Payer-provider dynamics in a value-based world

“Nobody knew healthcare could be so complicated”. Well, nobody except everybody that works in the business of healthcare, or has had to navigate the system as a patient, provider or payer.

Provider-payer relationships are particularly complicated, with a regular hospital dealing with Medicare, Medicare Advantage, Medicaid, self-pay, direct to employer and at least a handful of commercial insurance relationships. Each has their own contracting, data collection, quality measurement and reporting requirements. The cost of the administrative burden is well documented. As the industry moves to value-based care and reimbursement models, complex contracting is just one of the areas of friction providers and payers are tussling with. Out of adversity comes innovation, and creative measures are underway to find harmony in a traditionally fractious relationship.

Across the payer-provider landscape several areas of friction are prevalent:

Contracting and administrative burden
Studies have shown as much as $350 billion potential savings though a simplified financial system. With each provider contracting with a multitude of public, private and self-funded payers, data collection requirements alone cause challenges for providers. Contract requirements are often misaligned, and even contradictory, causing providers challenges when it comes to the downstream operations of delivering care and reporting against required metrics. As David Dugdale, Medical Director, Care Management & Population Health at UW Medicine expresses, “It’s a challenge dealing with so many programs and it makes it harder to be nimble at a provider level. With Medicare there are many program choices, but generally when you’ve made a choice it’s standardized. At a commercial payer level there’s a lot of variation.” Operational variations are compounded by the wasted efforts of redundant and repetitive services. Not to mention the mammoth machine that is billing and reimbursement. The CMO at an East-Coast community health network concurs, “Contracting and billing is a very large administrative burden, particularly around data collection for reporting. It has an impact on clinical transformation and improvement initiatives because of misaligned requirements”.

Reimbursement and pricing
It is natural in a relationship where one party is providing a service, and another paying for a service, the former is concerned with maximizing pricing levels, and the latter with reducing them. The added complexity in healthcare arises from a system where the payer is very often a 3rd party insurer and not the user or beneficiary of the service. Jeb Dunkelberger, Director, Value-based Reimbursement, Strategy and Innovation at Highmark argues “Free market economics has no place in healthcare. There is asymmetry of information, inelastic demand, and there is a high threshold to enter and exit the space. We need to understand the patient doesn’t know what they need and has to be protected.” Friction is felt strongly in those operating in increasingly commoditized markets with high fixed costs in an environment of reduced reimbursements. Particularly those competing partly through offering state-of-the-art equipment and medical devices, such as diagnostic imaging and surgical centers. Many are having to find creative ways of delivering to maintain profitability and offsetting reduced margin by cutting back on operational costs to stay in business.

Lack of cost and risk transparency
As Stan Huff, CMIO at Intermountain asserts, “Patients are shielded from the real cost of healthcare as it’s paid for by a 3rd party”. We’ve been educated to believe that expensive is best, and that the bulk of healthcare costs are borne by our employers. Of course, in reality that cost is being offset by reduced salaries. Would we as patients be as spendthrift if we were paying the total cost directly out-of-pocket? John Espinola, EVP Healthcare Services at Premera Blue Cross identifies culture as a driver of cost and risk, “For a variety of reasons, we have seen the medical culture shift from ‘do no harm’ to ‘do something’. More is not better. No treatment is risk-free. The result of this shift is that we have a huge problem with overuse of modern tools and techniques which can carry substantial risk for patients.”

Visibility and control over provider operations
A key challenge for payers is influencing provider workflow to deliver what they see as ‘the right care’. Payers often have the data insights to identify superior outcomes and link these with best practice. In a multi-payer environment however, currently payers only really have the rough implements of financial incentives and penalties to influence provider operations and demand access to quality and outcomes data.

It is unsurprising that there is misalignment in the way healthcare is payed for and delivered. At the core, the purpose, mission and perspectives of payers and providers is different. Providers are often seriously mission-driven, with transformation and change programs linked to organizational purpose. Those at the coal-face of delivering care to patients have a high degree of autonomy, and overwhelmingly enter the profession with the aim of helping sick people to get better. Healthcare administrators, whilst not insensitive to the plight of the sick, are a counterbalance to ensure care is delivered sustainably for a population, and right now that means reigning in spiralling costs. Payers, at the end of the day, are in the business of selling access to healthcare. The current hybrid environment of fee-for-service and value-based reimbursement, means that doing the right thing, by the patient and the system, such as delivering high quality coordinated and integrated care, harms revenue.

So, what are providers and payers doing to address this dichotomy?

Provider-payer partnerships and alliances are growing
Discussions with provider organizations reveal, as they suffer from the pain of the administrative burden of answering to multiple payers, they often feel the onus is on them to come together and lobby payers in rationalizing their requirements. In recent years, in order to align incentives, providers and payers are also coming together to develop reimbursement models that allow providers to be rewarded for doing the right thing in the move to value-based care. This includes infrastructure and transformation support to implement value-based care models. In early 2017 Allina Health and Aetna announced the creation of a jointly owned health plan company. As described by Tim Sielaff, CMO at Allina, “We wanted to address the current perversities in reimbursement and have more influence on payment to align incentives to high value care and be able to transform rapidly.”

Payers moving beyond the carrot and stick
Incentives and penalties remain a valid and valuable mechanism for driving desired behavior. However, payers recognize they have more value to add when it comes to system-wide change. One way is through more creative reimbursement models covering the total cost of care, and coordinating post-acute provider partnerships to extend the continuum of care. Highmark now employ clinical transformation consultants to support provider groups with infrastructure change required to deliver value-based care. They also financially support providers with care coordination fees proactively, using a population risk-adjusted upfront payment; removing the billing administration burden. Payers are in the privileged position of having visibility of the data and operations of multiple providers within their network – offering the opportunity to shine a light on performance and variation.

National quality forums and data sets
In an effort to reduce administrative burden and improve patient outcomes, providers and payers are both seeing the benefits of collaboration. At UW Medicine, Dr. Dugdale states, “To address the challenge of dealing with so many programs we are members of national quality programs such as the Healthcare Effectiveness Data and Information Set (HEDIS) and try to push payers towards standard goals.” Payers are overcoming competitive barriers to contribute to, and agree upon, data sets and quality measures to be reported on, including commercial plans linking to incentive programs such as bundled payments from CMS. At a state level, California and Washington already have a single agreed data set to be reported by all providers, and California even looks to be moving towards a single payer system.

The growth of self-pay and direct-to-employer
Some providers are avoiding 3rd party insurance altogether and growing their self-funded population. At one end of the scale smaller providers are opening up to health tourism in an effort to increase revenue and margin. There has also been an upsurge in brokers supporting employers switch from being fully-insured to self-insured, helping them to measure cost drivers and establish new programs and infrastructure, such as on-site primary care clinics.

Technology
Technology has a part to play supporting provider-payer alignment from many angles. One is to support cost reduction through population health management using algorithms to identify and manage high risk/high cost patients, an area of concern for providers and payers alike. In addition, many systems don’t have visibility and control outside their 4 walls, yet events in independent facilities can impact their compensation. Here, data sharing and communications platforms go some way to offering a shared view of the current patient situation. Care management systems take this further by actioning pre-authorized next steps, allowing payers and providers to collaborate upfront on deploying agreed value-based care pathways. By connecting data from across the care continuum and care pathway, and combining with intelligent workflow, all stakeholders have visibility and control over coordinated and consistent care plans.

What about the future of provider-payer dynamics in a value-based world? On the one hand, partnerships, alliances and integrated delivery networks are bringing providers and payers closer than ever before, through tighter alignment and rationalization of reimbursement models with value-based care. On the other, payers are narrowing their networks and contracts, and this will force providers that cannot deliver to cost and quality standards to be competed-out of the market. Wellness and prevention are moving to the forefront as payers recognize they can save the most cost by preventing people from becoming patients in the first place, and this influence is felt across the system with the boom in corporate wellness programs, often delivered by healthcare providers themselves and providing a neat new revenue stream. There is a huge amount to be done on the technology side in supporting the operations of value based care. This in part will be supported by producers of consumer technology, such as FitBit, moving decidedly into the medical space and driving patients to raise their expectations to those they have for other industries, as well as connecting in real time the holy trinity of patient, provider and payer.

Corrina Kane, Head of Strategic Marketing, Lumeon
@Corrina_Kane @Lumeon_
corrina.kane@lumeon.com

Corrina Kane, Ph.D. is Head of Strategic Marketing at digital health company Lumeon. She researches, writes and speaks on the topics of healthcare policy and regulation in the USA and UK, the global digital health industry and women in technology.

Corrina has held multiple operational management roles developing and marketing new products and entering new international markets in the healthcare technology and life science arena. Previously she served as a strategy consultant to European pharmaceutical and consumer health companies across R&D and commercial areas.

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