Payers and providers mix it up

Insurers come to the table with hospitals and physicians to improve healthcare quality and reduce expenditures

A lot of ink has been shed about hospitals and hospital systems acquiring physician practices. Experts believe that if these two can align themselves, they can coordinate care, avoid duplication of services, reduce costs, and improve the health of patients with chronic ailments and acute conditions. In other words, if the fee-for-service system – which many blame for excessive healthcare costs – is ever to be eliminated, these two must get their act together.

But there’s another player elbowing its way to the table – insurers.
With years of experience monitoring and paying claims, insurers have developed the management expertise and databases to affect how – and what – care is delivered, to whom, and with what results. They are starting to exercise their strength in the market, either by acquiring or merging with providers, or forming strategic partnerships with them.

“Whether it’s a contractual relationship, a joint venture, or a full merger, all of these options are being discussed with those who are willing and wanting to have that discussion,” says a spokeswoman for Highmark, which announced an affiliation with West Penn Allegheny Health System in July 2011.

It is difficult to predict the impact these developments will have on product and equipment selection. But one thing is certain: These new entities will undoubtedly emphasize delivering care more efficiently and effectively. That could boil down to fewer supplies and equipment used.

Not the first time
This isn’t the first time insurers and providers have joined forces. Louisville, Ky.-based Humana, for example, once was one of the country’s largest owners of for-profit hospitals. It launched its own insurance plan in 1984. Three years later, VHA began its own insurance operations. Humana long ago shed its hospitals, while VHA shed its insurance operations years ago. But today, things appear to be different.

“Insurers want to set themselves up to be in a position to try to control costs upfront,” says Minoo Javanmardian, partner, Booz & Company. In other words, they want patients to get care early, before chronic or acute conditions progress to the point where hospitalization is needed.

And what can insurers bring to the table? A long-range view of patients’ care, from symptom to treatment to recovery and long-term monitoring. “The payer has the full picture of the patient, whereas the providers just have the picture of the episode they were engaged in,” says Javanmardian.

“We are in a rapidly changing health care environment,” says Brad Lotterman, spokesman for Optum, a division of UnitedHealth Group. Optum recently acquired the management arm of Monarch HealthCare, a multispecialty physician association in southern California comprising 2,300 physicians. “As health care evolves, we are committed to helping physicians with more support in the form of better technology, better information and population health management expertise, so they can enhance their practices and expand upon the top-quality, cost-effective care they give to their patients.”

It’s catching on
Many major insurers have gotten into the act. Some examples:

  • Cigna. In January 2012, Cigna and the Weill Cornell Physician Organization – an 850-member multispecialty group practice in New York City – launched what they are calling a “collaborative accountable care initiative” to achieve what Cigna calls the “triple aim” of improved health outcomes, lower total medical costs and increased patient satisfaction. With the addition of Weill Cornell, Cigna is now engaged in 17 similar initiatives in 15 states, encompassing more than 170,000 Cigna customers and more than 1,800 primary care physicians.
  • WellPoint. In August 2011, WellPoint announced the completion of its acquisition of CareMore Health Group, which offers Medicare Advantage plans and Special Needs Plans designed for the chronically ill in select California, Nevada and Arizona markets. CareMore focuses on improving the health of its 54,000 Medicare members through a variety of means, including 26 neighborhood care centers staffed with physicians, nurse practitioners, medical assistants, podiatrists, physical therapists, nutritionists, psychologists and case managers. WellPoint says it would like to expand CareMore’s model both within existing CareMore markets and to WellPoint markets across the country.
  • Highmark. In June 2011, Highmark Inc., an independent licensee of the Blue Cross and Blue Shield Association, announced its intention to pursue an affiliation agreement with the financially ailing West Penn Allegheny Health System in Pittsburgh, Pa. The IDN comprises five hospitals and a number of outpatient facilities. Highmark is making a financial commitment of up to $475 million over four years. The agreement was expected to be approved by Fall 2012.
  • UnitedHealth. The insurer explains that its acquisition of the management arm of Monarch Healthcare will provide Monarch’s primary care and specialty physicians with administrative support and access to advanced information technology, data and provider collaboration solutions.
  • Humana. In December 2010, Humana completed its acquisition of Addison, Texas-based Concentra Inc., for close to $800 million in cash. Concentra delivers occupational medicine, urgent care, physical therapy and wellness services to workers and the general public from more than 300 medical centers in 42 states. In addition to its medical center locations, Concentra serves employer customers by providing health advisory services and operating more than 240 worksite medical facilities. On its website, Concentra says that it is “actively seeking opportunities to acquire medical practices providing urgent care, occupational health, family practice and wellness services.”

Misaligned incentives equal costly care
“There is tremendous pressure on healthcare,” says Javanmardian, whose firm, Booz & Company, publishes an annual report on payer/provider relationships in the healthcare industry. For example, there’s the question of access, that is, how patients gain access to healthcare providers. Then there are questions concerning quality of care. Finally, there’s the question of affordability. “The trend as it is today cannot continue, because it will make healthcare unaffordable for a big part of the population,” she says.

In today’s fee-for-service system, doctors and other providers are paid based on activity, not outcomes, says Javanmardian. As a result, the healthcare system is fragmented. “There is no one person or no one system in charge of the care of the patient. The result is patient dissatisfaction and very costly delivery of care.” Services are duplicated, and patients may fail to get the care they need at the correct facility and the correct time. “So what’s right for the patient vs. the way it gets paid is not aligned, and misaligned incentives result in the affordability issue.”

“Many people believe that payer and provider collaboration, or at some point, integration, will help solve the problem, because you’re bringing incentives and care delivery together, which will allow you to deliver care more effectively and efficiently.” She points to Kaiser Permanente in California as an example.
At the center of the transformation is the so-called “patient-centered medical home,” or “accountable care organization,” says Javanmardian. In these scenarios, the patient has an “anchor” in a medical home, often, a group of primary care physicians and nurse practitioners. That explains why some insurers are pursuing affiliations or acquisitions of primary care practices. “They can incentivize the physician to provide the right care for the patient and to manage them end to end, so the patient doesn’t end up in the hospital, which is a high-cost facility.

That goal is what Booz calls “productization” of healthcare. An example of a “product” might be a knee replacement. In today’s system, a patient in need of a knee replacement would visit his primary care doctor, then an orthopedist, then a surgeon, then a rehabilitation specialist. Various activities are conducted, and perhaps duplicated, each of which generates a charge.

“What productization does is this,” says Javanmardian. “From the minute that patient goes to the orthopedist until he comes out of rehab, a whole host of things need to happen for him to have a functional knee. The ‘product’ here is the surgery and then the ability to walk out after rehab with a functional knee. That’s what the patient is going to buy, and that’s what the insurance company will pay for.” And the patient’s care is coordinated and managed end to end.

The “productization” concept can be applied to virtually any medical episode that has a beginning and end, such as coronary artery bypass and even, on an outpatient basis, LASIK surgery, she says.

But insurers can’t develop “products” like this on their own, says Javanmardian. They’re not doctors. “What’s important is to get everybody at the table – physician, hospital and payer.” Together, they have to learn what is important to consumers, and then they have to spell out the financial incentives for all the players and how they will affect the affordability of the product.

The insurer is an indispensable part of the picture. That’s true not only because of the fact that they will pay for the care provided, but because they have that long-range view of the patient. “The only way to manage the cost and quality of care is to engage patients and [get them to] change their behavior,” says Javanmardian. “And the only way you can do that is if you have full information on them, and the payer is the one who has that information.”

Indianapolis, Ind.-based WellPoint appears to be following the game plan. “The CareMore acquisition exemplifies our strategic plans to capitalize on new opportunities for growth in the senior market as baby boomers become eligible for Medicare and the company prepares for this significant demographic shift,” says Jill Becher, spokeswoman. “CareMore’s model is focused on disease management programs that provide Medicare recipients with a hands-on approach to care coordination and intensive treatment of chronic conditions. Their goal is to understand seniors’ medical needs and help members better understand their needs and navigate the system.

“The physicians, nurse practitioners, medical assistants, podiatrists, physical therapists, nutritionists, psychologists and case managers who staff the CareCenters do not replace an individual’s primary care physician or specialist, but rather, provide care management and personalized health planning that ensures members, especially those with chronic conditions, receive the individualized attention they deserve, and are able to navigate the healthcare system and better manage their health. CareMore’s physicians, nurse practitioners, and extensivists follow members through inpatient, outpatient, skilled nursing and, when appropriate, hospice care.” The company remains committed to improving the lives of senior citizens through preventive care and screenings, and intensive care management of the frail and chronically ill, she adds.

In January 2012, WellPoint announced a program that, it says, “will fundamentally change its relationship with primary care physicians by significantly increasing the company’s investment in their practices and in the health of their patients.” WellPoint says it will make a major investment in primary care by increasing revenue opportunities for participating primary care physicians, enhancing information sharing, and providing care management support from WellPoint clinical staff. The new program will also incorporate best practices from the company’s multiple medical home pilots.

Participating physicians will be able to earn additional revenue in the following ways, according to the company:

  • An increase to the regular fees paid to physician practices for specific services.
  • Payment for “non-visit” services currently not reimbursed, with an initial focus on compensation for preparing care plans for patients with multiple and complex conditions.
  • Shared-savings payments for quality outcomes and reduced medical costs.

Primary care physicians who maintain or improve quality may earn 30 percent to 50 percent more than they earn today through the shared savings model, says the company. WellPoint estimates the program will improve quality and member health, and reduce overall medical costs by as much as 20 percent by 2015. The company’s goal is to implement the program across its primary care network by the end of 2014.

“Our medical home pilots have proven to make a meaningful difference in patient quality, outcomes and cost,” said Harlan Levine, M.D., WellPoint executive vice president, Comprehensive Health Solutions, in a statement. “Some of our pilots have experienced an 18 percent decrease in acute inpatient admissions and a 15 percent decrease in total ER visits while improving compliance with evidence-based treatment and preventative care guidelines.”

Cigna is no stranger to healthcare provision, having operated its Cigna Medical Group in Arizona since 1982, when Connecticut General (CG) merged with INA to form Cigna. (Today, the group comprises over 30 health centers and 200 clinicians in metropolitan Phoenix.) But its so-called “collaborative accountable care” programs, such as that recently launched with Weill Cornell, offer a new twist.
The company launched its first such program with Dartmouth-Hitchcock in New Hampshire in 2008. The IDN comprises hospitals, physician groups and a variety of outpatient programs and services. Today, Cigna has a number of so-called “patient-centered initiatives,” encompassing more than 170,000 customers and 1,800 primary care physicians. It plans to increase the number of such initiatives significantly in 2012.

Patients most likely to see the immediate benefits of the program with Weill Cornell are those who need help managing chronic conditions, such as diabetes or heart disease, says Cigna. Weill Cornell Physician Organization – which comprises 71 primary care doctors – will monitor and coordinate all aspects of an individual’s medical care. Registered nurses, employed by Weill Cornell, will serve as clinical care coordinators and help patients with chronic conditions or other health challenges navigate their health care system.
“The care coordinators will enhance care by using patient-specific data provided by Cigna to identify patients being discharged from the hospital who might be at risk for readmission, as well as patients who may be overdue for important health screenings or who may have skipped a prescription refill,” according to the company. “The care coordinators will contact these individuals to help them get the follow-up care or screenings they need, identify any issues related to medications, and help prevent chronic conditions from worsening.” The care coordinators will also help patients schedule appointments, provide health education and refer patients to Cigna’s clinical programs, such as disease management programs for diabetes, heart disease and other conditions; and lifestyle management programs, such as programs for tobacco cessation, weight management and stress management.

“We believe that initiatives such as this will help transform the way medicine is practiced in the United States – from a system that’s focused mainly on treating illness and rewarding physicians for volume, to one that’s patient-centered and emphasizes prevention and primary care,” said Alan Muney, M.D., Cigna’s chief medical officer, in a statement. “We’ve already seen very promising early results in locations where we’ve implemented this type of program, and we believe these initiatives ultimately will lead to a healthier population and lower medical costs.”

Highmark’s affiliation agreement with West Penn Allegheny Health may have been driven by the peculiarities of that situation, but the company believes the agreement can lead to a new kind of healthcare delivery system.

West Penn Allegheny was on the verge of collapse when Highmark stepped in. (The IDN’s outlook remains cloudy.) What’s more, observers suspect that Highmark’s decision to affiliate with the IDN may have been prompted by what some have called a “feud” between the insurer and West Penn Allegheny’s competitor, the University of Pittsburgh Medical Center, over the terms of a new contract. All that notwithstanding, Highmark expects the West Penn Allegheny deal to lay the foundation for a new provider strategy.
“Highmark is engaging all players in Western Pennsylvania and other markets to discuss where they are in terms of their particular strategic objectives and how we can assist in helping to make sure that their community’s needs are met,” says Aaron Billger, Highmark spokesman. “We are looking to form a relationship to help make these needs happen.”

The insurer is pursuing relationships in primary care, pre-acute-care (such as urgent care and ambulatory surgery), acute care, post-acute-care (such as rehabilitation), and home care and palliative care, he says. “Our provider strategy model will incentivize all of these players in the health care system through the alignment of a payment system that is focused on the patient and outcomes; not a system that is focused on maximizing revenue and encouraging physicians, through incentives, to do more procedures and interventions that may be dangerous and harmful to patient care. This is an important opportunity to transform health care delivery in our communities.”
Highmark’s delivery systems “will be different than other traditional systems by including innovative clinical technologies, new care management models and advanced analytics and insights,” he adds.

UnitedHealth Group’s Optum division, based in Golden Valley, Minn., “has affiliations and supports local care providers in many different ways, with a wide range of capabilities,” says spokesman Brad Lotterman. “We have a strong history of helping care providers expand their service areas and open new locations, recruit new physicians, better serve people with limited mobility and in rural areas with advanced telemedicine tools, and improve patient choice by adding new health care payer partners,” says Lotterman.

In 2008, the company acquired Sierra Health Services in Nevada, which includes Southwest Medical Associates, a multispecialty group. Today, Optum provides that group and others a variety of tools, says Lotterman, including:

  • Technologies that enable physician collaboration and access to critical information.
  • Actionable intelligence tools that provide comprehensive patient information in real-time.
  • Health management and clinical expertise to support better outcomes and help patients make more informed decisions about their care.
  • Administrative support.

Will it work?
The big question is, can providers and payers work together to transform the healthcare delivery system? It may be too early to tell, but it seems clear, they’re going to try.

“Providers are preparing for a world where access (to doctors and diagnostics, primarily), care management, and cost control will matter more to their overall success and financial health than having a hospital in every part of the market,” say the authors of the Booz report, “2012 Healthcare (Payor/Provider) Industry Perspective,” of which Javanmardian was one. “Furthermore, as care management and cost control have become increasingly important, so too has the need to forge new relationships with payors.”

2 Comments on "Payers and providers mix it up"

  1. Gahram, great article! You have given us a primer on what heatlhcare vertical integration will look like in the future. Will it work? My guess is yes, since all parties (payers and providers) incentives will be aligned to provide their patients with the highest quality care at the lowest cost. It looks like a formula for sucess to me.

    • Gahram, very useful article. Does this mean that there are an increasing bunch of physican networks and group practices that are not affiliating to an IDN but to a payer? What are the benefits to a physician on affiliating with Payer than IDN or other group practices??

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