- October 20, 2022
- By admin
Payer-Provider Bonds Will Strengthen to the Patient’s Benefit
Payers and providers are increasingly forming strategic alliances to keep up with a rapidly changing healthcare payment system that rewards value over volume — by controlling costs, improving population health, and improving the customer experience.
Potential payer-provider collaboration models range from contractual agreements for specific lines of business to joint ventures to the formation of new, fully integrated companies. Balancing competing priorities is a critical — and ongoing — task for all partnerships, regardless of their specific form, and it will determine the shape and success of the partnership.
A variety of payer-provider partnership models are available:
By making healthcare more affordable, convenient, and personalised, payer-provider collaborations are intended to generate economic value that can be passed on to consumers, resulting in a virtuous feedback cycle. This value creation occurs as providers gain access to the premium dollar of the health plan and payers gain access to the point of care. The partnership’s efforts are ultimately intended to reduce the overall cost of care for the communities served by the partnership.
Leaders of health systems and health plans must be prepared to guide emerging partnerships through uncharted territory. To sustain success, organisations must identify and navigate a series of critical economic trade-offs, such as the creation of value through the partnership relative to its size, the use of performance measurement methods, and the assumption of risk. The following are key questions to ask along the way that will help define the partnership’s economic parameters:
- Is our collaboration large enough to generate value that will fulfil its promise?
- Is our partnership’s performance meaningfully measured?
- Is our collaboration effectively balancing potential risks and rewards?
Making a difference: Creating value
A payer-provider collaboration must eventually cover a large enough share of the population and overall healthcare spending in the area it serves to effectively create value for itself — and reduce overall healthcare costs. For example, a partnership responsible for a large portion of healthcare spending may have a lower cost reduction goal than a partnership responsible for a smaller portion of spending.
Although reaching the size required to create value may be difficult in the short term, each party must be willing to commit to expanding the scope of the partnership through steps such as tying executive compensation to growth targets. As providers and payers transition from fee-for-service to value-based arrangements, provider revenue becomes an expense. Participants will need to find ways to manage and reduce costs by reducing utilisation, shifting utilisation to lower cost settings, and possibly considering price discounts for commercial payers.
Without sustained cost reductions in healthcare, health plans will be unable to offer competitive premium prices, hampering efforts to maintain a resilient market presence. However, growth — whether through membership growth or greater access to the premium dollar — is required for the delivery system to offset the partnership’s expenses.
Success Evaluation
Entities must accurately measure and isolate provider performance in order to quantify the creation of value through the partnership and ensure that the return is commensurate with the investment. It is critical to assess the total cost of care within the partnership and how it compares to national and market-specific averages.
If the partnership’s risk pool is relatively distinct from the payer’s broader risk pool, the need for more accurate performance measurement in terms of cost, quality, and patient retention will be heightened. Overly complex approaches to measurement, on the other hand, can distort the partnership’s ability to progress toward its goals; impede efforts for providers to identify and respond to challenges; and even distort performance results, impeding the partnership’s ability to progress.
Risk Definition and Quantification
As a payer-provider partnership’s willingness to take on more risk grows, so does the potential for greater reward or loss. Finally, the partnership must be able to generate shared savings for both payers and providers, which is dependent on its ability to manage the total cost of care for its members as well as overall administrative expenses.
As a starting point, partnerships should consider the following questions to help define, quantify, and differentiate between various types of potential risk:
- As a partnership, how do we define risk?
- How do we prepare for risk?
- How can we quantify how much risk we are willing to accept?
- How do we differentiate clinical and performance risk from actuarial risk related to pricing?
- How should risk be distributed or delegated throughout our system?
- How do we incorporate the risk of the partnership into a broader risk management framework?
Managing risks and rewards while pursuing success
The amount of risk that the partnership is willing to take determines the range of potential rewards or losses. Partnerships must consider potential success factors and associated opportunity costs once they have defined and quantified how much risk they are willing to take.
Partnerships, for example, must be able to add new covered lives, either through membership growth or by assigning existing health plan members to the partnership, in order to drive further growth. At the same time, partnerships must be able to keep overall patient spending within their network by closely managing cost and quality performance and sharing information effectively. To refer patients, a participating health system may work to realign its primary care network within the network.
The design of the partnership’s health plans necessitates a careful balancing act as well. There is a disconnect in many markets regarding the types of plans that are offered or desired in the market between payers and providers and the brokers who work directly with employers. While employers may initially express an interest in low-cost coverage options, many employers ultimately decide not to limit choice in the plans they choose in order to retain high-quality employees.
Balancing trade-offs in payer-provider collaboration
Finally, partnerships must be able to transfer the value they create to employers, purchasers, and consumers — and this is generally made easier by the design of the health plans offered by the partnership. While narrow networks that direct care to lower-cost care options may help the partnership achieve its overall goals, open access networks may be more popular with buyers.
A balanced approach is also required for the growth and retention of the partnership’s covered lives. Keeping consumers in the network and adding new lives is dependent on consistent results in terms of quality and cost, which can lead to the implementation of performance-based out-clauses with providers. However, using too many terms can be detrimental.
Other factors to consider
In addition to the key tradeoffs outlined in this article, payer-provider partnerships must address a slew of other issues over time. Here are a few examples:
- The extent to which both parties will work with other market partners to maintain a pluralistic environment.
- The ability of participating entities to enter into multiple partnerships in their respective markets without diluting the value of any given partnership.
- The ways in which each partner will share in the partnership’s economic performance
- The procedure for determining which populations the partnership will target, as well as their insurance coverage and the types of insurance products they are insured under
- The ways in which the collaboration can assist each party in beginning the journey to a more sustainable future
Conclusion: Achievement in a New Frontier
Partnerships between payers and providers have the potential to improve population health while lowering or controlling overall healthcare costs. To achieve that vision, each partnership must be prepared to decide how to manage value creation, the metrics used to assess progress, and the amount and type of risk the partnership is willing to accept. Although the specifics of each market will influence how partnerships decide on their specific course of action, navigating economic trade-offs and managing multiple considerations in the new frontier of payer-provider partnerships is critical for long-term success.