The documents are at the heart of a bitter court battle waged by excluded hospitals to break into OMNIA's top tier. The hospitals claim they are losing millions of dollars. They documents suggest that was the plan.
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These are the documents Horizon Blue Cross Blue Shield of New Jersey did not want you to see.
NJ Advance Media successfully sued to obtain reports prepared by the healthcare consultant McKinsey & Company to help Horizon develop a revolutionary line of insurance products that shook up the state's health insurance market.
Horizon would later name the line OMNIA, debuting it during the November 2015 open enrollment period.
The company's promise was simple: It pledged to consumers that hospitals and doctors in its Tier 1 network would deliver high quality care with far fewer out-of-pocket expenses. Consumers could still use providers in OMNIA's Tier 2 category, but they should expect to pay more.
In addition to NJ Advance Media's fight for documents, Horizon has been locked in other legal tussles. Still playing out is a bitter court battle waged by Valley Hospital in Ridgewood and CentraState Medical Center in Freehold, Tier 2 hospitals fighting to break into OMNIA's top tier. These hospitals say they are losing millions of dollars a year and are at risk of having to cut services or merge to stay alive.
Their lawsuit said Horizon "breached its duty to act in good faith" by excluding them from the Tier 1 category and developing a plan to include the largest hospital chains and exclude all others, regardless of cost or quality. And by wielding its immense influence, Horizon -- which covers 3.8 million out of New Jersey's population of 8.9 million people -- has determined the winners and losers in New Jersey's health care system, the hospitals say.
How Horizon picked its Tier 1 hospitals has been the heart of the debate for years. And the newly released documents show how Horizon executives - notably CEO Kevin Conlin, who at the time was an executive vice president and "executive sponsor" of the OMNIA project, took an active role is shaping the metrics McKinsey would use.
Horizon declined to answer specific questions about the documents because they "go straight to issues in the case, and Horizon's principal obligation is to protect the interest of our members," company spokesman Tom Wilson said.
The documents show Conlin directed McKinsey to play down the size and cost of the hospital chains that would be OMNIA's flagship partners.
At a cost of $1.7 million, McKinsey produced three reports over 10 weeks in early 2014 describing how Horizon could develop OMNIA and, ultimately, reshape the future of healthcare across New Jersey. The hospitals have claimed the reports show how Horizon drove the research to make sure McKinsey arrived at the conclusions the Newark-based company wanted.
Here's a closer look at the documents and how the game plan changed.
Note: Clicking on the annotated note will take you to the entire document. Some of the documents were redacted by the court.
The first memo, March 26, 2014
The authors outlined the objectives -- to narrow down the hospitals and doctors and to lower Horizon's total cost of care. The memo below highlights the need to "identify good partners."
How hospitals should measure up
Here McKinsey attaches weight to each characteristic every hospital should possess. The Tier 2 hospitals note quality is not its own metric, but included within "consumer attractiveness."
The first round of scoring
The next chart below compares the partnership score - the various qualities that make a hospital or hospital chain desirable, found on the left side - to the cost of care, found on the bottom of the chart below. Anything higher than 1.0 is more expensive than the average cost of care in the county.
HUMC, Hackensack University Medical Center, scores the highest on the partnership score, at about 3.7. It is the most expensive hospital in New Jersey, at the 1.3 mark, which means it is 30 percent higher than the county average. Children's Hospital of Pennsylvania (CHOP) is the most expensive hospital overall.
Who made the short list
In the excerpt below, McKinsey highlighted 14 New Jersey hospitals and hospital systems (and three in Philadelphia) based on a combination of a high "partnership score" and a "lower than average cost."
When the plan debuted 18 months later, however, seven of the 14 had been relegated to Tier 2. All seven sued. They were Capital Health System in Trenton and Hopewell; Centrastate in Freehold; Holy Name in Teaneck; JFK Medical Center in Edison; Trinitas Regional Medical Center in Elizabeth and Saint Peter's University Hospital in New Brunswick. All but Valley Hospital and CentraState settled with Horizon or withdrew their case -- either because they had won a monetary settlement or they had been acquired by a Tier 1 network hospital.
Valley Hospital is the only hospital that sued that had fallen into a near-miss category because of its higher costs.
Absent from McKinsey's top 14? Hackensack, Saint Barnabas, Robert Wood Johnson, Atlantic Health -- all the major systems that would fill out Tier 1.
Horizon's reaction to first report
Conlin asked McKinsey to describe the potential partners another way other than them being the most expensive. His email below, Conlin says the McKinsey scores "oversimplifies" certain elements. Conlin sends the report back and asks for changes that he highlights in set of points.
Second report April 21, 2014
OMNIA's "Core Beliefs"
McKinsey - after receiving Conlin's directive -- explains that Horizon has given it new parameters to measure which hospitals would make good partners.
Cost is not one of them. Why? Because Horizon has said it intends to revolutionize how it pays doctors and hospitals for care. This, according to Horizon, is one of the fundamentals driving OMNIA.
Horizon wants to adopt a "value-based" care model, which rewards providers for keeping large numbers of people healthy rather than simply paying for each trip to the hospital. The strategy would seem to benefit larger health care providers.
Using this model, "past financial performance is not necessarily indicative of future cost of care," according to the report.
The plaintiffs argue this allowed Horizon to pick the largest and most expensive hospitals as its OMNIA Alliance and Tier 1 partners. Tier 2 hospitals, which tend to be among the smaller institutions and therefore do not have the bargaining power of the big chains, tends to be less expensive.
The plaintiff's attorney Michael Furey said it has been three years since OMNIA made its debut, and yet it appears hospitals are still paid the same old way. When does the value pricing begin?
Wilson, of Horizon, declined a request to share the extent of OMNIA's value-based reimbursement program, but claimed it is has happening.
"We made payments in 2017 that take into account both quality and reductions in the total cost of care. This change won't happen overnight, it's a marathon not a sprint," Wilson said in a recent interview after the documents were first released.
Geography -- where hospitals are located and how many competitors serve that region -- is another give-away to the largest hospital networks, Furey said. OMNIA is premised on tier 2 hospitals losing lots of business to tier 1 hospitals, which agreed to accept less lucrative reimbursements.
Under this new scoring system, some of the largest hospital chains rise to the top: Barnabas, Meridian, Hackensack, Atlantic Health. Some of the larger systems, like Robert Wood Johnson, are tied or are slightly below Holy Name Medical Center (which is mistakenly identified as an out-of-state hospital) and Valley Hospital. Yet both Holy Name and Valley are relegated to Tier 2.
Wilson said McKinsey understood "geography was always going to be a consideration in the selection of potential OMNIA Alliance partners." He pointed to language in the McKinsey scope of work (contained in a separate exhibit, below) that made geography one of the items McKinsey was tasked with considering as it developed the model.
The Department of Banking and Insurance requires all insurance plans to meet geographic access requirements, he added.
This is the first time the medical practices are evaluated. Summit Medical Group (SMG) in central and north Jersey was the only practice later given Tier 1 status despite Advocare in central and South Jersey scoring slightly higher.
Additional volume can make partnership more attractive
Using Hackensack as a model, McKinsey said the Bergen County chain could earn $50 million more in potential profit drawing patients from other hospitals in Bergen County.
Quality counts
In the next notation below, "clinical quality" is added to the partnership formula.
Horizon says this proves their point that quality mattered. Clinical quality becomes its own category and 20 percent of the score, compared to the March report, in which quality was one facet of the "consumer attractiveness" category. Scale also drops from 15 percent of the score to 10 percent, blowing another hole in the plaintiffs' lawsuit arguments.
Where geography matters
McKinsey assessed the top 10 hospitals based on their partnership score. Barnabas, at the top with a 3.7 out of 4, is a "yes" for delivering Essex, Monmouth and Ocean counties, but Meridian, at 3.6, is a "no" because it competes with Barnabas. Meridian later mergers with Hackensack, allowing Meridian to become a Tier 1 system and compete with Barnabas.
Final report, May 20, 2104
The weight of each of the partnership criteria changes again, according to the notation below. Leadership/mindset dropped from 35 percent to 25 percent; clinical quality rose 20 percent to 25 percent; and consumer attractiveness rose from 15 percent to 20 percent. The other measurements remain the same.
Final score for doctors
Only Summit Medical Group is given Tier 1 status at first, but south Jersey-dominant Advocare is added later.
Controlling use of NYC hospitals
The May 2014 report devotes considerable space to calculating how OMNIA will steer patients away from hospitals in New York. Starting below at page 24, McKinsey uses 2013 data to show how much Horizon has paid in doctors and hospitals across the Hudson River, and how much Tier 1 hospitals and doctors would gain by relegating all NYC providers into Tier 2.
Healthcare analysts have always assumed New York hospitals take a deep bite into New Jersey hospitals' profit margin. This revealing report backs it up with dollars.
Pennsylvania hospitals matter far less, according to the report's estimates.
Squeezing the competition
McKinsey estimates how much money the selected hospitals networks, members of the later-named OMNIA Alliance, could expect to earn annually. Hackensack, for instance, would derive $25 million in profit "from volume in other hospital in service area," and $8 million from New York and other competitors.
The McKinsey reports are likely to be the focal point of the civil trial between Valley and CentraState some time in the fall in Bergen County. A similar case filed by Saint Peter's University Hospital in New Brunswick is expected to play out in Middlesex County.
The trial will also explore how the rising costs altered the health care market, by driving a frenzy of hospital mergers over the last decade and consolidating buying and negotiating power in the hands of the largest providers and insurance carriers.
Today, Horizon says OMNIA has succeeded in giving consumers -- particularly those on the individual and small group market -- a more affordable choice for their health care.
Policy holders on average paid 24 percent higher premiums this year, however, which Horizon largely blamed on the uncertainty surrounding Obamacare under the Trump administration.
"OMNIA is the first value based health plan launched on a large scale in New Jersey," according to a statement from Horizon spokesman Tom Wilson. "It has lowered premiums for hundreds of thousands of Horizon members, who opted to participate, by as much as 15 percent.
There are roughly 400,000 to 450,000 OMNIA policy holders, Wilson said. They include 70,000 previously uninsured New Jerseyans to select a policy from the Obamacare healthcare exchange, Wilson added.
"OMNIA members now have the power to not only choose their provider, but also the cost of their healthcare," Wilson's statement said. "This radical shift in the healthcare paradigm is exactly what Horizon members needed."
Susan K. Livio may be reached at slivio@njadvancemedia.com. Follow her on Twitter @SusanKLivio. Find NJ.com Politics on Facebook.
