CEO Steve Wigginton on how Sutter Health | Aetna helps the patient, payer and provider

Steven Loeb · December 6, 2019 · Short URL:

At the Future of Health Insurance, the CEO of Sutter Health | Aetna outlined his company's vision

For a long time, physicians and providers have been on opposing sides, with physicians wanting to get reimbursed more by insurance companies, and insurance companies complaining about physicians charging too much. Their interests have, for the most part, not aligned. 

That has been changing a little bit in recent years, thanks in part to companies like Kaiser, which combine all the different aspects of the healthcare industry under one roof, as well as organizations like Sutter Health | Aetna, which is a jointly owned health care company formed by the two organizations in 2017. It offers self-insured commercial products to employers who have employees in Northern California.

At The Future of Health Insurance, the latest healthcare salon held by Vator, UCSF Health Hub and HP, Steven Wigginton, CEO of Sutter Health | Aetna, discussed the philosophy behind the joint venture and how it benefits patients, providers and physicians. 

Co-moderator Bambi Francisco Roizen, founder and CEO at Vator, first asked Wigginton about consolidation in the healthcare industry, which was has included CVS acquiring Aetna for $69 billion last year.

"Why are we seeing some of this consolidation in the industry and are some of those reasons also what drove Aetna and Sutter Health to partner?" she asked.

"We wouldn't be sitting here if the health insurance industry, and the providers of care, had figured out how to eliminate administrative waste and be tightly coordinated," replied the animated Wigginton, comparing the two sides to the Hatfields and McCoys, an infamous rivalry between two families who lived in the same county in Kentucky.

"That tug of war between, ‘You’re not paying me enough for the care I’m providing,’ and, ‘You’re charging too much,’ and the variations in care and what is the appropriate care, that tug of war creates a lot of inefficiency," he said.

"So, the rationale behind doing a joint venture is that both the payer and the provider put 50 percent of their stake in the middle, and say, ‘What if we have truly aligned economic interests? Could we eliminate a lot of this crap?’ which is a technical term for administrative waste."

To exemplify how destructive this type of rivalry can be, Wigginton pointed to his own wife, who is an award winning OBGYN, who has actually thought about quitting her job due to the friction with the payers. And while he doesn't think Sutter Health | Aetna is going to totally fix these issues, at least not right away, that's at least the ultimate goal.

Providers and payers each benefit from the JV, as both sides are able to develop deeper relationships with commercial payers, meaning employer sponsored coverage.

For a provider system, the reimbursement rates that they get from government payers, such as Medicare and Medicaid, aren’t sufficient to cover their costs to deliver care; Medicaid only pays around a 65 percent reimbursement rate, while Medicare fee for service is around 70 or 75 percent, depending on the efficiency of the providers. Instead, it's the commercial payers, who pay higher rates to, essentially, “cross subsidize” that shortfall. That's why the JV, with its unique access features and lower cost, is appealing to employers/plan sponsors.

The insurance companies, therefore, would be able to deepen their relationships with those employers/plan sponsors by entering into the JV, allowing them to grow and retain their commercial market share, which supports their mission to serve all patients. Meanwhile, those employers/plan sponsors are a segment of the market that Sutter must also continue to cultivate and serve, which is why a provider would want to enter into such a partnership. 

"The big driver behind doing the JV for Aetna is to find a market like Northern California, with a provider like Sutter that has scale, and then figure out if you can make scale work," said Wigginton. 

"The providers are trying to figure out, ‘How do we figure out how to be consistent and efficient by generating scale?’ And the payers are trying to figure out, ‘How do I partner with that scale, as opposed to combat that scale,’ and that’s a big part of why we did the JV."

Co-moderator Archana Dubey, Global Medical Director at HP, asked Wigginton if that means that a company like Kaiser, which is a very integrated system, with insurance, the medical group and the hospital system all together, is the way things are heading in the insurance industry as a whole.

"I don't know if it’s ideal or not," said Wigginton, while praising Bernard Tyson, the chairman and CEO of Kaiser Permanente, who passed away earlier this month.

"His leadership, and the vision that they have around the communities they serve, I can get behind that 100 percent," he said.

As for whether Kaiser would work everywhere, Wigginton pointed out that insurance works differently, depending on the market. While Kaiser worked in California, it might not work in other states. 

"I’ve spent most of my career working all around the country. This is the first job in 20 years where I didn’t have to get on a plane every Monday, and I’ve been working in healthcare that whole time. I’ve spent time in North Dakota, most of you have probably never been to North Dakota; the healthcare system in North Dakota works differently than it does in Northern California. The same in Florida and Louisiana and Texas, like radically different. The forces have evolved differently," he said.

"So, when we talk about these solutions, when you go to the local market, a lot of times they break down. In this market, with Kaiser the pieces have come together in a way that have allowed them to do something that’s very difficult to replicate."

One way that Kaiser doesn't work, according to Wigginton, goes back to his wife's work as an OBGYN.

"Nancy Wigginton will go in on a Saturday and deliver a baby that she’s not on call for; that’s less likely to happen at Kaiser, it’s more of a structured, shift type environment, which is more sustainable for providers, but maybe not as ideal for, say, an expecting mom. So, there are trade-offs," he noted, while still praising Kaiser for being part of the impetus behind the JV, by making Sutter want to compete.

"I wouldn’t say it’s perfect but it is a very efficient model, and it’s one that has created competitive pressures on organizations like Sutter to say, ‘Wait a second, how do we get close to that lack of competitive friction between the payment and the delivery of healthcare?’ Because most of that competitive friction doesn’t benefit the patient or the provider, it’s wasted. And, again, a JV in an of itself isn’t going to get you all the way there but it reflects, in some ways, a competitive response to how well Kaiser has done."

Dubey then asked Wigginton how the JV helps with cost, access and outcome for the patient, as well as how it helps physicians from experiencing burnout, to which he replied that it would have to get really big to drive those kinds of efficiencies.

Though Medicare and Medicaid are bigger opportunities, right now Sutter Health | Aetna is focused on the commercial market, despite it being "the lowest utilization market."

"But what it does allow Aetna to do, what it does allow Sutter to do, is get outside their comfort zone because the commercial insured population funds the mission for providers. Make no mistake about it. Without an ability to deliver for most of you in this room, an experience you’re willing to pay for, and your employers are willing to pay for, they can't cross-subsidize that which they must do in their not-for-profit mission. So, the JV gives them a chance to move forward more quickly, and innovate more quickly, on things like digital access, free virtual primary care," he said.

In a normal medical group, Wigginton noted, the physicians would push back on an innovation like free virtual primary care because they'd be worried about a reduction in office visits and, therefore, their own income. That would not be the case in a JV environment, where all sides have an equal stake in the outcome.

"In a JV environment, where everybody’s kind of put their chips in the middle, those kinds of disconnects are minimized and we can innovate more quickly and then you start to see uptake, patients are using these services. They like mental health online, they’ll go to a walk-in clinic, if it’s free. They’ll go to a CVS Minute Clinic if it’s free. And then we catch things we wouldn’t have caught and then guess what? They still come to your office when it matters, and then you can move things more quickly. That’s the way it works."

Thanks to our sponsors Avison Young, ScrubbedStratpointUCSF Health Hub and HP.

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Archana Dubey, MD

Joined Vator on

Global Medical Director, Hewlett-Packard Enterprises

Bambi Francisco Roizen

Joined Vator on

Founder Vator, Managing Partner - Vator Investment Club; Former Columnist/correspondent Dow Jones MarketWatch; Business anchor CBS affiliate KPIX

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