you give folks the right incentives, they’ll cost less,” he emphasized. Kennedy conceded that inevitably, efficiency improvements will lead to “creating slack in your delivery system; there are going to be fewer days per 1,000, and shorter lengths of stay.”

But here’s where things got interesting. Dr. Kennedy noted that when Aetna partners with a provider organization, it will help that provider organization to deploy data analytics and population health strategies and solutions that will help to close the revenue gap created by efficiency improvement, and it will work intensively with that provider to help provider leaders merge clinical and claims data in order to improve clinical and financial outcomes. “The real differentiator of what we do versus what a lot of technology vendors do,” he told his audience, “is that we’re driving a specific value of the overlying price. When our actuaries do the analysis and say if we were able to deliver a product, the cost would be $350 PMPM [per member per month]. But if you were able to implement an HIE [health information exchange] [and get your physicians to use it, especially in the ED, and you participated with us in studies of avoidable ED visits, for instance, and collaborated with us in disease management programs, we could help bring the per member per month costs down considerably and make disease management programs effective.” Given all those supports, he said, “A health plan can go from $350 PMPM to $310 PMPM, and that $40 PMPM can help offset losses from reduced utilization” incurred by the provider.

In particular, Kennedy cited the collaboration with the Falls Church, Va.-based, five-hospital Inova Health System as a key example of Aetna’s success in collaborating with integrated delivery systems nationwide. “Here in the DC area, Inova is the dominant delivery system in the area, with north of 60 percent market share, and Aetna and Inova developed a shared savings program,” he noted.

“We launched Innovation Health Plan, built from the ground up. It has products sold on the public and private exchanges,” he said. “And they’re price-leading products. It was successful in that, within the first year of operations, we grew up 140,000—that’s outstanding growth. And virus the Blues plan, we sold one to one in this geography, and were profitable in our first year of operations. Why was it successful? A lot of it began with the commitment from both organizations to collaboration and to data-sharing; but also, we created shared financial incentives.”

So this is where maybe things do get a tiny bit controversial. After all, one can ask the very fundamental question, should health plans be in the business of choosing a single large integrated system to partner with in a particular healthcare market, and then essentially give that patient care organization all the advantages it possibly can against its competitors?

I am not for one moment suggesting that Aetna is alone in its perspective on this. There are partnerships like this emerging all across the country. But it does add a new spin to the “quasi-monopoly” discussion that’s been taking place in healthcare for years, in which industry observers have noted that there has been a constant teeter-totter dynamic going on in markets across the country, in which patient care organizations consolidate, and then health plans consolidate—or vice-versa—and that leads to a continuous cycle of “arms buildup” between the two types of entities. It’s happening everywhere now.

But when one very large health insurer teams up with one market-dominant provider system in one market, does that make things better? One could look at it all sorts of ways.

What is interesting to me is that, no matter how one gets there, the transformation to a more cost-effective, process-standardized, utilization-efficient healthcare takes place, it will inevitably be a rocky one, and will in the short term and medium term create winners and losers. The U.S. healthcare system is evolving from an extremely inefficient, non-standardized, non-accountable, non-transparent, wasteful, costly health system with extreme quality variation, to one that eventually will be more reliable and consistent in terms of quality, cost-effectiveness, accountability, transparency, and patient- and community-centeredness. And in an extremely complex system as we have in this country, with federal and state purchasers and payers, private insurer purchasers and payers, and every kind of provider and provider organization imaginable, it’s going to be a messy journey forward.

But the question does deserve to be asked—and perhaps there’s no real answer to the question, but let’s ask it anyway—should single-insurer-single-provider partnerships come to dominate individual healthcare markets?