Calif. Will Require Insurers to Drop Low-Performing Hospitals from Exchange Plans

Published May 10, 2016

California’s health insurance exchange contracts for 2017–19 will require insurers to identify and exclude from exchange plans hospitals providing low-quality or unjustifiably expensive care.

Covered California, the state’s Obamacare exchange, will establish “specific measures of cost and quality, as well as criteria for defining ‘outlier poor performance,'” states a draft of the 2017 contract released on April 5.

The contract requires insurers to report how they implemented the performance criteria for hospitals through “contractual requirements and enforcement, monitoring and evaluation of performance” and requires “corrective action and improvement plans if appropriate.”

Starting in 2019, insurers must exclude “outlier poor performers” from their exchange provider networks or document their rationale for including those hospitals when the insurers apply each year for certification by Covered California.

The new system adopts an incentive-based compensation system for hospitals, putting at least 6 percent of reimbursement “at-risk or subject to a bonus payment for quality performance,” the draft states.

‘Absolutely Ridiculous’

Sally Pipes, president and CEO of the Pacific Research Institute, says Covered California is unequipped to manage sound judgments of the value individual hospitals offer patients.

“[Covered California] can’t even get their exchange right,” Pipes said. “For them to start deciding which hospitals are offering value and quality care is absolutely ridiculous. Different hospitals have different types of patients in them. It’s impossible to put standard performance figures on all hospitals, because the types of patients in those hospitals are different.”

‘A Very Incremental Change’

Marc Joffe, senior policy analyst at the California Policy Center, says the new standards only tweak Covered California’s hospital and insurance system, rather than provide a much-needed overhaul.

“It’s more a matter of mending and shaping than creating competition,” Joffe said. “I think one point is that this is a heavily regulated industry already. It’s a very incremental change.”

Joffe says patients do need a system that weeds out low-performing hospitals.

“If a hospital is providing very poor cost-benefit in the world of third-party payment, then we need a mechanism to deter such things,” Joffe said. “It is already forced spending on the part of the consumer.”

Michael McGrady ([email protected]writes from Colorado Springs, Colorado.