Savvy employers have been using financial incentives to change their workers' health behaviors—for example, lower insurance premiums for non-smokers—for some time. But few have been able to incentivize employees to choose health care providers that offer the best quality at the lowest cost.

That's starting to change and likely will pick up momentum as more comparative quality data become available, says Larry S. Borress, president and CEO of Midwest Business Group on Health.

"It is not prevalent around the country, primarily because most employers cannot determine the quality of providers," he says. "It's just a matter of time."

In Southern California, that time is now.

As of Jan. 1, the California Schools Voluntary Employee Benefits Association launched the region's first performance-based benefit plan. Workers who chose the "highest performing" tier in a
three-tier HMO network saw lower premiums, office co-pays and generic prescription drug costs. The performance-based plan generated approximately 12 percent savings for the participating school districts over what they would have paid without it.

That worked out well for Sharp Healthcare, a four-hospital system in San Diego, which saw 2,600 new VEBA members move onto its patient roster because of the new benefit design. Sharp's two medical groups, with more than 1,000 physicians combined, are Tier 1 providers, meaning their quality is ranked "excellent" or "good" on the state's report card and their costs are "reasonable"—the second-best ranking on a four-point scale.

Stacey Hrountas, Sharp's vice president of contracting, says she knew her system would look good in the value-based purchasing world because it has been working for years to develop the infrastructure needed to deliver good health outcomes at low cost.

More specifically, Sharp knows what VEBA considers value to mean. Although United Healthcare is the contracting payer, Sharp has a long-standing relationship with VEBA leaders.

So, when VEBA needed to offer high-quality providers in all areas of the county—something that did not exist last year—to win state approval of its tiered benefit design, it sought Sharp's help. The health system relocated physicians to new offices in areas it previously had not served and even hired six new physicians to accommodate VEBA's needs.

Hrountas, who thinks tiered networks will become commonplace in markets where at least one health system has distinguished itself on quality and cost, says that type of partnership is essential to success.

"Always collaborate with the actual purchaser of health care," she says. "The farther you get away from that, the less reality you have about the true requirements for the provider system."