Strategic Partnerships Mergers and Acquisitions

Why closer collaboration between healthcare providers and health plans is crucial, and where it could pay off the most

June 4, 2021 7:55 pm
  • New types of provider-payer associations place an emphasis on increasing the value of services rather than merely offering cost savings.
  • During the COVID-19 pandemic, providers that operated a health plan or participated in capitated contracts gained a valuable hedge against substantial revenue declines.
  • New risk-based arrangements are especially viable strategies in markets with certain characteristics.

As healthcare stakeholders consider how to make value a more central focus of care-related services, one result is a blurring of the lines between providers and payers.

A pair of new reports illustrate both the opportunity for healthcare providers to more closely integrate with health plans and the benefits that can accrue from such arrangements.

“The trend has been — at least what people talk about — shifting the reimbursement landscape from fee for service to value-based care,” said Michael Tierney, director with H2C. “In that environment, the payer benefits. So it’s natural to think that more providers will be interested in becoming payers, or being providers and payers, so they can capture more of that dollar.”

Coming together to enhance value

A new report from Guidehouse examines market opportunities to form payviders, which the report defines as “contractual or joint ownership arrangements between payers and providers.” These may take the form of provider-sponsored health plans (PSHPs) but also could be joint ventures or long-term risk contracts.

A defining trait in such arrangements, compared with standard forms of provider-health plan collaboration, is the emphasis on delivering value through efforts to increase access, improve quality and reduce waste, said Michael Nugent, partner with Guidehouse. Historically, the objective of a provider-health plan joint venture tended to be to offer “just a unit cost discount” for customers, Nugent said.

The more cohesive contracting models entail “a C-suite-level commitment to one another with all the press releases and everything else that you could imagine,” he added.

“A lot of markets are not seeing much organic growth in terms of volume increases. So how can we grow? It’s by partnering with payers or partnering with providers to improve the money that we’ve been leaving on the table and the members that we haven’t been as intentional about securing as we need to [be] now.”

The value of risk-based models during an emergency

A separate report shows the benefits that health systems can derive specifically during a financial crunch such as the one brought on by the COVID-19 pandemic if they have entered into capitated payment arrangements or launched their own health plan.

An analysis by H2C examined operating cash-flow margins for the 25 largest not-for-profit health systems during the pandemic. In Q2 2020, as elective-procedure volumes plummeted and expenses rose substantially, stronger margins were seen for organizations that had larger percentages of revenues attributed to PSHP premiums and to capitation.

“Systems that did not appear to have a PSHP demonstrated the poorest performance,” the authors wrote.

Among those organizations, operating cash-flow margin dropped by more than 16 percentage points, compared with only about 2 percentage points for those with greater than 20% of total operating revenue attributable to PSHPs and capitation.

The trend shifted in Q3 2020, when volumes of elective procedures began to rebound. While operating cash-flow margins improved for all tiers of organizations that were analyzed, margins were slightly higher for organizations with no more than 20% of revenue tied up in PSHPs and capitation.

Using PSHPs or capitated agreements as a hedge can have “positive and negative implications at different periods,” Tierney said. “There could be a time when you won’t do as well, and a time when you won’t do as poorly. It’s all [about] balancing it out.”

Locations where collaborative ventures could pay off

The Guidehouse report examines which markets are especially conducive in the foreseeable future to a new brand of provider-payer partnership. The assessment included analytical projections of demand for value-based arrangements based on factors such as the number of lives aging into Medicare and the saturation of Medicare Advantage and Medicaid managed care plans.

Guidehouse also analyzed markets to see where performance on value may be lagging (based on cost, utilization, quality and patient satisfaction data). That’s an indication that a high-performing new entity could make a big impact.

Healthcare markets that have room for both expanded value-based offerings and improvement in the delivery of value represent fertile ground for provider-payer integration. According to Guidehouse’s analysis, these markets include:

  • Miami
  • Detroit
  • Phoenix
  • Tampa
  • Cincinnati
  • Charlotte

“Payers and providers in those markets should look at one another and say, ‘Hey, we can do better,’” Nugent said. “‘We can do better in terms of improved access, improved quality and improved cost management. And look here, the market’s growing.’”

First steps on the road to value

For organizations that think establishing a closer payer-provider relationship would be worthwhile but aren’t sure how to get started, Nugent said a key initial task is to use analytics.

The objective is to “pick up on the weak signals or the forecast for projected membership with Medicare Advantage coverage, Medicaid managed care coverage and narrow commercial insurance coverage. Using that forecast, understand where the membership is going to move over the next five to 10 years. Follow the members, not just the money.”

C-suite leadership will be vital in efforts to craft such a strategy.

“It’s not just the strategy officer, not just the managed care officer,” Nugent said. “Make sure that the C-suite owns that because after all, that [assessment] represents the mission, vision and values of so many of the nation’s providers and payers, which is to serve members with high-quality, cost-effective access.”


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