October 2011
Executive Summary
Sentara Healthcare (Sentara) is a not-for-profit health care system in Norfolk, Virginia. Sentara operates eight hospitals, manages approximately 400 physicians, and owns a health plan called Optima Health that has over 433,000 members. The health care system has not been interested in a closed delivery system, instead expressing commitment to a model of “relationships that work,” maintaining close ties with other non-owned health plans, physicians, and hospitals.
Integration can serve as a financial hedge.
Sentara gets a third of its overall revenue from its health plan. They consider the health plan, the physician group, and the hospital as part of a “triangular hedge” however reform affects payment models and the distribution of value within the health system, Sentara has some protection from the volatility of revenue experienced by a health care company operating only in one sector.
Integration enables experimentation.
Sentara is consciously leveraging the overlap of those patients using Optima insurance and Sentara care delivery to experiment with some new payment models, bundling, etc. However, they do not necessarily see this as practice” for full integration, but rather as innovations that could then be rolled out with other partners, both on the payer and care delivery side.
Local market’s past experiences with integration are a big factor in whether or not a health system has an appetite for integration.
Sentara unwound a staff-model HMO in the ’90s and local physicians had historically not wanted to join closed groups. Sentara leaders also witnessed the physician tension and market chaos that Carilion Clinic in Roanoke experienced in their own attempts at integration. In any given market, these “local” experiences will often matter more than national “proofs of concept” in a health system’s desire to evolve towards integration.
Timing is critical to reaping the financial rewards of change.
Changing too early or too late both have financial costs. There is money to be made right now in running the traditional hospital system well and in marketing insurance products allowed under current regulations. At the same time, Sentara is mindful they need to prepare for change by piloting and experimenting with new payment models and care delivery models. Actually rolling these out in advance of regulatory requirements, however, would mean leaving money on the table.
Investing significant funds in wellness initiatives, including a $500-per- employee rebate, has had a high ROI of $6 of benefit for every dollar invested.
Compared to earlier programs with less financial incentives, the Mission: Health program has resulted in a high level of employee engagement and over 90% participation. Financial savings derive particularly from better management of the members with chronic disease.
Consumer-directed, high-deductible health plans have become more attractive to customers during the recession and are expected to be a big part of Optima’s future growth.
While Optima provides consumer-directed, high-deductible health plans (CDHPs) to only 6% of its current customer base, this is the fastest-growing segment amongst Optima’s plans. Optima has taken several steps to explain and improve the value proposition to physicians, employers, and patients. For example, without clear pricing for procedures, patients cannot understand what their costs will be if utilizing a CDHP. In response, Sentara has developed a Web-based portal that will give a detailed price estimate within three days for any visit or procedure at the medical group or hospital.
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About the case study series
Disruptive innovations in health care have the potential to decrease costs while improving both the quality and accessibility of care. This paper is part of a series of case studies that uses disruptive innovation theory to examine integrated delivery systems and aims to identify the critical factors necessary to achieve many of the desired quality, cost, and access improvements called for in current reform proposals. By providing a historical and strategic analysis of integrated fixed-fee providers, this project hopes to accelerate the adoption of disruptive innovations throughout the health care delivery system.
Acknowledgments
Funding for this case study series was provided by a grant from the Robert Wood Johnson Foundation’s Pioneer Portfolio, which supports innovative ideas that may lead to significant breakthroughs in the future of health care. The authors also thank the participating health systems and interview subjects for their cooperation and assistance.
