A couple of week ago I mentioned examples how payers and drug manufacturers – typically on opposite sides of the negotiating table - are trying new ways of working together as partners instead of adversaries (http://payer-strategies.blogspot.com/2011/10/adversaries-becoming-friends-payers-and.html).
- Containing healthcare costs and providing high quality care are no longer regarded as mutually exclusive objectives. In fact, the first experiences with alternative models show that cost savings are achieved through different (better and more efficient) healthcare delivery. This is a significant shift in the fundamental assumptions about the dynamics of healthcare systems, and it has a dramatic impact on payer strategy!
It is perhaps interesting that a similar dramatic paradigm shift was forced on another large industry more than 25 years ago, when US car makers had to discover - almost at their peril - that the fundamental basis of their strategies was deeply flawed. When conventional wisdom seemed to suggest that you could either produce high quality but expensive, or cheaper but lower quality vehicles, their Japanese competitors outflanked them with inexpensive cars with superior quality (and better customer service on top).
Fortunately (or sadly, if we think of the overall value of healthcare), there is no foreign competitor accelerating the momentum to make such a switch. But the discovery that better delivery can lower costs suggests that there may be an early mover advantage for payers who can get this right and turn it into a competitive advantage with their customers.
- Payers and providers need to work jointly - as true partners - to achieve both objectives of better healthcare delivery at lower costs. This requires a new mindset – shifting the payer-provider relationship from the currently predominantly negotiation driven, and at times adversarial perspective to one of shared objectives, collaboration, and trust.
Partnerships also require a longer-term commitment: alternative contracting initiatives typically run for about 5 years, compared to the 1-3 year duration of conventional contracts. Joint working recognizes that each partner holds different pieces of the puzzle, and brings different capabilities to the table that complement each other.
Providers have the expertise in diagnosis and treatment choices that determine the clinical outcomes and the patient’s journey and experience along the way. Payers have extensive data about utilization, outcomes and costs. They can see their members in a holistic way, can track them from before they show up as a patient, follow their paths through the provider network, and monitor what happens to them afterwards. They have wellness programs and can work with employers.
- Alternative models must focus on network performance, not on a particular provider group.
- New approaches need to accommodate the fee-for-service model, at least a little while longer.
- Success can be achieved through the right focus and targeting.
- Data sharing is a critical element to drive change and measure performance.
- Upfront payer investment is needed to get things started.
- Effective governance is a key enabler for a smooth implementation.
- We must align goals and rewards between payers and providers, across the network, and between organizations and the individual.
- Alternative models require a culture and values of transparency and accountability.
- Change management is a key success factor.
- Changing patient behavior remains a key challenge. Provider accountability and incentives, which are key components of the alternative delivery and payment models, do not change patient behavior. Engaging patients and families is hard, but if successful, tremendously valuable. To enhance success, alternative delivery and payment models should be linked to other payer strategies that aim at becoming more “consumer centric”, including patient messaging leveraging mobile technologies and social media, customizing services to specific consumer profiles and needs (for example consumers with low literacy and numeracy skills), and making the customer experience simple and transparent. Although the payer industry still has a long way to go to become really good at this, effective patient/consumer engagement is a key capability that payers can bring to the partnership table.
- Standardization and accommodating the multi-payer perspective is still a largely unsolved issue. Perhaps with the exception of one payer dominating a local market, providers need to work with several payers. Alternative delivery and payment models require new metrics – on outcomes, quality, patient experience etc., and that creates a significant challenge. BCBSMA, for example, has 64 quality metrics in their Alternative Quality Contracting (AQC) model, a global payment model that uses a budget-based methodology, combining a fixed per-patient payment with performance incentive payments. CMS has 65 metrics, which seems like a close enough number, but unfortunately they are not the same. It is impossible for providers to deal with multiple sets of competing metrics. Standardization is a must, but this remains an unsolved problem. But the challenge may also create a first mover advantage: payers who can get their metrics footprint on a provider organization can influence how this organization thinks and, indirectly through what is measured and how, acts.
- Sustaining success and momentum in the long-term is an ongoing concern. The experience with alternative care and delivery models has shown that in many cases cost savings and quality improvements could be achieved relatively quickly and easily. These encouraging results could be achieved through going after the low hanging fruit: leveraging provider cost differences across the network, and targeting the obvious inefficiencies and outliers in practice variations. While establishing an early success record is important to sustain momentum of the movement to ADPM, it also creates high expectations on the employer side that this trend will continue. It will be harder, and may take more time, to meet these expectations when payers and providers go after the next areas. BCBSMA’s Alternative Quality Contracting, for example, achieved savings in the first year mostly through price reductions, rather than use reduction. Efforts to drive further savings may have diminishing returns.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.
This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.