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Health Systems Becoming Payers?

Think Outside The BoxWhen it comes to healthcare, the government, employers and consumers demand more value. To provide this value, healthcare providers and payers increasingly negotiate payment contracts that are laden with payment incentives to reward higher quality. But is this approach working?

Not yet. It is much too soon to reach a consensus on any given delivery model that consistently controls costs and enhances quality of care. Payers and providers need to agree on quality metrics to use when determining bonuses or penalties and decide the details of shared savings agreements. This may be easier said than done.

Accountable Care Organizations (ACOs) are one of many initiatives emerging from the Affordable Care Act (ACA), with somewhat mixed results. ACOs seem to be a move in the right direction when it comes to care coordination efforts. However, I’m very skeptical about contractual arrangements between providers and payers that claim to solve a more deeply-rooted issue that fundamentally plagues our care delivery ‘system’ – disparate work environment cultures that do not foster a patient-centered mindset. Ultimately, it is the ‘culture of care’ that must be addressed before we can make inroads on quality and cost components.

Due largely to the ACA, there appears to be greater cost and reimbursement pressures on health systems to move toward ‘population’ health management – spurring health providers to think differently about their business models.

One initiative gaining interest is for health systems to launch their own health insurance plans within the markets they serve. According to a 2013 report by The Advisory Board Company, a Washington, D.C.– based research firm, 34 percent of 100 hospitals surveyed said they already own health plans, while another 21 percent indicated they plan to launch a health insurance plan by 2018. This is a small sample size, yet the results are, nonetheless, revealing.

In his recent book, ‘America’s Bitter Pill,’ Steven Brill writes that “Hospitals are already consolidating. It is happening all over the country…let’s let them continue. More important, as they continue, let’s encourage them to become their own insurance companies…so they can cut out the middleman and align these incentives. Let’s harness their ambition to expand, rather than try to figure how and when to contain their ambition.”

As the healthcare system continues to shift from fee-for-service care to value-based payments that bundle care in one sum amount, the financial risk associated with patient care may shift from insurers to providers. In other words, hospitals may eventually look more like insurance companies. But to do so, it will be in the best interest of hospitals and health systems to control the costs by pursuing long-term patient wellbeing.

So, can this work?

Health systems first need to hone their delivery skills to produce higher-quality outcomes BEFORE considering a whole new revenue source. Wearing too many hats without having laser focus on their core business objectives (e.g. delivering safe, quality care) will only cause greater problems than we already have today.

In our 2015 survey, we ask Iowa employers to sound off about hospitals having a greater incentive to control health costs (and ultimately premiums) they would charge to employers. Those results will be revealed in the next few months.

In theory, Brill’s comments may make sense, but can large health systems CONSISTENTLY deliver affordable care with (badly needed) high-quality results? To date, they haven’t been very successful. Like ACOs, this too will require more time to assess the desired outcomes, and – just as importantly – the unintended consequences that may follow.

One thing is for certain, in addition to covering more Americans, the premise of the ACA was that it would spur new approaches for care delivery models by thinking outside the box. Our fingers remain crossed.

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Competition Matters – But at the RIGHT Level

Athletes At The Sprint Start LineWhen a fledgling insurance company in Iowa and Nebraska tanks after just one year of covering a small percentage of our population, one big question begs to be asked – and ultimately answered.

So just how important is it to have multiple health insurance companies competing in the same market? Two – perhaps five – maybe 20? The established logic many will use is that by having more competition, we will have better products, elevated services, and ultimately, more affordable prices.

In most industries, I would agree.

But my answer to the above question may be considered heretical thinking for some. You see, I’m not convinced this free-market belief works in our existing healthcare ‘system’ as we know it today – especially as it relates to insurance carriers.

At the time of this writing, the demise of CoOportunity Health in both Iowa and Nebraska is imminent. CoOportunity is a health insurance cooperative that originated from the Affordable Care Act, but was taken over by Iowa regulators on December 23 due to “insufficient capitalization.” On January 23, the Iowa Insurance Commissioner announced that he will seek liquidation of the insurance cooperative.

I will leave the discussion to others as to how (and why) this tax-payer-funded organization failed after only one full year. But suffice it to say, there was no federal appetite to perpetuate an organization that:

  • Does not have the financial leverage to negotiate favorable prices with health providers on behalf of private individuals and small group plans.
  • Grossly underpriced insurance products within the marketplace in order to gain more (and higher-risk) insureds.

Regardless of what the state’s dominant insurance company did (or did not do) within Iowa, this was not a recipe for long-term success.

Harvard Business School professor, Michael E. Porter, is a leading authority on marketplace competition, both in the U.S. and internationally. Porter, along with Elizabeth Teisberg, wrote an important book on healthcare competition in 2006, “Redefining Health Care – Creating Value-Based Competition on Results.”

One big takeaway from this book, at least for me, is that competition in U.S. healthcare operates at the wrong level. According to Porter and Teisberg, our competition is too broad and too narrow:

Competition is too broad because much competition now takes place at the level of health plans, networks, hospital groups, physician groups, and clinics. It should occur in addressing particular medical conditions. It is too narrow because it now takes place at the level of discrete interventions or services. It should take place for addressing medical conditions over the full cycle of care, including monitoring and prevention, diagnosis, treatment, and the ongoing management of the condition.”

What we pay in our health insurance premiums are primarily the health costs that were incurred due to the poor lifestyle choices we make, which ultimately includes physician, hospital, medical devices and prescription drug services. We also pay a relatively smaller portion of our premium for administration costs tacked on by the insurance carriers who process our health claims. To be fair, when looking at various metrics in other countries, it can certainly be debated that these administrative costs are inflated.

Yet many agonize about the lack of competing carriers here in Iowa, believing that increased carrier competition will serve as the Holy Grail to control costs. This is wishful thinking. We unwittingly treat healthcare as a commodity – which it certainly is NOT! By doing so, we assume that all providers are equivalent when it comes to medical outcomes – another dangerous, erroneous assumption. Until we break past the commoditization of healthcare services, we are doomed to repeat the horrid cycles of the past.

According to a recent report in the journal Public Health, obese people run up an average $1,360 in additional healthcare expenses each year compared with the non-obese. Smokers, on average, incur an additional $1,046 of healthcare expenses each year, compared with non-smokers. These two examples only serve to portray the real problems we are confronted with regarding costs – and having multiple carriers will not address these issues in any marketplace.

As stated in previous blogs, health insurance premiums are a derivative of healthcare costs. Somewhere between 30 – 40 percent of the costs we pay are inflated costs, due largely to waste, fraud and a host of other issues that cannot be eradicated because we have multiple insurance carriers. We simply have an inefficient healthcare ‘system’ that has not been adequately addressed by the Affordable Care Act. Steven Brill makes this point numerous times in his recent book, “America’s Bitter Pill.”

If we are to believe that American ingenuity will solve the cost conundrum in healthcare, we first must ensure that true competition is emphasized at the right levels within our markets. Otherwise, we are merely prolonging a long, slow death march to higher costs and mediocre care for all.

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