Value Based Payment

Value-Based Payment—from a Different Perspective

March 3, 2017 10:05 am

Most people have become accustomed to the term value-based payment, which has become ubiquitous in the healthcare industry.

This term has come to mean a movement away from the fee-for-service payment model to one where providers are compensated based on their ability to deliver high-quality, cost-effective care rather than on the extent to which they deliver discrete services to patients.

The practical application, however, has come to encompass many different payment approaches including risk arrangements based on the total cost of care, payments for an entire episode of care, and upside-only financial arrangements based on quality metrics. Interestingly, value-based payment has rarely been defined in what I would suggest is its purest form: a provider-sponsored insurance company accepting the entire insurance premium and risk on behalf of its provider partner. Most discussions have focused on the various models of value-based payment and how to prepare for them, with relatively few addressing the rationale for provider organizations to sponsor insurance companies and the advantages of such a strategy. I will draw on the experience Geisinger Health System has had in offering a provider-sponsored plan since 1985.

The Advantages of Provider-Sponsored Health Plans

In fact, although the direct ownership of an insurance company certainly comes with unique challenges, the advantages are many. Here are just a few.

Greater financial ability to develop a robust and comprehensive population health program. As has been much discussed, the fee-for-service system largely rewards providers for the volume of services they deliver rather than for improving the overall health of patients. By collecting the entire premium dollar, a combined provider-insurance company can invest more extensively in efforts to improve the overall health of its members, particularly compared with other value-based payment programs in which the actual premium allocated to providers is smaller. Geisinger Health System was an early leader in medical home development, due to the close relationship between Geisinger’s clinical enterprise and Geisinger Health Plan. This relationship provided the perfect environment for development of the medical home model, shown to improve outcomes, reduce cost, and improve both member and provider satisfaction.

Better coordination of care. By having a broad relationship with members and patients that includes everything from delivering care to administering benefits, a combined provider-insurance company can furnish the highest possible level of care through the entire care continuum without the gaps that could occur in a fee-for-service system.

Creation of a true partnership instead of contractually based risk arrangements. Under traditional value-based programs, insurers and providers face the prospect of entering into complex financial arrangements with each other. Meanwhile, a provider-sponsored insurance company can quickly move to financial arrangements focused on providing the most collective value rather than on establishing a mutually acceptable financial allocation between two distinct organizations. This ability to focus on value from the very start, avoiding the complexities of sorting out financial allocations, is particularly important because increasingly complex insurance regulations and products could have a significant impact on the uncertainty of the medical risk transferred to providers.

Increasing opportunities for individuals to choose their insurance products. In the insurance market, large insurers benefit from having a broad, national network where they can ensure access to providers across the entire country. Although large insurers have historically benefited most from having this advantage in the employer group market, where the ability to provide such broad access is important, the movement toward giving individuals a greater choice among products, including the choice between products with broad networks and those with a comprehensive local networks, has fundamentally changed the market. These more diverse product options—including Medicare Advantage, managed Medicaid, and the individual plans under the Affordable Care Act—now allow provider-sponsored plans to compete head to head with large insurers in a larger percentage of the overall market.

Opportunity to guide the network and product design in the insurance product. As most providers understand, patients benefit from having access to the highest-quality network of providers in an insurance product that has an adequate benefit structure to ensure members will not have a financial burden in meeting their cost sharing requirements in a plan. By having a direct relationship with the insurance company, providers can ensure these important benefit features are included in the insurance product.

Ability to financially diversify. The perfect investment portfolio includes assets that are not correlated, so when one investment decreases in value another asset will help offset this loss by increasing in value. A health system and insurance company operate similarly. When utilization is higher than expected, the health system will benefit and the insurance company may have a temporary downturn in financial results. Of course, lower-than-expected utilization will yield better-than-expected results for the insurance company. Taken in total, the broader organization is protected against both higher- and lower-than-expected utilization.

A Cause for Celebration

As providers consider their options under value-based payment, I also hope they keep in mind their many advantages, particularly regarding their relative importance to communities. The services physicians and hospitals provide are among the most important services people receive within any community: They keep people healthy and sustain them with care during some of the most difficult moments in their lives.

A recent experience I had while attending an opening of a local hospital brought home to me just how important a hospital is to a community. In addition to the usual speeches and the ribbon cutting, the local high school band came out to play to the large crowd that had gathered for the event. The community’s pride and excitement in having this new hospital was palpable—reflected in the pure festive spirit of the crowd and the joyful energy of the high school band.

Providers should not discount this type of trust within a community. Rather, each provider should look to the trust it enjoys within its community as the foundation for its efforts to develop insurance products for its patients.


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