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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.

Juan Serrano, a veteran health plan executive, is now CHI's senior vice president of payer strategy and operations, a function that is part of that effort to expand the organization's capabilities in cooperation with payers and employers.

Serrano says such shared incentives are critical to eventually managing the health of populations because the level of detail needed on the provider side for clinicians to focus on high-value interventions for patients with chronic conditions, for example, is beyond the ability of most health systems to incorporate alone.

Some health plans are providing this information not just with unit costs, but also with even more detail, which enables comparisons and helps tailor cost-effective care. An example of this greater detail would be statistics on total cost of care for a given episode of care in the given market. That data allows the health plan to prove that the provider is either very valuable to the health plan (and by proxy, patients and employers) versus competitors, or show where it falls short.

"This enables people to rally around how to solve problems as opposed to negotiating," says Serrano.

He notes that longitudinal total cost of care for a population is, in a way, a foundational prerequisite for understanding all the moving parts that come together to improve both outcomes and the cost of serving that population. For example, an aggregate snapshot of pharmacy, lab, physician, and hospital claims for certain services can provide a previously unavailable sight line for a particular physician group.

"That's one piece of the so-called longitudinal data that's needed," he says.

Serrano says it's important also to measure the impact of referral patterns on cost and quality measures.

"The physician community has received reports from payers showing how they compare to their peers on cost and some quality measures, but getting more granularity on the impact their referral patterns are having on outcomes from a cost and quality perspective enables the health system to rally and think about ways to solve these types of issues," he says.

Serrano also would like to see potential payer partners offer more specificity around the types of products and services on which the payer is interested in partnering.

"Historically, this has been pretty global in that they want you to serve all their commercial or government program members," he says. "But value is created at a more granular level."

G. Anton Decker, MD, is president of the board of directors at Banner Health Network and chief medical officer of the Banner Medical Group, a Phoenix-based system that operates 24 hospitals in seven states and reported 2013 total revenues of $5 billion. His organization has partnered with Aetna in an accountable care collaboration called the Aetna Whole Health Plan. Decker says many physicians and practices are still living in the fee-for-service age, but that age is rapidly coming to a close with initiatives like the Banner-Aetna partnership.

"Ten years ago, there were a lot of theories that doctors would be paid on performance and data would be shared in the future. Everyone knew it would happen but didn't know when or how," says Decker, a gastroenterologist. "But now it's an absolute reality. Physicians see their data, their colleagues' data, and how they measure up with national benchmarking. Sharing of that data and differential reward for superior performance is a reality and people aren't questioning it."

At the same time, what can be difficult is assessing the accuracy of the data.

"If I'm going to pay a doc differently based on how they perform, the data has to get into the system accurately," he says. "Who's putting it in? Is it automated? All those steps create room for error."

Through the partnership with Aetna, among other initiatives, Banner has cleaned up patient data so that "now there's a lot more trust, and that data is becoming actionable," he says.

When physicians get annoyed by data comparisons—and sometimes they do—Decker reminds them that transforming to being measured on value added is a long transition. However, he's insistent that data given to physicians to measure their performance must be as accurate as possible.

Banner has clearly hammered out some of the challenges, because its results in such accountable programs are impressive. Its case management model, which is independent of any specific contract with an insurer, lowered its average inpatient length of stay across 11 hospitals to 3.81, a 7.52% improvement since the program was enacted. And although some organizations that initially joined CMS' Pioneer ACO program dropped out after the first year largely because they weren't able to achieve much in the way of savings, Banner's Pioneer ACO recorded more than $13 million in shared savings over its first year.

Open access versus ACO

Some health plans are trying to get better value from providers by incorporating them into an accountable care organization of some kind. Some argue that allowing patients to seek care from providers who are not contractually linked to the ACO taints the population data and makes hospitals and physician practices accountable for care patients obtain from providers outside of their systems.

While that's true, says Dick Salmon, MD, medical director for Hartford-based Cigna, the patient and the payer alike ultimately benefit from the patient's relative freedom to seek care where they choose. Cigna is a global health service company with annual revenues of about $29 billion.

While Cigna operates 89 ACOs in 27 states, these structures allow open access. That is, patients are not required to seek care within the parameters of the ACO, although there are incentives for them to do so. Branded as "collaborative accountable care," the name is intended to indicate that the health plan provides services to healthcare professionals to help them optimize their care of patients—it's not just the provider who's doing the work on patient satisfaction, quality improvement, and cost containment.

Salmon says Cigna members prefer the open-access model for a variety of reasons, but chief among them is a belief that restricting where the patient can receive care doesn't force providers and hospitals and health systems to make themselves attractive to patients so that they want to stay in the same system whenever possible.

Participants in the Cigna program must have achieved patient-centered medical home standards, are committed to provide care set by the NCQA, and must commit to a dedicated embedded care coordinator. Collaborative accountable care debuted with Cigna in 2008, and by 2010, a study in the journal Health Affairs showed that its Arizona practice recorded per member, per month costs that were $27.04 more favorable than its comparison group. Quality measures were improved versus the peer groups, in Texas and New Hampshire, although cost differences were deemed insignificant.

"It does put a challenge on the groups. Certainly physicians would much prefer if most of the patients they were responsible for were in a more limited network," he says. "But this means they have to offer services the patients want so that patients voluntarily use them for their care."

He says in Cigna's experience, open access has encouraged physician groups to extend office hours, send reminders to patients, and generally make a greater effort to maintain oversight of that patient's care.

"It's just better customer service because of this structure. That drives a higher level of patient care," Salmon says.

He explains that in shared-savings programs like the ACOs Cigna operates regionally, the financial reward for provider participation is only one of several incentives. Another is increased patient volume; partners that show above-average ranks in quality and cost are prominently featured in tiered and network products to encourage patient growth. A third reward is increased professional satisfaction for physicians.

"We're striving to help the primary care physician who's been encouraged to see more patients more and more rapidly in order to make a living," Salmon says. "In these arrangements, how many patients you see a day is no longer a key metric; how well you take care of them is. Currency for services does not fully reward care coordination."

What also might be toxic is that many ACOs are still ramping up their management and technological capabilities to fully take advantage of their partners' ability to actually manage care, especially of populations that utilize the most expensive sites of care most often, such as those who use or who are more likely to use the emergency room or to be admitted as an inpatient. Aetna's Kennedy says the most important work the insurer is doing right now is adding to the number of programs with its partners to make them as financially successful as possible.

"There is a foundational set of care management programs and technologies, but over the next year, you'll see us add to those capabilities," Kennedy says. "By next year, we'll be able to say we have a new business model for healthcare with all the programs and technologies to make it work, including clinical and claims data integration, analytics based on clinical indicators, and process reengineering to reconfigure what they do and how they do it."

One reason Aetna is well positioned to help "enable" providers such as Banner is because its goal, where possible, is to offer what it calls "payer-neutral tools" to help organizations to demonstrate improved value. For instance, Aetna's tools, largely analytical and predictive in nature, help Banner improve the value proposition for its ACO populations, including Pioneer ACO, even though Medicare patients, not Aetna patients, are attributed to that structure.

Across all patient populations served by Banner ACOs, the structure recorded the following improvements between 2011 and 2012, the latest period for which comparison information is available:

  • 3.0%–5.5% medical cost savings
  • 1.0%–8.0% increase in PCP visits
  • 7.0%–8.0% reduction in hospital admissions
  • 0.5%–1.0% reduction in hospital readmission rate
  • 3.0%–7.0% reduction in high-tech radiology utilization

The numbers represent a range of results based on the patient population being measured, and the results are not blended. For instance, the lowest medical cost savings during the period measured were 3.0% for one group, while the group on the high end of the range saved 5.5%. One direct correlation to those results is that the Aetna commercial products associated with the Banner Health Network ACO populations are priced anywhere from 8% to 15% below prevailing rates in the market, according to the insurer.

Another example of such results comes from Carilion Clinic in Roanoke, Virginia, which has 3,000 participants in a shared-savings ACO with Aetna, which was formed in 2011.

Compared with 2011, 2012–2013 results show that patients in the Aetna ACO saw 6% fewer inpatient days and had 23% fewer avoidable emergency department visits and 10% fewer high-tech imaging scans. The ACO reduced its readmission rate to 4.9% from 5.6%.

Banner's Decker says a big part of helping physicians integrate processes that help achieve this type of savings includes educating them on so-called big data principles.

"The bigger the data pool, there's a greater tolerance of small inaccuracies because the overall story is probably still accurate," he says. "The bigger the data gets, it almost becomes more philosophical, and an individual arguing that a small piece of data is inaccurate doesn't change the overall story."

Banner Medical Group had just less than three million discrete patient contacts in 2013. "We're getting physicians to understand the concepts of big data and maybe become less defensive about individual cases that are inaccurate," Decker says. "I'm a provider myself, but what relaxed me is that this is not aimed at individuals. If you look at overall performance for the year, there's a story to be told there."

Chuck Lehn, Banner Health Network's CEO, agrees that a lot of work still needs to be done for the partnership ACO with Aetna to operate most efficiently, and echoes his clinical colleague, Decker, about the constant learning that is going on among physicians as they transition to a completely different method of evaluating their value to the organization, from revenue generation to quality and efficiency.

"We're still learning how to integrate cost information with clinical information," Lehn says. "The link between cost and quality is an emerging science."

But Decker sees evidence of uptake among physicians, saying that, very slowly, they are starting to talk among themselves about how much the things that they do cost. "The leader is often the doctor who spends less," he says. "That never used to be the language 15 years ago, but now you hear it once a week."

And Lehn says the level of transparency around the data doctors use to compare themselves against their peers is improving dramatically. "If you're sharing risk, then everyone has to understand what's driving the costs and where the costs are."

Banner has finalized another ACO deal with UnitedHealthcare, Lehn says. The organizations have worked together for years, but this is the first accountable care program for the two, and it will become effective July 1. Part of the difficulty in negotiations for such partnerships is that both sides have to come to agreement on historical cost trends, because the health system will be rewarded for how they mitigate the increase in those trends going forward.

Moving toward capitation, narrow networks

What all of these complex moving parts, culture transformation, and big data integration are leading to ultimately can be boiled down to one word: capitation. But the transformation to that type of payment, in which a provider negotiates a per member, per month fee for taking on a patient's medical risk, is filled with baby steps in order to successfully make such a dramatic transition. So hybrids will continue to move the dial toward capitation in the meantime.

Cigna's Salmon says providers currently are most comfortable with an upside shared-savings model in negotiations, as 90% of Cigna's patients are still in open-access PPO plans. Shared-savings regimes of one kind or another are common, but the insurer plans to progress over several years to models that also share downside risk.

"Eventually we'll move toward capitation models, which we already have with our Medicare Advantage and managed care population in California," he says.

Aetna's Kennedy contends narrow networks (sometimes these are also called ACOs, adding to confusion) are proliferating widely because of the strong economic incentives to create them. This is one reason Aetna finds it can play an important role in creating accountability for financial and quality outcomes that are so important in switching the business model from volume to value.

"In the PPO world, in broad networks it's very challenging to create financial accountability," he says. If anyone can go anywhere anytime for service, it's difficult to hold hospitals accountable for their performance on a certain group of members."

He says Aetna typically surrounds the narrow network with the "normal" Aetna PPO network so that in special cases where the narrow network does not have the capability the patient needs, he or she can still get access.

"This harnesses the power of a narrow network of 10,000–20,000 members. Here's the network they're attributed to so we can more easily hold physicians accountable for their clinical and financial performance," says Kennedy. "People should not walk away with the perception that they don't have access in an uncommon or severe health event. This is more of a tiering network strategy."

Strategic diversification = less cooperation?

All of this activity doesn't guarantee that payers and providers will always be able to work effectively in a collaborative manner. Some organizations may feel they need to control as much of the healthcare continuum as possible to make the transformation work in their favor.

With that in mind, some health plans have been acquiring providers and even hospitals. Likewise, some hospitals have acquired or are planning to resurrect their own health plans—plans that may have been jettisoned years ago as they proved largely unable to compete with large national insurance companies like Cigna, Aetna, WellPoint, UnitedHealthcare, and state Blue Cross and Blue Shield plans.

But is this kind of branching out a good idea strategically? Cigna's Salmon is skeptical of such incursions.

"It's actually quite complicated to run an integrated delivery system. It's also hugely complicated and sophisticated to run a health plan," he says. "We don't underestimate the skills necessary for running an IDS, so they shouldn't underestimate the skills to effectively run a health plan."

He believes Cigna's branded health plan partnerships with medical groups, for example, may offer as good a return, ultimately, with less risk for providers.

"In Texas, we have Kelsey Care powered by Cigna," he says, mentioning a branded health plan in partnership with Kelsey-Seybold Clinic, one of Houston's largest physician practices. Cigna also has high-performing collaborative accountable care groups in 11 markets. "The groups that are doing that need a mechanism to capture patient volume, and we can help them," he says.

Aetna's Kennedy is somewhat less pessimistic about such crossover, but he still feels organizations are best served sticking to their core competencies. He says many provider groups, which already understand how to deliver healthcare exceptionally well, might figure that if they're already taking risk through an ACO or multiple ACOs, that it couldn't be much more work to simply become a full-fledged health plan.

He believes they may have some success with this diversification strategy in their local geography—in the individual market and small employer groups—but beyond that, the geographic limitations make their product unappealing to large employers.

"So they'll grow to a particular size but probably won't have much success beyond that," he says.

But that doesn't mean Aetna wouldn't be willing to work with them on that strategy.

"We can extend their reach and make any health plan opportunity they pursue more successful," says Kennedy.

CHI's Serrano says the hospital giant is interested in making the switch from volume to value as quickly as possible. Because CHI has a presence in many different regions, the pace of change varies dramatically. That means in some areas without insurer or employer support, it can be more difficult to make the switch just by partnering with insurers alone.

"We can accelerate the switch by making some of the moves that we think we could also make as a partner with a health insurer, but in many regions, they're reluctant," Serrano says.

"By fielding our own products, we're putting together clinically integrated networks, and taking the initiative to make those moves starts our internal cultural transformation sooner," he says.

Doing this work organically, and through providing services that traditionally are offered only by health plans, CHI hospitals and regions can learn what it's like to be in a mode of reimbursement that conflicts with delivering volumes of services.

"Starting up some of these business channels is putting our money where our mouth is," Serrano says. "It's a lot easier to say to patients and employers if you're already doing it, that you can demonstrate the value you can bring."

Serrano says even in the early innings of the value transformation attempt, payers have moved closer to providers, and in many markets, they are demonstrating success in vertical integration.

But he says the process is often slow. The employer community has begun to show signs of impatience because while employers' third-party administrators or health insurance partners might have a lot of programs aimed at improving value, those aren't necessarily connected to the healthcare delivery system.

"In the larger urban markets, we're telling employers that we can be part of accelerating support for employees—not necessarily taking over for their insurer or third-party administrator, but employers are now actively seeking out health system partners," Serrano says.

Scale is critical, which is why at this point, only the largest of health systems are even investigating competing with health plans on their own turf. To truly move forward in population health management, developing high-performing networks, or even in owning health plans, even the largest health systems likely won't be able to match the geographic reach and economic depth of most large health insurers.

"That may be a differentiator for us," says Serrano. "We're well positioned to do that."

Will the value proposition stick?

Cigna's Salmon is optimistic that its collaborative accountable care (CAC) groups with large physician clinics will soon be the dominant way in which it does business with providers. From the 36 active CACs in 2012, Cigna expects to have more than 100 by the end of this year.

"We see this type of initiative growing, and that will offer continued growth to groups that are developing the capabilities necessary to participate," he says. "And 100 won't be the end of it."

CHI's Swindle says the experimentation going on across the country means the eventual answer to bringing better value to healthcare services is still unknown—perhaps something "none of us has thought of yet. "We're constantly pushing to find the format to be successful, but we have to be flexible enough to go left if the industry is telling us to do that," he says. "We don't know if we want to be a health plan, but we will have to integrate some of what they do."

He believes CHI's foray into Medicare Advantage is a good learning lab for determining whether further investment in a health plan structure is warranted.

"A lot of health systems are going through this—maybe they're not as deliberate as we are," says Swindle.

Whatever way the industry shakes out over the next decade or so, Aetna's Kennedy says expectations are high and people have to keep in mind that healthcare providers, from the smallest one-physician practice to the largest health system, are working to fundamentally change their business model—"something that's very difficult.

"If you're not careful, you can threaten the financial viability of the organization," he says. "The complexity and risk in shifting is not to be underestimated."

Struggling with how to operationalize that shift is common because the very notion of what a physician does and is accountable for is changing fundamentally.

"This will take five years or more to play out," Kennedy says. "Organizations that get it right will be dominant. Quite a few will get it wrong or choose not to pursue accountable care and find themselves in financial difficulty."

And quite a few organizations are still taking a wait-and-see attitude.

"One would understand why they might," Kennedy admits. "Many attempts in the past that have been billed as 'the next big thing' have fizzled and not created the value that was anticipated."

He mentions many programs, such as disease management or HMOs, that have failed to live up to their initial transformational billing.

"Players are making a very risky bet in this circumstance because this is much bigger than disease management," he says. "It involves changing the mechanism of how healthcare is bought and paid for, and I'm seeing change in the industry on a scale I've never seen before. Those who don't embrace value-based care are putting their organization at substantial risk and may regret that strategy."

Reprint HLR0614-2

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


Philip Betbeze is the senior leadership editor at HealthLeaders.

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