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Passage of the Patient Protection and Affordable Care Act, better known as ACA, brought significant changes for all healthcare stakeholders, but the shift from volume to value had especially far-reaching implications for providers.
From 2010 to 2016, the Centers for Medicare & Medicaid Services (CMS) marched steadily toward value-based healthcare, shifting 30% of Medicare payments to value-based purchasing by January 2016. Commercial carriers followed suit with increasing commitments to value-based programs -- notable among them were the following:
- United Healthcare announced that its total value-based payments to hospitals and physicians reached $36 billion in 2014.
- In January 2015, Forbes reported that Anthem Blue Cross had $38 billion committed to value-based contracts, representing 30% of its commercial claims.
- In May 2016, Cigna told HealthPayerIntelligence that it expected value-based provider arrangements to represent the majority of its provider arrangements by 2018.
As providers began to accept greater financial risk for their patient populations, the lines between the traditional payer and provider roles continued to blur. In addition to contracted risk arrangements, more providers created their own insurance plans to take on full risk and holistically manage their patient populations -- becoming "payviders." According to Atlantic Information Services, which publishes annual data on the health insurance industry, enrollment in these provider-sponsored health plans has been increasing 10% annually since 2014, reaching 36.3 million members in 2016.
Skills and tech may not be familiar
The growth in these plans continues to increase, and importantly, the technology and competencies required to effectively manage downside financial risk are complex. Many of these payviders from the provider realm had extensive experience with risk management -- such as Kaiser Permanente, Healthfirst and UCare -- yet there were many organizations that moved into the risk business with substantially less expertise. While by no means exhaustive, some of the core payer technology systems and competencies essential for risk management -- but not typically native to providers -- include the following:
- regulatory: payer-focused regulatory and compliance requirements -- for example, medical loss ratios, reserve requirements and member marketing;
- provider management: provider contract management, provider engagement, provider network creation and management, and creation and maintenance of a provider directory;
- underwriting: medical cost prediction, benefit design and plan pricing;
- claims processing and management: claims adjudication, payments, overpayment recovery, fraud, waste, and abuse monitoring, handling of appeals and grievances, and adjudication of risk-based reimbursement;
- care management: software to plan for, enable and track all aspects of the care-delivery process -- for example, population health and risk analysis, quality and outcomes performance, medical case management, utilization review and utilization management. Providers with varying levels of population health prowess will have some of these capabilities; and
- member management: member acquisition, member enrollment, ID cards, creation and maintenance of a membership database, provider quality rating tools and member incentive systems.
Regulatory environment eases
At first glance, this list seems to imply significant opportunity for technology vendors selling these types of solutions into the payvider market to assist these organizations as they prepare for additional risk shifting. But these payvider entities, like any organization, must ensure a return on investment with technology purchases, and these purchases face several headwinds.
In late 2017, the Trump administration eliminated several of the mandatory bundled payment programs initiated under the Obama administration, instead focusing efforts on voluntary programs. As a result of these and other policy changes, the urgency and government momentum around value-based healthcare has slowed considerably.
According to information from Sage Growth Partners and Catalyst for Payment Reform, providers have, on average, 10% of their revenues tied to some sort of contractual risk-bearing arrangement -- the majority of those revenues in upside-only arrangements in which providers benefit from savings but are not subject to downside risk. But depending on the definition of risk, estimates can range as high as 30% of revenues tied to risk-bearing arrangements.
Beyond the macro political headwinds, two-thirds of U.S. hospitals are struggling with substantial erosion of operating earnings, likely generating additional caution both on value-based healthcare in general and technology purchases in particular. As hospital expenses grew 3% faster than revenues from 2015 and 2017, operating income deteriorated for two-thirds of health systems, according to a report recently released by Navigant Consulting, which analyzes the financial disclosures of more than 100 prominent health systems. CMS is proposing changes to the Medicare Shared Savings Program and is discussing new value-based payment models for high-cost areas, and industry discussion around value-based care remains robust. However, most providers appear to be only slowly experimenting with risk arrangements and value-based healthcare while continuing to straddle the fee-for-service line.
In the near term, vendors that have focused on this payvider market may need to reassess their go-to-market strategy and begin to evaluate other viable target markets as the industry waits for value-based care to truly take flight. In the long term, the migration to value is a core ingredient in the recipe to mitigate the nation's ever-growing rate of medical inflation. The question will be timing: When will value-based healthcare truly become mainstream?
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