Blue Cross & Blue Shield of Rhode Island Gaining Traction In Moderating Costs, Improving Finances

(Providence, RI, 4.20.2011)

Blue Cross & Blue Shield of Rhode Island (BCBSRI) today reported progress in its efforts to moderate costs and improve its financial situation. After booking a $100 million loss in 2009, the nonprofit, local health insurer announced a loss of $14 million for the year that ended December 31, 2010.

BCBSRI's premium and other revenue totaled $1.67 billion in 2010. Payments to hospitals and doctors, which totaled $1.4 billion, accounted for 88.4 percent of the company's expenses last year. BCBSRI's reserves, which are funds set aside to ensure the health insurer's ability to pay member claims, dropped to 15 percent of premium revenue, well below the 20 percent average of other regional health insurers.

"We're heading in the right direction, but we continue to experience financial strain," said Dr. Gus Manocchia, vice president and chief medical officer at BCBSRI.

In response, BCBSRI undertook a series of aggressive initiatives that successfully reduced administrative expenses by $15 million last year, including renegotiating vendor contracts, streamlining many internal processes and reducing the use of consultants. A number of other initiatives allowed the health insurer to also reduce medical claims costs by $25 million over the same period.

"Faced with dwindling reserves, rising healthcare costs and premium rates that simply aren't able to keep pace with medical inflation, we knew that we needed to take immediate steps to improve our financial situation and more importantly, address the ‘affordability' of healthcare for our customers," stated Manocchia.

In an effort to moderate hospital costs, which outpaced inflation by more than 24 percent from 2007 through 2010, BCBSRI decided to change the way it pays hospitals. Instead of paying hospitals for the quantity of care they provide, which incents volume, BCBSRI introduced an innovative, new compensation model that rewards hospitals for working to improve their performance and meet agreed-upon measures of quality and operational efficiency. BCBSRI's new approach is designed to continuously improve patient care and safety, while at the same time having a positive impact on hospital finances.

Mirroring its approach with hospitals, BCBSRI is also changing the way it pays doctors, starting with primary care physicians, with a new compensation model that focuses on quality of care and patient outcomes, instead of service volume.

In an effort to combat prescription drug costs, which rose faster than any other healthcare expense last year[1], BCBSRI also rolled out a new drug formulary that is projected to reduce drug expenditures by $22 million by the end of 2011. The company's new formulary addresses expensive prescription drug costs by encouraging the use of high-quality, but lower cost, generic and over-the-counter drugs. Because the co-pays on generic drugs can be a lot less than on high-priced brand name drugs, BCBSRI's new formulary can help members save on out-of-pocket drug costs as well.

Moving forward, BCBSRI says that it will continue to look for opportunities to reduce expenses without impacting quality of care or customer service. Longer-term, the company remains committed to improving healthcare access, affordability and quality through initiatives such as its patient-centered medical homes, care coordination programs and innovative, new product offerings.

"It will take years to really impact healthcare costs in a meaningful way," concluded Manocchia, "but we're making significant progress. In the meantime, there are lots of safe and effective ways to moderate healthcare costs without reducing quality or treatment options. Simple changes like switching to a generic drug when appropriate or seeing a primary care physician for nonurgent medical care instead of going to the emergency room really add up and can help make healthcare more affordable for everyone."

Blue Cross & Blue Shield of Rhode Island is the state's leading health insurer and covers more than 600,000 members. The company is an independent licensee of the Blue Cross and Blue Shield Association. For more information, visit www.bcbsri.comand follow us on Twitter @BCBSRI.

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