Horizon BCBS consultant's report reveals CEO downplayed cost in OMNIA selection

Horizon Blue Cross Blue Shield of New Jersey paid a consulting group $1.7 million to produce reports on how the health insurer could develop its OMNIA Health Plans, which place hospitals in two tiers based on quality and cost. Lower-ranked hospitals argue three reports from McKinsey & Co. obtained by NJ Advance Media show Horizon steered McKinsey's research to include the state's most expensive hospitals into Tier 1, according to NJ.com.

Becker's Hospital Review previously reported 10 findings from McKinsey's reports on June 28. Below are another five highlights from the analysis:

1. NJ Advance Media, which provides content to NJ.com, and several other newspapers sued to obtain copies of confidential reports prepared by McKinsey. The documents contain information about how Horizon crafted its tiered insurance products, which were rolled out in 2015.

2. In Horizon's first 2014 memo to McKinsey, the health insurer outlined OMNIA's objectives: narrow down Tier 1 and 2 hospitals and lower the health insurer's costs. Under OMNIA, if policyholders want the lowest out-of-pocket costs compared to other Horizon plans, they must visit one of the 36 hospitals in Tier 1 that agree to accept lower reimbursements from Horizon in exchange for more patients.

3. All major New Jersey health systems Horizon later designated as Tier 1 hospitals — Hackensack Meridian Health, Robert Wood Johnson University Health in New Brunswick, St. Barnabas Medical Center in Livingston and Atlantic Health System in Morristown — were absent from McKinsey's initial top 14 hospitals, according to NJ.com's analysis of the reports. The documents reveal Horizon CEO Kevin Conlin told McKinsey to downplay how much a hospital's size and cost would affect which hospitals the firm chose for OMNIA's Tier 1 partners. Horizon argued OMNIA's value-based model meant "past financial performance is not necessarily indicative of future cost of care," according to the report.

4. In addition, one of the reports from May 2014 highlights how OMNIA intended to steer patients away from hospitals in New York. McKinsey analyzed 2013 data to show how much Horizon paid physicians and hospitals in New York, and how much placing New York hospitals in Tier 2 would positively affect Tier 1 hospitals. For example, McKinsey projected Hackensack would see $25 million in profits "from volume in other hospital in service area," as well as $8 million from other competitors like New York.

5. In a lawsuit, two Tier 2 hospitals — 451-bed Valley Hospital in Ridgewood, N.J., and 284-bed CentraState Medical Center in Freehold, N.J. — claim Horizon "breached its duty to act in good faith" by placing them in OMNIA's Tier 2, thereby costing them millions of dollars. Holy Name Medical Center in Teaneck was also a plaintiff in the hospitals' case until June 26, when it and Horizon announced they had reached a confidential settlement.

Here is NJ.com's full report, which features images from McKinsey's analysis and additional comment from Horizon.

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