In New Jersey, Failure to Keep Pace With ACA Leaves a Vacuum, and a Political Mess

Wednesday’s hearing of 2 New Jersey Assembly committees brought another round of the saga that has occupied the political scene all fall: urban and rural leaders alike cast Horizon Blue Cross Blue Shield as the villain, out to financially cripple their hospitals and harm their citizens. Not far behind were state regulators, second-guessed by a former boss who had just sued them.

Elected officials from both parties criticized the OMNIA tiered health plan, which is designed to steer patients to preferred hospitals willing to accept lower payments—called Tier 1—with savings passed along to consumers. With the matter now in litigation, officials from Horizon and the NJ Department of Banking and Insurance (DOBI) didn’t attend.

Hanging over the hot pink “Fear the Tier!” signs, “STOP OMNIA” stickers—even a reference to Bridgegate—were questions: How did Horizon’s attempt to bring value-based care to New Jersey earn the wrath of big city mayors, Catholic bishops, and 18 hospitals who have sued the state’s largest insurer? Could efforts elsewhere to implement alternate payment models bring the same result?

On the surface, OMNIA appears a fight between rich and poor, urban vs suburban, and big corporations vs independent hospitals. But the roots of this political mess are more complex—they start with the Christie Administration’s failure to keep pace with a fast-moving healthcare landscape, so that Horizon felt compelled to respond to market trends with an ambitious plan to tackle high premiums and a looming Cadillac tax.

Horizon’s statement after the hearing stays on that message: “New Jerseyans face some of the highest healthcare costs in the United States and Horizon is proud to offer consumers the option of a low-cost, high quality healthcare plan. New Jersey’s taxpayers, businesses and consumers have been loud and clear: the status quo of rising healthcare costs in New Jersey is no longer sustainable.”

But New Jersey should be a lesson that in the aftermath of the Affordable Care Act (ACA), leaving market forces unchecked may not fly with affected groups. Some will fight back with whatever political and legal means they have. Just as the nation’s doctors, through the American Medical Association, have asked the US Justice Department to block mergers between Aetna-Humana and Anthem-Cigna, the OMNIA plan faces 2 legal challenges, and New Jersey’s legislature may yet weigh in.

Creating “Tier 2” Communities

When Horizon presented OMNIA to the public September 10, 2015, it drew 2 distinct reactions. Healthcare experts welcomed an expansion of value-based care in a state lagging behind others, and hoped a collaboration with large health networks would squeeze costs from the system.

But urban mayors and Catholic hospitals saw themselves being left behind: big system hospitals, which were invited to take part in the OMNIA “alliance,” would be part of a Tier 1 network but small independents and faith-based hospitals would be in Tier 2, and they feared a slow death.

These “Tier 1” and “Tier 2” labels are the one misstep Horizon has acknowledged; they have already become brands that rankled elected officials.

“We are going to end up with tiered communities, and that is not something we want in this state,” said Assemblywoman Liz Muoio,” a Democrat whose district includes the capital of Trenton. Said Trenton Mayor Eric Jackson, “Who wants to be a Tier 2 anything?”

The hospitals left out of OMNIA’s Tier 1 fit the profile of the smaller, community facilities that healthcare experts predict will be left behind as the nation moves to financing structures that ask providers to bear more risk. New Jersey has seen its own wave of mergers and acquisitions, the biggest being the pending merger of the Barnabas Health and Robert Wood Johnson systems.

But Horizon’s critics say that state policymakers, not an insurance company, should decide the fate of hospitals based on factors other than size and profit. One of the lawsuits, filed by former NJ Banking and Insurance Commissioner Steven M. Goldman, notes that many of the Tier 2 hospitals have been financed by $3 billion in tax-exempt bonds, so Horizon’s move could ultimately harm taxpayers.

“Horizon should not be dictating healthcare decisions this way,” Jackson said.

Looking at the Big Picture

Linda Schwimmer, president and CEO of the NJ Health Care Quality Institute, asked Assembly members to look at the big picture: tiered health plans are happening across the country—and they’ve been in New Jersey for a while, too, just not with the profile and scope of OMNIA.

“You’re going to continue to see these types of products,” Schwimmer said, because they offer the best vehicle to rein in costs for middle-class consumers, especially those at small businesses or the self-employed. Rather than resist tiered networks, she encouraged lawmakers to be more proactive in setting policies that govern them, asking, “What do we want for our state?”

Both Schwimmer and Goldman agreed the regulations for managed care networks were not designed to handle something like OMNIA. Last updated in 1999, Schwimmer called them “antiquated.” Regulators themselves have said as much, and did so in a 40-page order Monday when they turned back Goldman’s petition to reverse their approval of the OMNIA network.

Citing the law granting DOBI’s authority, the order states, “Neither this statute, nor any other statute, grants the Department the authority to review managed care networks with regard to other parameters, such as the criteria a carrier uses when deciding to contract with a particular provider and on what terms.” There are also no specific standards for determining whether a network is “adequate.”

Schwimmer told the Assembly members there are solutions beyond updated regulations: New Jersey Medicaid reimbursements are far too low for a high-cost market; this means that providers have no choice but to charge more for commercial customers and patients in the State Health Benefits Program (SHBP). It’s a short-sighted strategy, she said, because the federal government will match Medicaid payments, but not others. “We’re just making it more expensive to live in New Jersey.”

That’s why Tier 2 hospitals fear the loss of patients—any disruption of the payer “mix” would upset their financial balance.

Losing commercial customers is something that concerns Horizon, too—that’s what drove OMNIA in the first place. One statistic that jumps from its 2014 annual report is the loss of 268,000 small group members in a single year, while Medicaid enrollment climbed due to expansion under the ACA. Company officials have said that having the second-highest premiums in the nation drives away business and crushes the middle-class and self-employed, 2 groups that Schwimmer agreed are being hard hit in the current climate.

Schwimmer also warned that New Jersey needs to prepare for the Cadillac tax—a charge of 40% that will have to be paid on any individual plan that cost $10,200 or more after 2018. One aim of OMNIA is that it will help employers and the SHBP avoid this penalty.

Where Did Things Go Wrong?

Schwimmer’s suggestion that lawmakers use SHBP's clout as a purchaser of insurance would be a good first step—and had they done so with OMNIA, they might have avoided one of Jackson’s complaints. State workers who failed to make an active choice during open enrollment were automatically enrolled in OMNIA, but according to Horizon, which manages the program, this was a decision of the SHBP board, not the benefit administrator.

A more proactive hand from state government would have managed a major value-based care initiative from ground up and brought in all stakeholders, not allow it to wind up in court. While DOBI is taking the heat for approving OMNIA (and not bringing in constituent groups), a more forward-thinking approach would not have ceded control to Horizon for such a far-reaching initiative. One of the most head-spinning facts is that the NJ Departments of Health, which oversees hospitals, and Human Services, which handles Medicaid, had no hand in a value-based care plan that will touch more than 20 hospitals and potentially involve most public employees. (While Medicaid clients are not in OMNIA, hospitals that take Medicaid are in the alliance.)

To be sure, few Blues have Horizon’s size (3.8 million members) or its market penetration (more than 50%, and higher in some sectors). That footprint accounts for much of the reaction, but so does the fact that so many urban legislators and city mayors—who control most of the votes in New Jersey—were left without a Tier 1 hospital in their hometown. That should be lesson for health plans in other states.

Goldman, the former DOBI commissioner, said a low-cost, high-value plan is a laudable goal, but OMNIA fails on many fronts. The review was too short, and those adversely affected were taken by surprise. “All of the various constituents impacted by this new plan should have been given an opportunity to be heard prior to any approval decision,” he said.

Not all legislators, let alone mayors, understand value-based care or the broader market forces taking hold in healthcare. Given New Jersey’s history of underfunding safety net hospitals, they bristle at the news that their local institutions—which often provide excellent care—have been labeled “Tier 2.” And since Horizon has yet to reveal how individual hospitals were scored, they’re suspicious.

“Our state has been known for closing a bridge for political purposes,” said Elizabeth Mayor Christian Bollwage, who protested Horizon’s failure to include Trinitas Regional Medical Center in the preferred tier. “I hope that we do not close the bridge to healthcare.”