President and COO Karen Hanlon believes integration isn’t the endgame, but it offers a safer place to fix broken payer-provider economics.
Few relationships in healthcare are under more strain right now than the one between hospitals and payers. Margins are thin, trust is frayed, and value-based care has yet to deliver on its promise at scale.
From Karen Hanlon’s vantage point leading one of the nation’s largest integrated payer-provider organizations, the way forward isn’t that hospitals need to become integrated, but that the industry needs a safer place to change.
“I don’t think [integration] will be the predominant model for the future,” Hanlon, president and COO of Highmark Health, told HealthLeaders. “But it is a great place from which to innovate.”
Hanlon sees integrated organizations as a place where the industry can test ideas that are nearly impossible to execute in today’s fragmented healthcare ecosystem, then scale what works elsewhere.
Integration may not be the answer, according to Hanlon, but it may be the best proving ground the industry has.
Integration as a place to experiment
Highmark Health’s Living Health strategy, launched five years ago, was designed around the premise that improving health outcomes and affordability requires rethinking how consumers experience care and how payers and providers work together to support that journey.
“We do believe that if we can drive better health outcomes, the cost of care will come down,” Hanlon said. “Eliminate waste from the system, eliminate from the system the clinical interventions that are not going to yield a better outcome, and focus on optimizing the clinical intervention for the individual and getting them to engage with that intervention.”
Highmark’s integrated relationship with Allegheny Health Network in Western Pennsylvania allows the organization to try ideas that are often blocked elsewhere by hurdles like data silos or misaligned incentives.
“We have a unique business model here because we are both a payer and a provider,” Hanlon said. “That gives us the opportunity to maybe do things or try things that maybe others either can’t try or might have more barriers with respect to trying.”
That experimentation has focused heavily on foundational work like consolidating data, improving interoperability, reducing administrative complexity, and automating utilization management so decisions can happen in near real time rather than through fax machines and manual reviews.
On the clinical side, Highmark and Allegheny have expanded access to behavioral health, virtual care, musculoskeletal programs, and urgent care, while aligning clinicians across the ecosystem around shared standards of care.
The results suggest that tighter alignment does matter. In Western Pennsylvania, where payer and provider are working closely together, consumer satisfaction is higher and total cost of care is lower than in other Highmark markets, according to Hanlon.
But she is quick to emphasize that these gains don’t mean integration itself is the goal.
“[The integrated model] is a great place for us to innovate,” Hanlon said. “Through that innovation, we have to find the strategies and the tactics that have the most impact and find a way to scale those strategies and tactics in the more traditional environment.”
Pictured: Karen Hanlon, president and COO, Highmark Health.
Why the economics must evolve
If integration provides a laboratory, the reason that laboratory is needed becomes clear when Hanlon turns to healthcare’s underlying economics.
“The traditional payer and provider model around rate setting and revenue transfer will not be sufficient to really promote the best outcomes and affordability,” she said.
That reality, Hanlon noted, is widely understood, but rarely acted on. Thin margins, post-COVID disruption, utilization spikes, and regulatory uncertainty have made both payers and providers hesitant to push too far from fee-for-service, even when leaders know it isn’t working. “There isn’t a lot of room for error,” Hanlon said.
Highmark’s own experience highlights how difficult economic reform can be, even inside an integrated system. The organization is currently piloting a quality and shared risk program with Allegheny Health Network designed to move beyond narrow, attributed populations and account for the system’s role as a quaternary referral center.
“I wish I could tell you that we 100% had it figured out,” Hanlon said. “We don’t, even within our own ecosystem.”
From Hanlon’s perspective, the biggest obstacles to alignment are data and economic framework. Without full data sharing, she noted, both payers and providers risk “sub-optimizing” their decisions.
Interoperability, however, is only part of the challenge. Trust is the other.
“Being willing to step into that relationship in a way that you are thinking differently about the role that you play in the ecosystem and perhaps willing to cede control, decision making, accountability… to the other party and trust and have confidence in that,” Hanlon said, is essential.
Integrated systems like Highmark, she argues, can help by experimenting with new economic models, data-sharing approaches, and care designs to find the solutions for a more sustainable system—one that works better for payers, providers, patients and everyone in between.
Hanlon said: “We're still going to have to have a different economic wrapper around these transactions than the fee for service environment today.”
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Integrated models allow payers and providers to try new economic and care models with fewer structural barriers.
Fee-for-service reimbursement and thin margins make industrywide change risky, slowing value-based progress.
Better data sharing, trust, and alignment matter more than contracts in driving affordability.