“There is a change (from payers) from fee for service to fee for value,” said Dennis Swan, chairman of The Federation and CEO of Lansing-based Sparrow Health System. “This is dramatic change and several of us have been working on our own plans to become more clinically integrated and handle (financial) risk coming” from Medicare, Medicaid and private payers like Blue Cross Blue Shield of Michigan, he said.
A longer-term reason to form The Federation, Swan said, is to jointly contract for at-risk and value-added type contracts with health insurers and large employers on a statewide basis.
Indeed, the primary purpose of a clinically integrated network is to conduct joint managed care contracting for distinct groups of patients that are limited to using narrow networks of hospitals, doctors and other providers.
At-risk and value-added type contracts pay providers base rates and reward them additionally for improved quality, better outcomes and containing services. These types of payments also can be based on capitation, or monthly per member payments that cover a range of specified services.
Represented by a 12-member board, The Federation includes Sparrow, Bronson, Lakeland HealthCare in St. Joseph, Covenant HealthCare in Saginaw, MidMichigan Health in Midland and Allegiance Health in Jackson. The board will be composed of equal numbers of physicians and system executives.
Sources told Crain’s that the formation of The Federation sweetens the pending deal by Henry Ford Health System, a Detroit-based integrated delivery system, to acquire Allegiance because it could expand the system’s geographic reach.
Officials for Henry Ford declined comment for this story.
One of Henry Ford’s longer-term plans is to turn Health Alliance Plan, its 590,000-member commercial insurance company, into more of a statewide player for managed care and self-insured employer contracts. The Federation could help promote that strategy, sources said.
But The Federation will face a tough new state competitor that already has a head start in formation.
Two years ago, Together Health Network was formed by Livonia-based Trinity Health Michigan and Warren-based Ascension Health Michigan. The network includes the 27 hospitals and more than 5,000 physicians.
Together Health, the state’s first clinically integrated network, includes Ascension’s Borgess Health in Kalamazoo and Trinity’s Mercy Health St. Mary’s in Grand Rapids and Mercy Health Muskegon. These hospitals compete directly with Federation member hospitals.
If Henry Ford completes its acquisition of Allegiance, Swan said Henry Ford’s experience in population health and integrating employed physicians and a managed care plan will prove invaluable. Moreover, if Henry Ford affiliates with Kaiser Permanente, as sources have told Crain’s may happen, the Federation could become a powerful statewide contracting force that could even threaten Blue Cross’ network contracting dominance, experts said.
“We all have great respect for Henry Ford,” Swan said. “It will be interesting to see what develops along those lines.”
Mayer said having Henry Ford and metro Detroit participating will give additional strength to The Federation.
“We think there is enormous opportunity to deliver value by (generating) better clinical data, creating better access to primary care physicians, creating better teamwork,” Mayer said.
Swan said each of the six member systems are in different development stages. “There are substantial resources that can be repurposed” to create The Federation into a formidable force, he said.
For example, some systems have already developed expertise in setting up a bundled payment programs — flat rates for specific procedures or surgeries —for Medicare patients, Swan said. Other systems are good at collecting clinical data, analyzing it and managing costs.
Three Federation committees have been formed to look at organization implementation, clinical transformation and managed care contracting. Under development are two other committees: communications and education, and business intelligence and information technology, Mayer said.
Chicago-based Navigant has been hired to advise The Federation.
While The Federation is a catchy name, Mayer said system members plan to rename the organization sometime this year.
Besides Mayer and Swan, the other board members are:
- Loren Hamel, M.D., vice chair and CEO of Lakeland Health
- Diane Postler-Slattery, secretary and CEO of MidMichigan Health
- Georgia Fojtasek, R.N., CEO of Allegiance Health
- Ray King, M.D, chief medical officer of Allegiance Health and CEO of Jackson Health Network
- Frank Sardone, CEO of Bronson Healthcare
- Kevin Albosta, CFO of Covenant HealthCare
- Michael Slavin, M.D., medical director of Covenant HealthCare PHO
- Ken O’Neill, M.D., vice president of clinical integration of Lakeland Health
- Madhura Mansabdar, M.D., chief clinical integration medical officer of MidMichigan Health
- Harman Nagler, M.D., vice president of clinical integration of Sparrow Health