Success in strategic alliance partnerships depends on many factors, including the goals of the organizations involved and the circumstances and challenges they face. Here are three examples of provider-payer partnership initiatives and their results.
A Large Payer and a Large Health System
These two organizations were looking to make the transition from a contractual business model involving fee-for-service, volume-driven, fragmented care and variable clinical quality and outcomes—adding up to a low-value proposition—to a strategic partnership with an aligned vision and integrated population health management care delivery and financing model, representing a high-value proposition.
Both organizations had built their business and operating models and their service offerings around fee-for-service, volume-driven payment and care delivery models, largely hospital-centric. Each organization also had a strong need for strategic growth and had invested in that growth based on current business models. The demands of the customers, the competitive landscape, and shifting economic models led both parties to conclude that they needed to materially change course if they wished to have a sustainable business model in the future and continue to grow.
There were challenges, however, including many existing alliances and contractual relationships—some that would potentially become conflicted if the strategic partnership was executed. The organizations also were concerned about how their competitors might respond to the partnership, structure, and deal mechanics, and how both parties could reduce per-member-per-month expenditures by a double-digit target percentage and capture and deliver value for customers. The systems decided to focus on resetting the equilibrium for a new valued-based transformative partnership model without financially disrupting their existing economic models. A letter of intent was executed, and once the implementation plan was carried out, the payer and the provider system achieved many of their mutual goals.
Three Health Systems and Their Provider-Sponsored Health Plans
Three health systems began discussing a strategic alliance to become the highest-value healthcare leader in their core markets and the leading “virtual” integrated health system in their state. The strategy was predicated on establishing a statewide provider-payer strategic alliance in which administrative platforms were integrated into a single management company, with each health system maintaining its respective health plan assets.
In this partnership, each provider-sponsored health plan (PSHP) member organization sought to position itself for accelerated growth as a result of core-market landscape changes to product designs, payment and networks, and product distribution channels. All participants also needed to ensure that actions increased the value delivered by each health plan and each sponsoring parent health system.
Complications included potential competition from organizations with goals to expand geographical markets. In addition, each system had its own set of challenging circumstances. One PSHP had a noncompete agreement barring it from participating in a specific line of business important to the other two; the second was underperforming financially; and the third had an out-of-state parent health system that would have to approve any integration activities. Because of these challenges, the parties decided not to move ahead with the partnership.
A Regional Health Plan and a Hospital Group With Physicians
These organizations came together with a common goal of enhancing patient retention through a high-value payer and provider partnership focused on common goals for patients/members and the community. They also were hoping to develop, capture, and deliver meaningful value to customers/patients and thereby solidify both partners as market leaders; to position the provider network as a Tier 1 network for the payer; and to improve care coordination, quality, and patient outcomes by aligning incentives between both partners and transforming the way health care is delivered in the community.
The partnership faced several challenges, including ongoing limitations in data integrity and analytic capability for both parties, whose infrastructure/IT platforms were developed for fee-for-service payment models; limited experience across both parties on structuring a value-based payment model for attributed lives across a network of care; and concerns about further market consolidation. In addition, the payer was tied to many existing contractual relationships that would need to be considered in the new agreement, and the anticipated required investments would be substantial. However, the groups had a strong shared vision and collaborative working relationship. The organizations were looking to find an equitable agreement that allowed both parties to manage competitive, operational, and financial risks while supporting strategic growth for both parties.
Although the organizations are still in negotiations regarding the mechanics of their partnership, they have set a target effective date in 2017.