In our last post we looked at four key threats to payers from industry devolution with value based reimbursement. These included:

  1. Administrative Service Disintermediation
  2. Network Management Disintermediation
  3. Health Management Disintermediation
  4. Loss of Negotiating Leverage

Each threat is largely a result of the consolidation of provider organizations of all types into multi-modal comprehensive integrated delivery systems. This consolidation in turn is driven by devolution of healthcare industry provider types, care settings, and technology. These new large integrated provider systems are shifting the balance of power in many markets and are causing traditional health plans and Third Party Administrators to re-evaluate their roles, business models, and strategies.

The Good News

Fortunately, payers have enormous strengths and assets to leverage while addressing and mitigating these threats and creatively assessing new competitive opportunities in an industry transitioning to value based reimbursement.

Here are four key strategies for health plan payers and TPAs to mitigate risk and gain competitive advantage as the market continues to be disrupted by industry devolution and the transition to value based reimbursement.

1. Leverage Your Role as Trusted Intermediary

Payers/TPAs have been heavily criticized for their efforts to manage cost – especially when these efforts have appeared to come between patients and providers. Of course, most of this criticism has come from providers wanting minimal oversight and patients with no financial incentive to pay more than minimal attention to cost.

Employers, on the other hand, rely on payers and TPAs to be their trusted intermediaries in dealing with providers.

This is true whether the employer is self-insured or pays premiums to an insurer. Some provider organizations are pursuing direct-to-employer contracting strategies with increasing success.

But only employers who have the scale, expertise, and resources to negotiate and manage such relationships are likely to improve on the pricing and performance that an experienced and reasonably sized payer can negotiate on their behalf.

Health plan payers and TPAs should absolutely leverage their longstanding employer relationships, their size, experience, and ability to steer patients to negotiate with providers on behalf of their employer clients.

The challenge is that many payers and TPAs are used to competing only with each other. The rapid market transition and new competitive threat from large and growing provider organizations is catching many by surprise. Marketing must shift its positioning, supporting messaging and collateral, and sales training to meet the new challenge.

2. Drive Value Based Reimbursement

Health plan payers and TPAs representing employers and individuals are in the unique position to drive the industry transition to value based reimbursement. We won’t rehash here the volumes written on the basics of this transition. But observationally there are two great challenges at this point.

One is that no one yet knows what “pay for performance” models, metrics, measures, and target values will work to actually improve performance against any of the three standard VBR objectives – improvements on cost, quality, or patient outcomes.

From bundles (still a mystic art to most) to capitation (haven’t we tried this before?) it’s still the Wild West out there. Early experiments have shown mixed results, even if you believe the analysis methodologies and data used so far to measure such approaches. And there is minimal understanding of how to adjust program models based on results we do have.

But this is truly where traditional health plan payer/TPA capabilities in actuarial scenario modeling and comprehensive analytics can be applied. The providers can’t do this. And employers wouldn’t trust them to anyway. Fortunately there is accumulating experience and design expertise developing in the consultant community to support payers as they work with their network providers to create VBR arrangements.

Those payers moving early to take advantage of available resources to implement effective VBR programs with their provider networks will gain competitive advantage.

A second issue is that the three major VBR objectives of improving on cost, quality, and patient satisfaction are not all weighted equally by employers. In our practice we hear nice words about quality and patient experience. And certainly they are factors. But usually cost is the most critical driver. So when health plan payers and TPAs design VBR programs the competitive winners will be those who take into account the real priorities of their employer clients.

3. Champion Integrated Healthcare Management

Providers are consolidating into large diverse care delivery organizations with improving care coordination capabilities. But the overall provider market will still be quite distributed for some time to come. Patients will continue to deal with multiple providers.

The overall objective of course is to keep employees and their dependents healthy and productive when possible, and care for them at reasonable cost when they are not. Most health plan payers and TPAs have been expanding on their traditional medical and utilization management capabilities for some time now to provide a more complete population health management capability.

Ultimately, the comprehensive Integrated Care Management (ICM) model of the future will coordinate wellness, primary care and chronic disease management, acute care, rehab, and various forms long term and end-of-life care into one care continuum.

Health plan payers and TPAs that can offer truly integrated services across this continuum will be attractive to employers and gain competitive advantage.

This coordinating capability will require significant investment in process design and integration, organizational design and staffing, and enabling new information systems, data exchange, and data analytic capabilities. There are vendors and potential partners offering components of the above, but pulling it all together into an operational capability is a huge challenge.

Some ICM components are best homegrown. Some are available from vendors. And some are available from potential partners where the full range of relationship from acquisition to joint venture to simple affiliation are all possible. Again, there is external expertise available to assist in creating comprehensive ICM capabilities. But early movers will have an advantage.

4. Creative Network Design and Management

Consolidation of providers into larger more diverse enterprises can drive costs higher through factors from lack of competition in local markets to quirks in CMS billing regulations which enable hospitals to charge more for certain outpatient services than independent clinics for the same services.

Creative health plan payers and TPAs can design provider networks to mitigate this upward cost bias.

Services are available all over the country at differing price points for similar quality. Payers can implement programs that provide basic services at low cost care settings while incorporating often remote centers of excellence for complex and higher cost surgeries and treatments, even if some patient travel is required.

Many payers are discovering that total episode cost even after paying for travel can be less than using local hospitals that are not used to the remote competition. There is a developing industry of coordinators that identify options across the country and the world that can work with payers to determine the best opportunities and partners.

Payers and TPAs can also design networks that are more rational in structure. Not every hospital has to specialize in everything or have all service lines if nearby alternatives are available. This is a form of narrowing networks to a minimally redundant set of capabilities and services and therefore has the potential to inconvenience individual members.

But costs are shifting increasingly to consumers through higher deductibles and co-pays and the advent of catastrophic health plans paired with health savings accounts.

Many plans are finding members more willing to trade inertia and convenience for lower cost.

There are also opportunities for the suppliers of various critical products and services resulting from industry devolution and the transition to value based reimbursement.

To explore how opportunities for your health plan or TPA business model available from the industry transition to value based reimbursement and industry devolution can be identified, quantified, and strategies designed to execute them and thrive in the evolving environment, call 703-887-6615 to schedule a complimentary one-hour consultation or an on-site executive briefing.

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