Leading the Conversation: New Channels for Provider Contracting

Transcription

1 WHITE PAPER Leading the Conversation: New Channels for Provider Contracting Author: Cindy Lee On the vanguard of thought. On the front lines of ac on.

2 Leading the Conversation: New Channels for Provider Contracting The healthcare marketplace is in the throes of a fundamental change in how healthcare delivery will be packaged, priced and purchased. Historically, the healthcare value chain has been driven by a series of negotiations between the purchaser (i.e., employers and government agencies through the guidance of brokers and benefits consultants) and health plans; and health plans in turn negotiating with providers all in an effort to create the right package of services for the right price to meet the needs of the consumer. In this world, roles were clearly delineated employers operated as purchasers on behalf of consumers, brokers/consultants as agents, health plans as aggregators, and health systems as providers. Tradi onal Rela onship Channels: Mul -step nego a on across purchasers, agents, aggregators and health plans CONSUMERS PURCHASERS AGENTS AGGREGATORS PROVIDERS Individuals Employers Brokers / Consultants Plans Systems Government Agencies Page 1

3 Leading the Conversation: New Channels for Provider Contracting The individual consumer was largely left out of these direct conversations and protected from the actual cost of care when covered by their employer or a government program. systems were similarly protected and at times obviated from managing total medical spend. The basis for health system payment rates centered on their ability to negotiate with health plans using an argument of differentiation across highend specialty services, access to a broad base of physicians and/or an expansive footprint across a given geography. Multiple factors have precipitated a change in this dynamic, including: 1. The Affordable Care Act (ACA) in 2010 facilitating the development of payment models that encouraged data transparency and shared accountability for medical spend across government agencies, health plans and health systems; 2. The economic downturn in 2009 elevating self-insured employers demand for relief from accelerating medical costs and for improved service and quality, leading to the emergence of commercial value-based contracts, and disruptions in traditional channels with employers contracting directly with providers; 3. Employers shifting additional financial responsibility to individuals by increasing employee liability for upfront premium funding as well as through benefit design, with higher member deductibles and co-insurance rates; and 4. A rise in consumerism supported by data transparency (cost and quality by provider, procedure and episode) and the advent of public and private exchanges. These changes have placed downward pressure on historical fee for service revenues and at the same time opened new channels for health systems to gain access to a greater portion of the premium dollar. The early effect has been a disruption of historical relationship channels and roles, with self-funded employers and providers contracting directly with each other. Addi onal Rela onship Channels: In addi on to the tradi onal channels, some purchasers are star ng to connect more directly to providers through direct contrac ng rela onships. CONSUMERS PURCHASERS AGENTS AGGREGATORS PROVIDERS Individuals Employers Brokers / Consultants Plans Systems Government Agencies Page 2

4 Leading the Conversation: New Channels for Provider Contracting In addition, joint ventures have formed between health plans and providers; providers have launched provider-owned health plans; and new market entrants such as conveners and technology vendors have emerged all in an effort to gain access to a greater portion of the premium dollar. Providers, as the deliverers and directors of care, are in the best position to influence and manage total medical spend. Providers have a decision to make regarding the role they want to play and the degree of responsibility they want to assume in managing a greater portion of the premium dollar. To do so, providers need to develop a clear understanding of their desired position in these emerging new relationship channels and what benefit - and risk - such new relationships present. Providers should develop a go-to-market contracting strategy with the same discipline as traditional strategic planning efforts, such as clinical service line strategies, physician alignment strategies and geographic growth strategies. At the highest level, health systems will need to consider both national and local market forces, their current and desired future market position and population health management capabilities. A well formulated go-to-market strategy will appeal to the market while at the same time generate an understanding of both the expected strategic and economic impact to the health system. Importantly, as the figure below reflects, the strategy should serve to match both the health system s and the market s needs. What is the market segment opportunity? PURCHASER SEGMENTS Like groups of purchasers and their dis nc ve buying characteris cs PRICING Compe ve market price to support product offering How do we successfully take a product to the market? PRODUCT DESIGN AND PAYMENT MODEL Design of products that are a rac ve to both purchasers and health system DISTRIBUTION CHANNEL Strategies to bring products to market How do we develop an approach that effec vely meets the market s needs and supports our strategic and economic impera ves? STRATEGIC IMPACT How do we advance our mission, vision and strategic objec ves through a payor strategy and product por olio that capitalizes on our dis nct value proposi on? ECONOMIC IMPACT What is the true economic value of transi oning to value? How do we navigate new models while maintaining performance under more tradi onal models? Page 3

5 Leading the Conversation: New Channels for Provider Contracting More specifically, the health system s go-to-market contracting strategy should address the following dimensions: Assess the market from a payor perspective. Number of large employers headquartered in the local market and their openness or drive value-based payment models Market share of each health plan across different segments (e.g., commercial small group, commercial large group, Medicare Advantage, Managed Medicaid) Prevalence of alternate payment models including bundled services, reference pricing, narrow networks Growth of individual marketplaces across public and private exchange products Evaluate health system capabilities in place to manage populations today and options to fill gaps (build, buy, partner). Clinical management care coordination across the continuum, disease management, clinical variation management Physician leaders ready to drive change and build systems of care focused on delivering value Technology/informatics capabilities data repository, claims and clinical data analytics, care management systems, physician reporting, decision support tools Aligned physician network and defined incentive distribution model to support accountability across both the owned enterprise and aligned network Financial systems for understanding drivers of improvement for each contract, as well as mechanisms for distributing bundled payments and incentives Define the desired population base to manage under a value-based payment model based on market and organizational readiness. Episodic (e.g., total joint, cardiac surgery) Clinical need (e.g., defined chronic condition, complex children) Payor-specific (e.g., Medicare Advantage, Managed Medicaid) Population-based based on defined geography, employer Determine contracting models to pursue (by population), based on capabilities, market interest, organizational tolerance for risk and expected performance. Minimal risk pay for performance; one-sided shared savings Upside/downside shared savings with corridors Episodic risk (e.g., bundles) or partial capitation Full capitation/global budget Identify key market distribution channels (employers, brokers, payors) based on existing relationships and/or capabilities that bolster provider capabilities or enable access to a significant number of lives. The distribution channel(s) should be considered as an extension of the provider s brand and are key long term strategic relationships that should not be entered into lightly. While this framework can be used for defining an entire enterprise product portfolio, applying it at an episode level may be a simpler starting point for most providers. For example, a health system may be in a market identified as part of Medicare s Comprehensive Care for Joint Replacement (CCJR) or is already participating in the Bundled Payments for Care Improvement (BPCI) program. Page 4

6 Leading the Conversation: New Channels for Provider Contracting At the episode level, the framework can be applied to: z Define and engage the right physicians to set clinical pathways based on evidence-based protocols, develop metrics and monitor performance; z Identify the clinical capabilities and assets required to effectively manage this population such as rehabilitation, skilled nursing and home health; z Determine the data and informatics capabilities required to measure and monitor performance; and z Set the target pricing, potential market and associated distribution channels and expected financial benefit and risk of the episode. Providers should prioritize the development of their go-to-market contracting strategy to design their own journey toward owning a greater portion of the healthcare premium and avoid having terms dictated to them. This will become increasingly important as national insurance carriers continue to consolidate and also set forth some aggressive goals for transitioning to value-based payment models. Following the Centers for Medicare and Medicaid Services (CMS) announcement to move 50% of Medicare payments into alternative payment models and to have 90% tied to quality or value by 2018, several private payors followed suit; including several carriers that participate in the Care Transformation Task Force (e.g., Aetna, BCBS of Massachusetts, Blue Shield of California and Care Service Corporation) which has set a goal to convert 75% of its business to value-based arrangements by Change will occur sooner and broader in some markets than others. Providers should take the initiative to craft their own future before others design it for them. Key questions for your organization include: z How are you positioned if narrow network products become more prevalent in the markets you serve? Are you a must have or optional based on your relative price, geographic coverage, reputation, brand? z What are the implications to your current and future market position of being excluded or walking away from participating in a narrow network product? z How might creating new relationship channels (e.g., contracting directly with employers, partnering with payors) help your current position? Harm it? z How prepared are you to take risk for total medical spend (physician leadership, clinical capabilities, analytic/ technical capabilities)? z What is your financial capacity to make necessary investments in developing new population health management capabilities can capital be redirected to support these investments? Providers should lead the conversation in defining the role they want to play in the healthcare value chain in order to capture more value but will need to be mindful of how even a small move might cause a ripple effect in the market, both in terms of competitor response and future potential relationships. For More Information Cindy Lee Principal clee@chartis.com Page 5

7 About The Chartis Group The Chartis Group (Chartis) is a national advisory services firm dedicated to the healthcare industry. Chartis provides strategic and economic planning, accountable care, clinical transformation, and informatics and technology consulting services to the country s leading healthcare providers. Chartis has been privileged to work with over two-thirds of the academic medical centers on the U.S. News and World Report Honor Roll of Best Hospitals, seven of the 10 largest integrated health systems, four of the five largest not-for-profit health systems, nine of the top 10 children s hospitals, emerging and leading accountable care organizations, hundreds of community-based health systems, and leading organizations in healthcare services. The firm is comprised of uniquely experienced senior healthcare professionals and consultants who apply a distinctive knowledge of healthcare economics, markets, clinical models and technology to help clients achieve unequaled results. Chartis has offices in Boston, Chicago, New York and San Francisco. For more information, visit Boston New York Chicago San Francisco 2015 The Chartis Group, LLC. All rights reserved. This content draws on the research and experience of Chartis consultants and other sources. It is for general information purposes only and should not be used as a substitute for consultation with professional advisors.