• Insurers Pass on Provider Rate Increases Through Higher Premiums with Little Employer Pushback

WASHINGTON, D.C.—Despite acknowledging the inevitable shift from fee-for-service to value-based payment and the need to develop population-management capabilities, most D.C. metro area hospitals are sticking to fee-for-service competitive strategies to attract patients by building urgent care centers and freestanding emergency departments in affluent, well-insured areas, according to a new qualitative study by Mathematica Policy Research for the Jayne Koskinas Ted Giovanis (JKTG) Foundation for Health and Policy (access the full study here).

In some cases, however, hospitals are using these new ambulatory outposts to position themselves for population health management under value-based payment, according to the study based on interviews with 40 health care leaders between April and June 2014 in the District of Columbia, Suburban Maryland and Northern Virginia.

The persistence of fee-for-service competitive strategies likely stems from the commercial insurance market’s “pass-through” environment that allows provider rate increases to be passed on to employers through premium increases because the market has many employers able to absorb the additional costs and no large, influential employers pushing for cost-containment innovations.

“Many providers talked about ‘population health’ as a central strategy for their organizations, yet the path to achieving the capabilities to assume risk for managing the care of a population remains unclear and uncertain for most providers,” said Ha Tu, M.P.A., a senior health researcher at Mathematica and lead author of the study.

With a strong, stable economy anchored by the federal government, a large high-wage professional-services sector and unemployment well below the national average, the National Capital Region (NCR) has one of the most affluent, educated and well-insured populations in the United States. The region includes the District of Columbia; Montgomery and Prince George’s counties in Maryland; and Arlington, Fairfax, Loudoun and Prince William counties in Northern Virginia. Despite the region’s overall affluence, significant pockets of poverty exist, most notably in Washington, D.C., and Prince George’s County.

The federal government sets a relatively high benchmark for health benefits, but many employers—including law firms, lobbying firms, high-end government contractors and others competing for high-wage workers—outdo the government in benefit richness. Most employers take a conservative approach to health benefits; they are less likely to self-insure and less aggressive in seeking cost-containment innovations than comparably-sized employers in other markets.

“The D.C. area is a complicated health care market and one of particular interest to many policy makers since it involves their own health care,” said JKTG Foundation President Ted Giovanis. “The Mathematica team has completed similar research on other markets, and the Foundation felt such research was needed for D.C.”

The study’s findings are detailed in a new Community Report—D.C. Metro Area Health Care Market Sticks to Fee for Service; Dips Toe into Value-Based Payment—available for download. Key findings include:

• Moderately competitive health plan market. The region’s leading health plan, CareFirst BlueCross BlueShield, is dominant in the small-group and nongroup (individual) segments. Three national insurers—UnitedHealth Group, Aetna and Cigna—compete strongly in the large-group segment. Kaiser Permanente, an integrated delivery system with a closed, limited-provider network, has market share in the high-single digits but may be poised to grow.
• Complex hospital market with multiple overlapping submarkets. The hospital sector is characterized by significant geographic segmentation, especially between Northern Virginia—where Inova Health System is dominant—and the rest of the region. Geographic boundaries are more porous between the District and Maryland. Besides Inova, the only other system with a major regional presence is MedStar Health. The major hospitals are all expanding their ambulatory care networks, with head-to-head competition especially heating up in affluent and fast-growing Northern Virginia communities.
• Increased physician consolidation, though small, independent practices persist. The physician market has undergone substantial consolidation over the past decade, with hospital-owned groups and two large physician-owned groups recruiting aggressively and growing dramatically. Still, many physicians remain in small, independent practice, with a small but noticeable subset of physicians in the most affluent submarkets choosing some form of concierge medicine. For the much larger number of private-practice primary care physicians not taking the concierge route, participating in CareFirst’s patient-centered medical home program has made remaining independent more viable.
• Unique Maryland hospital rate setting system. For decades, payment rates for Maryland hospitals have been set by a state commission so that all payers, public and private, pay similar rates to each hospital. This unique system required a waiver from the Centers for Medicare and Medicaid Services (CMS) to allow the state to set rates for Medicare patients. In 2013, Maryland negotiated an ambitious new waiver with CMS, aimed at controlling the total cost of care per capita for Medicare beneficiaries in the state. Over a five-year period beginning in 2014, all hospital revenue will transition toward global payment models.
• Safety net generally strong but lacks cohesion. Overall, the region has a broad array of safety-net providers, including numerous large community health centers focusing on primary care for low-income people. The region has no dedicated safety-net hospital; much low-income inpatient care is provided by mainstream hospitals that play a significant safety-net role because of their location, size and/or range of services. Despite strong safety-net providers and programs, the region lacks significant collaboration among safety-net organizations and between those organizations and local governments.

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