PPO Pioneer Rich Blomquist

AHC’s Rich Blomquist puts emphasis on quality care
Richard Blomquist was in on the ground floor of the managed-care industry back in 1974, and he’s got a few stories to tell.
There was the time he was setting up his first dental managed-care organization in the Chicago area. Problem was, the few existing HMOs had close ties to the Chicago mob. Ultimately, Blomquist got around the problem without getting his legs broken, and went on to establish one of the nation’s first dental plans of its kind in the country – one the Wharton School of Business used as a case study.
Almost 25 years later, the 50-year-old Blomquist can afford to look back and laugh, and take stock of the growth of his 85-employee company, Associates For Health Care, Inc., in Brookfield, the largest Preferred Provider Organization (PPO) in the state.
Associates for Health Care (AHC) combines a network of physicians, hospitals and other providers who have agreed to provide affordable, quality health care in exchange for a larger volume of patients.
Essentially, Blomquist and AHC line up the patients with the health-care provider network, then AHC manages the costs by processing the claims and factoring in the discounts. The patients get affordable care and greater flexibility in choosing physicians, while the health-care providers gain a larger captive group of patients. AHC, meanwhile, ensures that patients receive the proper level of care through utilization management review.
And because everybody wins, AHC gets more business with each passing year.
In 1996, AHC handled $198 million worth of claims. Last year, that figure increased to $280 million. This year, AHC expects to represent $400 million in claims. Since 1989, the firm has grown at an annual 45% clip. That growth has been recognized by Ernst & Young, which nominated Blomquist as Wisconsin Entrepreneur of the Year for the second year in a row.
Not bad for someone who first came here in 1984 with only his knowledge of the health-care industry and a deep-seated conviction that PPOs represented the future of managed health-care organizations. While Blomquist commuted to Brookfield from the Chicago area, a utilization management nurse ran the fledgling operation from her home.
From those humble beginnings, today AHC operates out of a 20,000-square-foot facility on Corporate Drive in Brookfield, its third location since its inception.
AHC provides cost management services to more than 5,300 corporations which collectively provide health benefits to more than 370,000 people. Last year, more than 1.5 million health claims flowed through AHC. Corporate clients include Allen-Edmonds, Jockey International, Kimberly-Clark Corp., Snap-on Inc., Wisconsin Electric, Wisconsin Gas, Versa Technologies and a host of others. AHC also extends the PPO network to a number of large unions which participate through Taft-Hartley trusts.
Quality care saves money
Beyond the impressive numbers and the big names, AHC represents a commitment to quality health care that saves the marketplace money in the long run.
AHC’s utilization managers do not take the approach of: “How soon can we get Aunt Hattie out of the hospital,” Blomquist says. “Our orientation is, if you can provide the correct mix of care in the proper time frame, it’s going to result in tremendous economies.”
Blomquist says the message that goes out to members of the AHC provider network is one of doing nothing in the interest of economy that jeopardizes quality, because poor quality health care is very expensive.
“This is a significantly different message than what typically comes from the marketplace, but it is very effective,” Blomquist states.
AHC PPO members have some of the lowest hospital admission rates and some of the lowest average hospital stay rates in the state. Using the Professional Activities Study as a benchmark, AHC’s utilization management team has consistently achieved savings in excess of 25% over the study’s norms.
What typically happens in a managed care setting is a patient calls a nurse and indicates that he is scheduled to undergo a certain medical procedure. The nurse goes to a computer, which determines the average length of stay, or if it should be an outpatient procedure. AHC does not take this approach, instead applying a large case management approach, which is normally reserved for heart transplants and other substantial medical procedures. This means the AHC team applies medical need to every case instead of applying a rigid computer model.
“I’m not a big fan of trying to apply these very rigid programs to fit a patient’s needs,” Blomquist says. “There are so many variables for each individual that I just don’t think it works very well. By applying medical need criteria, it makes for a better outcome for the patient which saves everybody money in the long run.”
Why PPOs work
Today, fully 50% of the private sector’s health care is being provided under PPO-type plans. When people talk about managed care, they generally think about Health Maintenance Organizations (HMOs). But in fact, HMOs represent a minority of the managed-care industry, or about 27% of health care in the private sector. Blomquist says HMOs are actually in decline while PPO organizations continue to grow.
“I think that’s because the basic principles of PPOs are more in concert with the mindset of the American people,” he says. “Such things as freedom of choice. People don’t like to be told: ‘You have to go to this doctor or that doctor.’ Or, you have to get the blessing of this doctor in order to see a specialist. There is much more freedom to choose under a PPO.
“Someone could go into a PPO primary care doctor this morning, and, if they didn’t like that doctor, they could go to see another doctor within the PPO,” Blomquist says. “Time and time again in meetings with employees, we get that positive feedback on the freedom of choice. We tend to get 85-90% of the people using the PPO after a year to 18-month growth cycle.”
Blomquist got the idea for setting up the Chicago dental PPO after reading an article by Peter Drucker about a new health-care delivery system in Germany. That served as the basis for what he established in the Chicago area back in 1974-75.
“It was a new approach which was being used in Germany where employers were contracting with the doctors and hospitals to provide care to their employees,” Blomquist recalls.
The term PPO was not actually coined until 1986. By that time, Blomquist had picked up the 5,000-member Milwaukee Graphic Arts health and welfare fund, and the former W.A. Krueger Co. But many people’s employers were reluctant to sign up with AHC in the early days, telling Blomquist to come back when he had assembled “some real numbers” which would allow for greater economies of scale.
Providing incentives
Blomquist says AHC has always looked for a balanced relationship with the medical community. In order to achieve that benefit, if AHC asks for a discount from the physician in order to enhance the benefit plan to give the employee an incentive to use it, Blomquist says. It’s a matter of putting together a benefit plan that says you will pay 80% of health costs outside the PPO and 90% if members stay inside the plan, he explains.
That 10% increase comes, in part, through a fee reduction on the physician’s side, Blomquist says. If the health-care provider gives you a 10- to 20% fee reduction, AHC reinvests that into the better benefit that is offered to the employee.
“That gives you a win-win situation, and that incents the employee to use the plan,” Blomquist says. “There are some PPOs that do not provide the financial incentive. We have always insisted that there be some kind of financial incentive for the employee to use the plan, but we are the only PPO in the state which has done that.
“I have turned away literally hundreds of thousands of dollars of business that didn’t meet that criteria,” Blomquist shrugs. “We have terminated the largest national PPOs because they didn’t meet that criteria, and others.”
Blomquist insists on having the PPO’s logo on the patient ID card, and on the remittance that comes back with the benefit payment. On the administrative side, AHC also delineates discounts from ineligible charges and co-pays and deductibles, as opposed to giving the doctor a single number and instructing him to write off that amount.
“You need to split it up so there is clear communication so that it works administratively so everyone understands how the program is fitting together,” Blomquist says. “Some people simply don’t do that.”
Other PPOs haven’t done that because the medical community hasn’t forced them to do it, Blomquist says. The worst transgression, he says, is a blind or silent PPO, where an insurance carrier or payor is able to contractually tie into a discount, yet the doctor or hospital is not notified that this particular patient is eligible for a discount.
“The doctor provides the services, sends the bill to the insurance company, then he gets a notice back that he owes $1,000 in discounts.”
That happens, to a large extent, because the medical community has allowed it to go on, Blomquist says.
June 1998 Small Business Times, Milwaukee