Payer Strategies

Payer Strategies provides news, analysis and commentary about the healthcare insurance and payers industry. Healthcare reform creates sweeping changes across all healthcare stakeholders, but in particular for the health insurance industry. Payer executives are pondering how to prosper from the new opportunities while mastering the challenges and risks. The success strategies of the past may no longer be as effective. What new approaches are being tried? What works, what doesn’t?

Showing posts with label alternative contracting. Show all posts

Wednesday, October 26, 2011

Love is all you need? Well, not quite: common elements and success factors of Alternative Delivery and Payment Models

by Torsten Bernewitz

Yesterday I summarized some of the take-aways of the AHIP Shared Responsibility Summit in Washington (http://payer-strategies.blogspot.com/2011/10/love-is-in-air-take-aways-from-ahip.html). The conference showcased innovative two-way (provider-payer) partnerships, and even three-way alliances (provider-payer-employer), all built on the spirit of shared objectives, collaboration, and trust.

While “love was all around us”, the examples that were presented also pointed to the critical factors to make these relationships work and a win-win for all stakeholders, and highlighted the challenges that must to be addressed. I briefly mentioned these common elements and success factors yesterday; here are some more detailed observations:

Alternative models must focus on network performance, not on a particular provider group. Experiences with alternative delivery and payment models that engaged only one stakeholder group, for example primary care, have shown disappointing results. With hindsight, this is perhaps not so surprising. If we engage only one stakeholder group in an alternative model, the only real options are a) to drive down unit costs and b) to hope that favorable outcomes will translate into long-term savings. However, driving down unit costs is not a sustainable strategy, and payer-provider goals are misaligned anyway on this dimension - a likely recipe for failure. Better outcomes at the stakeholder level will likely come at short-term cost increases, or, like squeezing a balloon, will lead to cost shifting through patient selection. The two most important drivers of quality and costs are when and where to refer, and to leverage this dimensions, payers must engage the overall system.
New approaches need to accommodate the fee-for-service model, at least a little while longer. There is widespread agreement that the currently predominant fee-for-service model creates incentives for overuse, and consequently the alternative models aim to replace it with pay-for-performance and global payment approaches. However, from a pragmatic perspective, fully replacing fee-for-service will not be feasible in the near-term. First of all, CMS is forced by its statute to continue with fee-for-service. Secondly, on state level there are frequently significant regulatory barriers that would need to be overcome to move to bundles payment models on a broader basis. This is the case in many states, and the constraints vary across states. So if fee-for-service remains a fact of life in the foreseeable time, alternative models need to find workarounds. An approach that seems to work reasonably well is to create a “shadow capitation budget” (with all the bells and whistles of risk adjustment, trending, inflation adjustment etc.), still pay fee-for-service, but then calculate savings vs. the “shadow budget” and share any such savings with providers. Provided these incentives are significant enough, this appears to be very attractive to provider organizations.
Success can be achieved through the right focus and targeting. Across health plans, about 20% of the members generate 80% of the costs. Similar relationships exist across diseases, and most other areas of healthcare. The Pareto principle offers the opportunity to focus on the right areas for interventions to improve processes, outcomes and costs. It is no secret that healthcare costs increase exponentially across the wellness spectrum from healthy, to at risk, high risk, early symptoms and active disease stages. To manage costs, we need to identify and engage individuals before they move to the next higher cost cohort. This requires a holistic view and engagement of plan members, not just the “patient” subgroup.
Data sharing is a critical element to drive change and measure performance. A key feature of all alternative delivery and payment models is the pooling of data and analytics from payer and provider sources to create joint dashboards to identify trends, outliers and areas of focus, to establish goals, and to track performance. Many of the metrics on these scorecards provide stakeholders with a new perspective of the healthcare process, showing components that were previously obscured, or not shown together in combination. “You can only manage what you measure, and what is measured, gets done” – this statement can certainly be confirmed in healthcare, where a data driven, scientific approach is a hallmark of the culture.
Upfront payer investment is needed to get things started. All alternative delivery and payment models presented highlighted the need for initial payer investment and support to set the process in motion. Even provider systems that are already well organized, like Geisinger when they entered such an ADPM program, have to make significant changes to the way they work, and in particular the processes and systems managing data and money flows. Payer support can be in the form of supplemental fees – for example Cigna’s Initial Coordination Fee – and/or support though services and personnel. Of course, these incremental costs need to be offset in the mid to long term, and should be part of the considerations when cost savings are shared.
Effective governance is a key enabler for a smooth implementation. The leadership in both the provider and payer organizations needs to support the new model and give permission to get the initiative started – and then “get out of the way” to allow execution. Good governance and project management are key to success. It is important to involve all key stakeholders, however without making the process unwieldy and slow. This takes careful planning how stakeholder interests are represented in the various workstreams. We need to be very clear who is in charge of what. Legal needs to have a prominent place at the table. Alternative models touch on many regulatory issues – data sharing and bundled payments to name but two – and it is important to incorporate the legal perspective early in the process to avoid discovering later that certain model components are infeasible.
We must align goals and rewards between payers and providers, across the network, and between organizations and the individual. One of the flaws of the current fee-for-service model is that it sets the wrong incentives by encouraging overuse. To support working together on improving quality and costs, all stakeholders must share the same priorities and share in the gains in a meaningful way. Without this alignment the initiative will fail, merely shift costs around, or lead to suboptimal trade-offs. The best practice is to set concrete goals and targets (looking at relative performance vs. peers does not resonate well with physicians, but a clinically relevant target does). The financial upside opportunity must be significant to get the attention.
Alternative models require a culture and values of transparency and accountability. And in most cases, this will mean a significant cultural shift. Working together in new ways, and sharing data and information in common dashboards and scorecards, requires getting over some of the attitudes and assumptions that may be informed by past experiences. For example, previously adversarial relationships may prompt us to continue playing our cards close to our vest, or we may still try to catch each other out in the contractual fine print. Openness and sharing is also not well aligned with a culture where risk containment is deeply ingrained. Both partners need to abandon such notions, and this requires strong change management efforts.
Change management is therefore a key success factor. Moving to alternative delivery and payment models is not easy, it takes a long time, and in addition to technical challenges, significant emotional barriers need to be overcome. All payers and providers who have tried the new approaches report they encountered bumps on the road. To make the approach work, physicians need to buy-in and embrace it. Achieving this is at the same time the most important and the most difficult task. The new approach calls for standardization (not a good concept to win physicians), measurement and accountability (physicians are not used to being measured, at least not once they have left medical school), and the incorporation of costs in the evaluation (reminding physicians of their frustrations with managed care in the 90s). In addition, many physicians suffer from “change fatigue” through the many initiatives that are calling for their attention. However, while change can be very hard, it can be successful if we put the right conditions in place. This includes careful planning what and how to communicate, and finding and addressing the right emotional triggers that find positive physician response.

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
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.

Contact: torsten.bernewitz@zsassociates.com

Tuesday, October 25, 2011

Love is in the air - take-aways from the AHIP Shared Responsibility Summit

by Torsten Bernewitz

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).

The love bug seems to contagious, as witnessed last week in Washington at the AHIP Shared Responsibility Summit that showcased an outbreak of new alliances between health plans and healthcare providers – stakeholders that usually eye each other with some suspicion. Ten case studies were presented, each highlighting some unique aspects of new partnerships between payers and provider groups and hospitals that are aimed at bending the cost curve and at the same time improving outcomes and patient experiences.

These new collaborations are still very much in their try-out stages. But while no dominant approach is emerging yet, there are some common insights into success factors and remaining challenges.

Two major shifts in thinking

The case studies highlighted two major shifts in thinking in the industry:

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.

Looking across the different examples that were presented, it appears that there are a number of common elements and success factors of Alternative Delivery and Payment Models:

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.

It is probably worthwhile to examine each of these elements in more detail (I will attempt this in future posts).

While the presenters showed nice improvements in both cost containment and quality, there are still at least three issues that remain challenging before these new models can be scaled up to a much larger scale.

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.

Thus, it seems, the first battles have been won, but a lot of work is still ahead to achieve overall victory.