Guest post from Rita Numerof, Ph.D., president of Numerof & Associates
In the face of a market-wide demand for lower costs, many of the players in the healthcare space have defined their strategic response as doing what they've always done--but for less. After decades of financial success, it's difficult to think about meaningfully changing the business model.
For their part, insurers have gotten tougher in negotiations with employers and providers. Every calendar year is an exercise in explaining to financially strapped employees why they have to pay an even larger share of ever more expensive insurance. The mega-mergers among payers can be properly interpreted as one side of an arms race with providers to improve negotiating leverage through scale.
Payers have also tried to improve margins with repeated rounds of internal cost-cutting moves. These typically have had limited long-term financial impact and yet often contribute to workforce problems down the road, which then reflects on customer service.
With all of the focus on price, private health insurance is increasingly becoming a commoditized business. When that happens, it becomes very difficult to sustain margins, let alone improve them. Payers understand that they are vulnerable to market changes, but they aren't sure how to prepare for--or lead the way to--what comes next.
In our conversations with executives at these companies, we emphasize that the shift away from the fee-for-service model is an opportunity to elevate their dialogue with providers from transactional to strategic. It is also an opportunity to better understand their true customer, the patient-consumer; tailor products to meet their needs; and capture a high share of distinct customer subsets who will pay for and be loyal to their brand.
Actionable strategies include:
1) Develop partnerships with the right providers
Clearly, any move away from fee-for-service requires the development of partnerships with providers that can bring innovative treatment pathways, accountability for outcomes and a willingness to accept payment outside the typical adjudication system. As great as this sounds, it is also harder than it looks.
Many insurers don't fully appreciate how far most delivery organizations are from being able to tackle this sort of initiative. Insurers must move away from broadly offering initiatives to their entire range of providers and instead focus on those that are most likely to be successful.
This requires targeting providers based on their ability to implement cost and quality improvement effectively. Successful implementation with that limited group will generate positive clinical and financial outcomes, which can then help sell other providers on the approach and provide a roadmap for others to follow.
2) Require and pay for predictive care paths
Once insurers have determined the partners who are most likely to succeed, they can work with them to determine and pay for predictive care paths for less variable patient conditions. With a fixed total price for an evidence-based course of treatment associated with outcomes, there is no incentive to provide additional, unnecessary care.
This must be a two-way effort with providers. Insurers are wary of handing a blank check to providers, due to their experience with upcoding and unnecessary utilization. However, providers aren't going to accept bundled payments defined as rolling up all the individual charges and imposing a reduced total cost. That approach essentially puts all the risk back on the provider.
Done correctly, predictive care paths and the outcomes they achieve are the true "product" of hospitals and physicians, not each procedural detail. This is an opportunity for insurers to differentiate themselves, by building a network that achieves measurably better health outcomes at a lower cost.
3) Build a bridge to the new model
There is a difference between incremental improvement and incremental transformation. The former is defined as doing more of the same, but better, while the latter means moving toward a fundamentally different business model by taking steps that can improve performance even under current market conditions.
Building a bridge to a new model means having a vision of a different future and systematically working toward it--often starting small and building outward from success. It also means clearly defining how to handle exceptions and doing "work arounds" to prove out concepts before any system redesign.
Internally, there has to be a bridge from the executive who is interested in introducing a new model to the people who operationally execute agreements with providers. At the strategy level, executives are interested in new payment models, but at the level where claims get adjudicated, the systems are already set up and people are incented to perform in the old model.
Payers have a significant role to play in bridging the divide between patients and providers on issues of economic and clinical value. It's up to insurers to seize this opportunity, before someone else does it for them.