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The Community Snapshots Project
Capturing Health System Change
he dynamics of the Twin Cities health care market, one of the most advanced managed care markets in the country, will quickly change as its consolidated health plan sector faces challenges from purchasers and providers. Business and government strategies for contracting directly with providers and developing less restrictive insurance products, as well as the states easing market regulation, have stopped further consolidation. These trends signal the weakening market power of the large health plans.
Three years ago, private and public purchasers and the state legislature fostered mergers and consolidation among the hospital and insurance systems. In 1991, after the governor vetoed the states health reform bill, the Business Health Care Action Group (BHCAG), an employer coalition comprising about two dozen of the states largest self-insured businesses, was formed to negotiate with health plans for better health insurance coverage for their employees. State policy adopted in 1992 and 1993 provided strong incentives for all providers and insurers to form integrated service networks (ISNs), which were designed to deliver a comprehensive set of services for prepaid rates.
As a result of horizontal and vertical integration in the insurance, hospital, and purchasing sectors over the past few years, the market is currently dominated by three health plans (HealthPartners, Allina, and Blue Cross and Blue Shield), which have a combined 80 percent of the insured market. These health plans, two of which are vertically integrated with hospitals and physicians, pursue different strategies. Allina, an alliance of an HMO and a large hospital system, is trying to merge its two lines of business into a more integrated system. HealthPartners, the product of several HMO mergers, emphasizes close working relationships with its owned and affiliated physician group practices. Blue Cross and Blue Shield does not own any hospitals or physician groups, but it has sought contractual arrangements with providers. Aggressive competition among these three health plans and pressure exerted by large, organized purchasers have led to increased price competition.
Recent trends indicate that market consolidation may have gone too far. Purchasers are increasingly uncomfortable with the high level of consolidation in the health plan market, believing that it reduces their ability to hold health plans accountable and that increased leverage for health plans could lead to higher prices in the future. The BHCAG (renamed the Buyers Health Care Action Group) is developing a new purchasing strategy that would allow purchasers to contract directly with providers that organize into competing care systems that are separate from the health plans.
Public purchasers are also increasing their efforts to obtain better value for their health care dollars. BHCAG gained more power in the marketplace when Minnesota state employees joined the group. The state employee health plan will coordinate direct contracting strategies with private sector purchasers. The state also continues to aggressively purchase health care for its own employees and for enrollees in Medicaid and MinnesotaCare low-income, uninsured people who are ineligible for Medicaid but eligible to receive public subsidies for health coverage. Medicaid and MinnesotaCare enrollees throughout the state will be gradually enrolled in managed care plans according to a federal Section 1115 waiver approved in May 1995.
Meanwhile, several of the major hospital-based systems are beginning to position themselves to compete with health plans by contracting directly with large employers. Some of these hospital systems, as well as a number of organized physician group practices, believe that the health plans do not provide sufficient incentives for cost-savings. While most health plans are developing clinical practice innovations to reduce costs and improve quality (e.g., chronic disease management techniques), only about 35 percent of all of their HMO payments to providers are capitated. Savings from any clinical practice efficiencies accrue to the managed care plans rather than to providers, which explains the providers interest in direct contracting.
The influence of state policy has decreased since the 1995 legislatures retreat from some MinnesotaCare1 provisions. The state continues to play a role in moderating the extent of consolidation to ensure that the market works effectively. The state is making it easier for organizations such as preferred provider organizations (PPOs) and community integrated service networks (CISNs) to compete with the large health plans. It is also working closely with the private sector to develop consumer report cards and obtain more consistent data from health plans.
Over the next two or three years, the market is expected to become less consolidated and more quality conscious and consumer oriented. While managed care enrollment will likely increase as more low-income and underserved individuals enroll in managed care organizations (MCOs), large health plans will lose some of their former dominance. Purchasers will become even more value conscious as they seek direct contracts with high-quality, efficient providers. Provider groups that are able to deliver what purchasers want will likely gain great advantage. It is not clear if the state will regulate care systems as insurers if they assume some financial risk from purchasers.