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New Goals, New Alliances

 |  By Philip Betbeze  
   August 15, 2014

The historically adversarial relationship between providers and payers is shifting toward cautious cooperation as both sides recognize that they must implement structural and strategic changes to ensure their mutual survival.

This article appears in the June 2014 issue of HealthLeaders magazine.

It's taken for granted that Batman will always hate the Joker. Beatles fans may never quite trust fans of the Rolling Stones. Republicans and Democrats will never agree on much of anything. And hospitals will always hate health insurance companies. Except when they don't.

As incentives slowly change in healthcare, a sort of détente is emerging between some health systems and health insurers. And as collaborative arrangements evolve, payers and healthcare organizations are finding that they need each other in order to ensure their relevance in an industry that is remaking itself in an attempt to become more affordable and less dangerous to its end consumers.

In fact, hospitals, health systems, and health plans are finding that because they each have a vested interest in reducing waste and improving healthcare's value, they have a lot in common lately. In some cases, seeing the difference between the providers and the payers is getting more and more difficult as each comes closer to incorporating pieces of the healthcare continuum that were once the exclusive domains of the other.

Much tension still exists. For example, many hospitals and health systems are exploring alternative ways to contract directly with those who ultimately pay for care—individuals and employers—while third-party payers are trying to maintain leverage over hospitals and health systems by expanding into providing care themselves. Many leaders on both sides resort to the old tendency to view healthcare payment as a zero-sum game: If providers win, health plans lose; if health plans win, providers lose. Increasingly, however, that sort of thinking is being replaced by a spirit of cautious cooperation.

Collaboration instead of conflict?

In the past, and even up to the present in many areas, payers and providers have struggled to work together primarily because the business model pitted the two against each other—and negotiations determined the winner or the loser. The payer tried to get rates as low as possible in its drive for profits, while the providers tried to negotiate rates as high as possible in the same drive to generate margin.

"In this type of relationship, trust is almost impossible to establish," says Charles Kennedy, MD, CEO of Accountable Care Solutions for Hartford, Connecticut–based Aetna, a healthcare benefits company with 2013 revenue exceeding $47 billion.

But he says Aetna is trying to break the mold through a variety of risk-sharing incentives under which both the provider and the payer are aligned.

"We seek to … more tightly link the future of the provider with the future of the payer," he says. "We want it to be that when you work with Aetna, you win when we win, and we win when you win."

That is easier said than done. It involves a lot of work on process measures as well as compensation structures (reimbursement based on outcomes has yet to truly take hold), but Kennedy says Aetna follows a blueprint in negotiations with providers—whether they be hospitals or health systems or large physician practices—that forms a foundation for risk contracting on both sides.

"Providers can look at the contract and they can see that Aetna is going to be successful only if and when they are," he says. "Then you have the business model foundation for trust, and as you move forward you can expand that relationship."

That expansion involves what Kennedy describes as enablement.

He calls it that because he says most hospitals and health systems are not set up to be successful in risk-based contracting, so they need a lot of help setting up structures, incorporating new skills to their labor force, and better coordinating care and tracking how well they're doing so that the incentives can be reached.

Not all provider organizations are waiting for payers to help them establish the new modalities to improve care and cut costs. Catholic Health Initiatives, which is based in Englewood, Colorado, and owns or operates 89 hospitals and other facilities in 18 states, has partnered with health insurers, but it also has internal strategic transformational vehicles to help the organization become more accountable and to take advantage of the reimbursement risk that's been added into revenue and margin projections.

In general, Dean Swindle, who is the president of enterprise business lines and chief financial officer at CHI, says the organization is beginning to see better relationships with payers that involve a level of win-win in contracting. But "there are not a lot of them, and the ones that do exist are small."

Not satisfied with this piecemeal approach toward transformation, CHI has developed risk-taking capabilities on its own. It recently acquired a Medicare Advantage health plan and is busily integrating it into its suite of products. Swindle says CHI has not yet decided whether it wants to go further into developing its own health plan or group of health plans; it remains a possibility, but could conceivably cause problems with other payers with which CHI works.

"As we go into things like Medicare Advantage, most payers seem to feel that it's not hitting their core business yet; but realistically, there may be repercussions," he says. "That may impact our ability to work together, and both will have to find that balance."

Digging into data

That's a strategy-level conundrum, but at the practical level, there are a couple of examples of progress being made where, traditionally, providers and payers have been polarized around sharing the claims data that payers have understandably guarded very closely.


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Philip Betbeze is the senior leadership editor at HealthLeaders.

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