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I N T E R V I E W :
G R E G G & R O B I N S O N
29 November 2005
The Best Of Times And
The Worst Of Times:
A Conversation With Vicky Gregg
The CEO of BlueCross BlueShield
of Tennessee describes
what it’s like to be a profitable nonprofit in a state with a
struggling Medicaid program.
by James
C. Robinson
ABSTRACT:
Blue Cross and Blue Shield plans have enjoyed enviable financial success,
while much of the health care delivery system has faced severe financial strains.
The contrast is striking in Tennessee, where BlueCross BlueShield of Tennessee
dominates the commercial health insurance market and administers much of the
state’s Medicaid program, TennCare, while TennCare itself recently dropped
hundreds of thousands of enrollees from coverage because of budgetary constraints.
CEO Vicky Gregg draws lessons from the TennCare crisis for other states; describes
her organization’s investment in information technology, pricing policies,
and management of new clinical technologies; and explains the continued political
popularity of a profitable nonprofit health plan.
James Robinson:
BlueCross BlueShield of Tennessee [BCBST] appears to be experiencing both the
best of times and the worst of times. During the past few years, the organization
has enjoyed incredible success in terms of enrollment, market share, revenues,
and earnings. But when we think about Tennessee, we also think of TennCare,
which for years was a leading light among state Medicaid programs, but which
has been going through incredible difficulties, including, this year, the dropping
of several hundred thousand enrollees. Let’s start with TennCare and then
move to other health insurance issues in Tennessee and for BCBST. What is TennCare,
what was so special about it, and what got it into trouble?
Vicky Gregg:
TennCare worked to expand coverage to both the uninsured and uninsurable population
in Tennessee. It had no income limits for eligibility. People whose incomes
were 150, 200, even 250 or 300 percent of poverty still came into the program
and were subsidized. The program also was different in the way that the federal
match worked. Essentially there were no caps on the program; the federal dollars
that were available allowed the program to grow substantially.
Robinson:
Some people think that bringing federal dollars into a state is a good thing.
The essence of health policy in New York, for example, is bringing federal
dollars into the state. What is current enrollment in TennCare, and how much
of it is with BCBST?
Gregg: Right
now the program is probably down to around 1.1 million beneficiaries. We expect
that BlueCross BlueShield is still in the 600,000–650,000 range.
Robinson:
From your perspective, what went wrong? What got Tennessee’s Medicaid
program into trouble?
Gregg:
First off, although TennCare is a noble experiment and certainly well-intentioned,
its size was unwieldy. The state was not prepared to manage a program that encompassed
bringing in two or three hundred thousand people who had not been part of traditional
Medicaid. They also were not clear on how Medicaid might manage that population
and not crowd out the commercial insurance market, and how to prevent people
from moving from other states to Tennessee just to get coverage. TennCare was
viewed more as a budget solution than a health policy solution.
Robinson:
What do you mean by a “budget solution”?
Gregg:
Well, in 1993, when TennCare was created, the state was seeing increasing costs
in the Medicaid program. The alternatives, from the governor’s perspective,
were either to look at an income tax, which our state does not have, or to do
something with Medicaid to stem the costs. While there was a lot of discussion
about how managed care could be used to limit costs, in all reality what people
bought into was the idea of the federal match—the fact that the federal
government would put in extra dollars for every new dollar the state put in.
This created the ultimate moral hazard. To get the legislation passed, the advocates
promised everything to everybody, and we were rewarded as a state to provide
more and more care, because the more we spent, the more federal dollars we brought
in.
Managing Drug Costs In Medicaid
Robinson:
We hear reports about how many people are being removed from TennCare eligibility
and what has happened to the benefit package. Can you summarize the current
status of the program—how many people have been dropped? What has happened
in response to the fiscal crisis?
Gregg: There
are 191,000 people who are in the process of being dropped. Some have already
been dropped; some are in an appeals process.
The major change in TennCare on the benefit side has been in pharmacy. If there
is anything that really caused a problem, it was the rising cost of pharmaceuticals.
As part of the reforms, a five-prescription limit was put into place for people
who remain in the program [five prescriptions per enrollee at any one time].
They are eligible for two brand-name drugs and three generic drugs. And that
is a hard cap. TennCare will not pay for more than that. There are also some
cuts in terms of caps on hospital days and physician visits.
Robinson:
To what extent does the state of Tennessee take a hard negotiating position
with respect to the drug companies on the prices of drugs, as opposed to simply
limiting enrollees’ number of prescriptions?
Gregg: Initially,
drugs were part of the managed care organization’s responsibility. And
we at BCBST took a very hard line, quite frankly, in terms of negotiating with
the drug companies as well as trying to manage the formulary to work with physicians
on prescribing habits. But there was a considerable pushback to the formulary,
which ultimately led to court orders that precluded any formulary from being
put into place.
Robinson:
Pushback from whom?
Gregg: Pushback
from the consumer advocates, from the pharmaceutical industry, from a variety
of people. We had use of generics, for example, up into the high 60 percent,
but after the pushback, it’s now dropped to approximately 40 percent,
even below what we see in our commercially insured population.
Robinson: Because
they have had no cost-sharing differential between brand-name and generic drugs?
Gregg:
There’s been no cost sharing, and essentially no formulary. You had to
give somebody a fourteen-day supply of any drug that any physician ordered,
and to impose a formulary restriction, you had to show that the drug the physician
ordered actually would be harmful to the patient. The state took over management,
and, rather than trying to manage a tight formulary, they began to think about
maximizing rebates. They could then use rebate revenue to draw a federal match.
All of the incentives were perverse and led to a further explosion of pharmaceutical
costs.
Lessons From TennCare’s Turmoil
Robinson:
The reason why everyone was taking away tools to manage costs was because the
consumer advocates wanted more benefits for enrollees, the providers and pharmaceutical
companies wanted unrestricted beneficiary access to their services, and the
state was more interested in getting federal match dollars than in controlling
the state input dollars. Is that a fair assessment?
Gregg:
Yes, that’s a good summary. It dates back to the origins of the program’s
expectations. TennCare was sold as an everything-for-everybody program. So from
the perspective of the consumer advocates, there should not be any kinds of
limits. The physicians and hospitals and pharmaceutical firms never envisioned
anything other than being paid. No more need to provide charity care—that
was the way they viewed TennCare.
It’s very easy to talk about what went wrong with TennCare, but a relatively
poor state did have success in reducing the number of uninsured people. We got
down into the 6 or 7 percent range, which is remarkable for a state of our size
and economic condition.
Robinson:
If you were to give advice to other states and other health plans that work
in Medicaid, what are the implications of the TennCare experience, both positive
and negative, in terms of eligibility, benefit designs, formulary, and prior
authorization?
Gregg: First
and foremost, you have to have realistic expectations. What concerns me, when
I still hear other states talking about doing expansion programs, albeit not
nearly as large, is the belief that they don’t need additional dollars
to do it and that somehow, magically, savings can emerge through the provision
of better care. What we saw with the TennCare population was that many of those
people were underserved and hence that providing better care increased rather
than decreased costs. So when you began to talk think about disease management
programs, in many instances you are increasing the cost as opposed to decreasing
the cost of care.
You also need to come to grips with the pharmaceutical programs. This is where
I see a need for political will. In Tennessee we are number one in the country
in per capita consumption of medications. So you have a marketplace that uses
drugs frequently, and TennCare put an unlimited pharmacy benefit into place,
with no controls. We had a drug industry that lobbied like crazy in the halls
of our legislature to make sure that our formularies got disrupted. When we
at BCBST looked at how many pharmacies we needed in a given community, we found
ourselves with an any-willing-pharmacy provision, which took away any negotiating
clout. If you’re going to walk into these Medicaid expansion programs,
you’d better be ready to have the political will to manage that particular
benefit.
Robinson:
To summarize, states first need to be willing to play a bit of hardball and
actually manage costs; and second, they need to recognize that if you want to
deal with the uninsured, you put them either in Medicaid or somewhere else,
but it’s going to cost new money. Is this accurate?
Gregg: At
the end of the day, the taxpayer needs to see the value and the benefits of
the program. And if there is something that we failed to do as a state, it was
to make the taxpayer see that.
Success Of The Blues
Robinson:
Switching to BCBST, 2004 was the best year you’ve ever had, according
to your annual report. If I could cite some statistics from the Goldman Sachs
investment bank, BCBST ranks among the top not-for-profit Blues on every dimension
of performance. In particular, between 2003 and 2004 your revenue increased
42 percent, compared with 13 percent for all Blues plans. Your earnings increased
12 percent, compared with 6 percent for the other Blues plans. And your enrollment
increased 12 percent, compared with 2 percent for the other Blues. How
do you explain your success over these past years?
Gregg:
Well, good hard work, for one thing. But I will tell you that we feel the competitiveness
day in, day out. There’s no sense on our part that we walk in and it’s
a slam-dunk on any employer’s health benefit account that we bid on. We
have all of the big insurers here in Tennessee. We have CIGNA, we have United.
We still have some strong regional players. We have John Deere; we have some
hospital-based programs such as PHP in East Tennessee. There’s no market
that we look at and say, “Oh, well, we just own this market.”
This year in particular—2005, year to date—our rate increases to
our commercial customers are around 4 percent. We’re very successful,
but we’re also today pricing below the medical cost trend. Our medical
cost trend was running closer to 10 percent, maybe even ticking up a bit. So
we are giving some rate relief in the market. We are trying to make sure that
people are able to keep coverage, which we believe is an important part of what
we contribute as a company.
Robinson:
So you are consciously pricing below your medical cost trend?
Gregg:
Yes.
Robinson: That’s
possible, due to the fact that you’ve had very high financial reserves—a
surplus built up from past years. If my numbers are correct, last year your
reserves were at 540 percent of risk-based capital levels, which is way above
the National Association of Insurance Commissioners [NAIC] minimum levels and
the Blue Cross Blue Shield Association [BCBSA] guidelines.
Gregg: When
we look at our company, we have to have capital. And as a not-for-profit, we
do not have access to the capital markets in the sense that some of our competitors
do. We look at what we need to drive our company and to be successful. And our
sense is today, the most that we could say that we’re, quote-unquote,
over-reserved, is around $250 million. Well, for a company of our size
paying out more than $15 billion in claims this year, is $250 million
really, quote-unquote, over-reserved? I think, again, it’s capital that
allows us to fuel our business and to be competitive and to do the things that
we need to do to be able to deliver affordable health care to our membership.
Politics Of Profitable Nonprofits
Robinson:
In some states, such as Pennsylvania, the state legislature and regulators have
looked at the reserves in the not-for-profit Blues plans and wanted that money
back. There have been a variety of compromises in different areas, I believe,
around this. How does Tennessee look at BlueCross BlueShield, a very large,
successful, and profitable not-for-profit company that is involved with the
money-losing TennCare program? What kind of pressures are you under?
Gregg:
The vast majority of not-for-profit Blues plans enjoy state tax exemptions—Pennsylvania
is one of those. Our plan is unique in that we never had a state tax exemption.
We were formed in 1945, and from day one we have paid all state taxes. In some
other states, a lot of the discussion around the reserves has been a trade-off
with the tax exemptions.
Robinson: You
mean, the extent of community service needed to justify the tax exemption?
Gregg:
Correct. But when the Tennessee legislature looks at us, there are no tax exemptions
to be justified. I think, also, that the state understands that having a plan
with reserves is a good thing. They understand this because TennCare has experienced
a number of health plan failures, and providers have been left holding the bag.
That is not something that the regulators want to see happen. Because our plan
has been successful, because we have had the financial wherewithal to be able
to do the things that needed to be done, we’ve been the backbone of the
TennCare program.
I think that the state, when they look at our reserves, views them from the
perspective of consumer protection. The question of adequate reserves always
comes up when they begin to look at premium rates and rate filing, and we do
have rate approval in our state. So when we file for approval of our individual
and group products, state actuaries go through them, and a negotiation process
goes back and forth—trust me, that is not an easy process.
What they see through that, though, is that we’re a responsible partner.
Several years ago we did a premium payback when we saw that we were actually
having some huge cost savings from some of our pharmacy programs that had more
savings that we could have ever imagined.
Information Technology
Robinson:
Let’s switch gears to another subject. What has your company done toward
fulfilling the information technology [IT] demands that inevitably arise in
today’s health care environment?
Gregg:
I’m quite proud of what we have been able to do in the area of data management.
We bit the bullet back in 1999 and went to a single platform. It allowed us
to build a data warehouse and have information, so that we could begin to understand
the population and where the opportunities were for better management. It’s
ironic to me, but TennCare gave us the impetus and opportunity to hone our skills.
We are trying to help drive the information infrastructure in our state, because
we believe that it can’t be proprietary. This is a radical stance for
a company like ours to take.
Our focus on information grew out of what happened in TennCare, as the traditional
tools were being taken away—
Robinson:
The managed care tools?
Gregg: Right.
We asked ourselves whether there were other ways to bring about structural changes
in the way health care was delivered. It was very clear that having better information
at the point of care would be really helpful to physicians and hospitals. So
we looked at what we had just within our own database and realized that we had,
for our TennCare population in particular, pharmacy data that were updated every
night—we had diagnoses, we had patients’ claims and utilization
histories. So we began to look at how we could leverage that information to
be helpful. And that is what led to the formation of Shared Health, a new subsidiary
of BCBST. The first product rolling out is Community Connection, which takes
all of those data and populates a health record for TennCare beneficiaries,
a record that’s available via the Web to authorized clinicians at the
point of care.
Robinson:
This is a personal health record for the enrollee?
Gregg:
The person does not have access to it yet, but the intent is that over time
they will. We were recognizing the fragmentation and the lack of information
available to physicians; the idea was to provide that information to them at
the point of care. Today it’s for the 700,000 TennCare enrollees. We will
go to over a million when we bring on the other managed care organizations’
membership. Our intent is to expand that into our own commercially insured population
over time.
Robinson:
And so right now, individual physicians treating an individual TennCare patient
could, through the Internet, look up a person’s record, including drug
use and lab values?
Gregg:
It shows the lab tests they’ve had, the lab values, and the norms. Because
today there’s no standardization out there between labs, interestingly.
It shows the physicians whom the patient has seen over time, their diagnoses,
any procedures they’ve had, and their prescription drug use history. The
drug history has been by far the best tool in terms of a physician looking at
a new patient and trying to understand what’s going on.
Robinson:
And for the enrollees in the other health plans, are equivalent data fed into
the Shared Health system?
Gregg:
Yes.
Robinson:
So if an enrollee were to switch from BCBST to one of the other health plans,
or vice versa, the data would follow, so to speak?
Gregg:
Yes. It’s one of the things that can’t be owned by any one entity.
You’ve got to be able to follow that patient over time. If the patients
move between managed care organizations, if they move between clinicians, all
the data need to follow.
Robinson:
How would that principle translate into the commercially insured population,
where you’re competing against other health plans and where enrollees
do frequently switch health plans? How would the data be aggregated, where would
they be aggregated, and who would have access to them?
Gregg:
Our sense is that ultimately we’re going to need state oversight. I don’t
know if it’s a commission, but there’s going to have to be an understanding
of who controls the data and how, and who has access to them and how.
Prevention And Disease Management
Robinson:
Tell us about your diversification into behavioral health, disease management,
and into Gordian Health Solutions.
Gregg:
We recently acquired a company called Gordian, which is in the health risk appraisal
as well as health coaching business. As we looked at our population, the first
thing we figured out was there is a need to stratify from day one. And employers
emphasized to us that understanding populations at risk is important not only
as it relates to medical care costs, but also as it relates to productivity
and absenteeism. So we decided to enter the business of risk assessment, to
be able to look at a population that today is healthy but perhaps has risks
sitting out there.
Robinson: You
find that doing risk assessment and then presumably disease management internally
is better than outsourcing to outside firms, some based in Nashville, some based
elsewhere, that would be happy to do that for you on a contract basis?
Gregg:
What we see is the need to be able to get the information and to integrate it
in relationship to all of our other claims, cost, and utilization data. We also
see here a new business opportunity—Gordian is a company that works with
employers across the country, and in fact only about 4 percent of its clients
are in Tennessee today. Gordian has nine years of experience in this. It can
demonstrate a $1.60 return for every dollar invested in risk appraisals and
health coaching, and having that kind of data to show employers gets their attention.
We also see this as an important product for consumers. Employers want to provide
incentives to employees to stay healthy. So we can do the health risk appraisal
to support this. If there are risks that are identified and the employees agree
to participate in a health coaching program, then they may get a discount on
their premium contribution, they may get a higher amount of money put into their
HSAs [health savings accounts]. We view it from the perspective of, first, something
that makes sense as we look at our population. And from our perspective as a
poor state, we look at this as something that can drive revenue and profits
back into our state.
Cost-Effectiveness Of New Clinical Technology
Robinson:
Let’s turn to medical technology. The long-term trends in health care
cost inflation are driven heavily by new drugs, new devices—clinical innovations
that often are quality-increasing but certainly are cost-increasing. What sorts
of programs do you see in Tennessee to manage the appropriateness of, and the
expenditure on, new technologies?
Gregg:
The governor has put a stake in the ground with TennCare with his definition
of medical necessity, which essentially says that the program will
cover the least costly effective treatment for a given condition. This “least
costly” clause introduces a new element into the debate over new technologies.
Today, for the most part, when the FDA [Food and Drug Administration] staff
look at approving new drugs or devices, they don’t look at something in
terms of how it performs versus existing interventions, they look at it as to
how it performs against a placebo. The question in Tennessee now becomes whether
this particular treatment, although it may be effective, performs well against
other treatments in terms of cost-effectiveness. If you have equal outcomes,
let’s defer to the one that is least costly. That’s a whole new
way to think in our industry.
Robinson:
Focusing on your commercially insured enrollees and not on TennCare, how are
you managing the costs and use of specialty drugs, biologics, and medical devices?
Gregg:
We are looking at prescribing patterns for biologics and devices. Just like
you do with pharmacy, you can look at how physicians use these new technologies.
If you are looking at orthopedists, for example, and you’re looking at
how they use MRI [magnetic resonance imaging] scans in given situations, and
you’re profiling them against their peers, then you can ask some questions
as to why. That’s where you get into the interface with physicians and
show them information [on practice patterns] and try to understand why they
are using a technology the way they’re using it.
In our state we have a very strong certificate-of-need [CON] program. But physicians
have been able to get into these things [ownership of specialty facilities]
without going through the full-blown CON. The physician-ownership issue is one
that we really have begun to look at, to ask whether we include those in the
network or not, whether we impose cost differentials on them.
Robinson:
Do you face pressure to have an “any-willing-provider” approach
to ambulatory surgery and diagnostic capabilities and other physician-owned
enterprises?
Gregg: It’s
a quandary right now. To the extent that physician-ownership drives overutilization,
then we have to question the convenience-versus-cost trade-off. What we are
trying to do as a plan, particularly on the commercial side, is to understand
what’s going on, to communicate information on physician-ownership to
consumers, and to design benefit plans that drive people to act in their own
best interest. It’s been quite interesting to watch.
Consumer-Driven Health Plans?
Robinson:
The buzz at the moment in health care is all about consumer-driven product designs.
What is the trend in your commercial population in terms of copays, coinsurance,
deductibles, and the product mix?
Gregg:
We had several years, starting in early 2000s, of high double-digit inflation
in medical care costs. And we saw our commercial employer customers begin to
ask, “How do we engage our employees?” They did it in a number of
ways.
First, we saw them begin pushing some of the premium costs over to employees.
This was to wake them up, in terms of what health care really costs. The second
element of employer strategies was to put deductibles and coinsurance back into
place, after having taken them out during the managed care era. And now it is
not unusual to see $500 and $1,000 deductibles and 20 percent coinsurance.
That is the primary tool that most of our commercial customers use. It’s
very prevalent in the small-group market, maybe a little less among larger groups.
We have also seen a big increase in the HSA products in our individual market.
People want to have a little more flexibility there. We have seen some HSA penetration
now in our group market.
Robinson:
Do you see any potential in new product designs to bring some of the uninsured
into insurance coverage—people who are not indigent but who are the working
uninsured, who work for small firms?
Gregg: Yes.
We have a number of products, and we’ve done a lot of focus groups around
what products and price points are attractive to at least some of the uninsured.
For the population that we’re talking about—and it tends to be low
income but working—we heard a couple things. First, the price point is
somewhere around $60 per month for a premium. So what can you buy for $60? The
second point, which really made us sit back and say, “Wow, we need to
think about this,” is that they indicated that if they’re going
to pay $60, they don’t want just catastrophic protection. They’re
paying $60, and they want to know what they’re going to get back for that.
So in the focus groups they want dental benefits, they want vision benefits,
and they want all these different things. So we have designed products. We have
one called Simply Blue that’s targeted to that market and provides skinny
benefits but does have some front-end first-dollar coverage [for preventive
care].
Robinson: The
consumer’s question is, What have you done for me lately?
Gregg: You’re
right.
Robinson:
That’s what the employee asks the employer.
Gregg:
That’s not been the way that our industry has historically thought about
our products. We have thought of them more as insurance, as financial protection,
as opposed to something that provides financial benefits now for people who
are not severely ill. We see that younger people, if they’re going to
pay money out, want to know what they’re going to get in return.
The Price Of Health Care Services
Robinson: Let’s
talk a little about price information. With all these deductibles, people care
now about the price of health care services more than they did in the past.
What kind of price information do you provide, now or in the foreseeable future?
How can this information be provided to consumers in a way that doesn’t
overwhelm them, avoiding the thousands of micro-prices for each particular test
and service, and yet allowing them access to the information that’s actually
influencing their physicians’ and their own health care decisions?
Gregg:
Let me say, there is nothing rational today about health care pricing. This
has been driven in a vacuum around negotiations between health plans and providers.
The currently available information, for the consumer, is total nonsense.
Robinson:
It’s the Tower of Babel.
Gregg:
Yes, they cannot understand it. Inpatient care, to some degree, has been subsidized
by outpatient care in terms of how providers have priced their services. But
when hospitals began to compete with ambulatory surgical centers and freestanding
diagnostic centers that are owned by physicians, entities that are able to price
lower than the hospitals, and if the consumer has 20 percent out-of-pocket coinsurance,
the hospitals are really at a competitive disadvantage. It’s going to
be a radical change in the marketplace, though, in terms of pricing. And that
has to happen before you can really get a rational, transparent pricing system
for consumers.
Robinson:
Before you can have a rational, informed consumer, you have to have something
rational for them to be informed about.
Gregg: That’s
exactly right.
Robinson:
In some markets I’ve heard reference to treatment cost estimators, and
to comparative cost data on hospitals for procedures. Where are you going, as
the largest health plan in your state, in pushing the visibility of pricing
data?
Gregg: We
are trying to work collaboratively with the providers to make sure the information
is accurate and that people can use it. Some of this is still in the pilot phase
for us, so we’re not ready to tout it and yell from the ceilings and say
it’s been a tremendous success. But we are working on getting it in ways
that people can really use it.
Robinson:
Tennessee is, like many other states, evolving toward becoming a very consolidated
health care market, on both the hospital side and the insurance side. Blues
plans are dominant in each region—and in each region one or a few hospital
systems are dominant. So instead of a textbook economic market with lots of
buyers and lots of sellers, you have a dominant buyer—that’s you—and
then one seller or a few sellers on the hospital side. How does that affect
the market-oriented approach to managing cost, to managing choice, and to managing
performance?
Gregg:
I like to use the term “shared destiny.” Our state is the poor state.
We are forty-seventh in overall health status in the country. We have an uninsurance
rate now that will be pushing toward 20 percent, from a low of about 6 percent.
Another 20 percent are still on Medicaid, and another 15 percent are in Medicare.
So you’re looking at 55 percent of the market either unfunded or underfunded,
from the perspective of the actual costs of providing and financing care.
I don’t think any one entity, whether it’s Blue Cross or anybody
else, can win at the expense of everyone else. Because ultimately all we’re
doing is driving more people out of the market. I tell people that our biggest,
toughest competitor is “nonconsumption.” It’s people who choose
not to buy. And when you’re in a state where the average income is less
than the U.S. average, people’s ability to buy health insurance is compromised.
James Robinson (jamie{at}berkeley.edu)
is a professor of economics at the School of Public Health, University of California,
Berkeley. Vicky Gregg is chief executive officer of BlueCross BlueShield of
Tennessee, located in Chattanooga.
DOI: 10.1377/hlthaff.w5.558
©2005 Project HOPE–The People-to-People Health
Foundation, Inc.
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