The core principles of the healthcare business model are changing in the Affordable Care Act world we live in.
Less commonly will the “cat and mouse” game between payers and providers persist—the time has come for both parties to collaborate and seek to achieve optimal outcomes in terms of cost, quality, and accessibility.
There are four key components at the root of the changing dynamic between payers and providers:
- Cost and charge transparency
- Incentive structures
- Care management
As that dynamic continues to shift, and both parties work with one another, as opposed to against one another, we will continue to see improvements in the cost, quality, and accessibility of healthcare services.
Here’s more on the four key components, and what payers and providers should do about each of them.
1. Trust between payers and providers must improve
Historically, lack of trust between healthcare providers and health plans is rooted in the way that business has been conducted for decades. At the core of standard fee-for-service agreements, incentives are misaligned between the two entities, and providers are (by law) shielded from understanding the competitive landscape, in terms of reimbursement rates other competitor hospitals are receiving from health plans.
On the contrary, health plans typically have more available resources to understand whether their contracts (specifically, fee-for-service reimbursement rates) are in-line with the market.
According to a recent HealthLeaders survey, 39% of provider respondents noted that trust with commercial payers needs improvement, which is imperative as contracts move from a standard fee-for-service structure to risk-based, or outcome-based arrangements.
Providers should look for signs of trust from payers during value-based contract negotiation, such as a payer’s willingness to provide utilization or spend data broken out by in-network and out-of-network.
Providers will need to learn to reciprocate this good faith by no longer making unjustified, blanket demands for rate increases, and instead come to the negotiation table ready with cost and quality data that clearly illustrates a system’s value proposition to the payer and the members it serves.
2. Providers must be able to justify charges and costs
The hospital chargemaster has been a highly debated topic in recent years, specifically due to the notion that chargemasters are priced arbitrarily—which in many cases holds true.
Healthcare is the only industry where there is a defined price list of goods and services, and when those goods and services are delivered to the consumer, the total price is rarely ever paid (by any party).
Chargemasters, which were historically priced relative to Medicare rates (to avoid getting paid less than Medicare), in many instances, have not been well-maintained as reimbursement rates and methodologies have changed over the years.
As a result, many hospitals struggle to justify how their cost structure correlates to what they charge for services rendered, and the result has yielded very high charge variation, even among hospitals belonging to the same health system.
As providers engage in value-based conversations with payers regarding what the payer should be paying the provider versus what it actually costs the provider to treat the patient, providers need to be able to support their chargemaster and have confidence in their cost accounting systems.
Hospital finance, revenue cycle, and managed care departments should work collaboratively in performing a thorough chargemaster pricing analysis, and ultimately, assess both price and cost to confidently justify to payers (and consumers).
3. Payers and providers must explore new incentive structures
As new forms of collaboration between payers and providers take shape, so do the types of incentives. Historically, providers have been incentivized to drive volume in a fee-for-service model, but in a value-based environment, there is typically greater emphasis on capturing covered lives, and managing that population effectively (i.e. capitation).
These types of arrangements offer varying degrees of risk, which depend on a number of factors, including demographics, regulatory environment, and market dynamics. Moving forward it will be important for payers and providers to work together in managing these factors through various techniques, such as risk-adjustment.
Before entering into any value-based contract negotiation, a provider should be able to determine their organization’s “tipping point,” which is the point in a mix between fee-for-service and capitation, that it no longer financially benefits the provider to focus on volume as the primary revenue driver. Not only should providers be able to calculate their tipping point, they should also be able to clearly articulate this to a payer in order to drive desired contracting outcomes.
Understanding the underlying economics and incentive structures from both a payer and provider’s perspective is an essential building block of payer-provider partnerships in value-based arrangements.
4. Providers must prioritize care management
When one takes a step away from the business side of healthcare, providers are there to care for patients, and payers are there to cover the cost of care. As healthcare fundamentally shifts from “treating the sick” to “keeping people healthy,” the role that care managers (from both payers and providers) have is going to be increasingly important.
As contracts move to value-based, and payers and providers are financially incentivized to care for patients effectively and efficiently, care managers will play a crucial role in managing populations, both in care delivery and preventive care.
Furthermore, care management, which has typically been handled by payers, will take place closer to the point of care (providers).
As providers begin value-based discussions with payers, they should look to set up a care management structure to enable discussion and resolution of issues such as the delegation of care management services, and how varying levels of delegation may change current or planned care management infrastructure, and any future payments allotted for care management activities.
Success in a value-based environment will be challenging if care is delivered in silos, so an effective, longitudinal care management program can be the key to delivering affordable comprehensive care across the continuum.