Fewer, but Tighter, Payer Relationships Expected to Underpin Integrated Health System Strategies in the Future

Abstract

While not independent of each other, the U.S. healthcare provider and payer systems have, in the main, been far from completely collaborative or interdependent for as long as both have existed. Each component of the industry has essentially operated in reaction to the other. As health insurers consolidated and became stronger over time, providers came to see them as a tolerated necessity of a complex healthcare financial landscape and a means by which to receive wages for services rendered. In response, hospitals and physicians have consolidated to enhance market position and pricing power.Considering existing pressures and new market conditions stemming from the influence of the Affordable Care Act, leaders of large, integrated health systems are contemplating future strategies underpinned by working relationships with fewer, but larger, payers, whether through ownership, legal integration, or contractual health insurance product partnership strategies.What does this mean? Large, clinically sophisticated, and geographically diverse health systems will likely derive a growing proportion of patient services operating revenues from a few large payers through contractual arrangements that apportion the financial risks associated with clinical outcomes and total costs of care between the parties according to more tightly negotiated terms over extended periods of time- that is, longer-term financial risk-sharing arrangements.How might such relationships work? The provider and insurer accept the financial responsibility for reliable access to care, clinical mistakes, readmissions, corrective surgical procedures, and so on. In such arrangements, the buyer receives predictable healthcare cost inflation rates and related guarantees and warranties of quality and cost over time, and in exchange, the provider-insurer partnership secures markets for predictable periods of time.Through such tighter relationships, the provider-insurer partners can focus resource investments and innovation efforts on the following:* Population health strategies* Total cost of care management interventions* Productive patient or enrollee engagement resulting in changes in health services use behaviors* Investments in preventive care programming with a focus on future returns on such investments* Interprofessional team models of careDo current market behaviors support such a future? Megan Remark, senior vice president for HealthPartners in the Twin Cities area of Minnesota, envisions the value that health plans can bring in a tighter payer-provider partnership:Health plans can support care process transformations with rich stores of clinical information and analytics, coupled with internal competencies focused on delivering evidence-based patient care, [conducting] total cost of care evaluations, [implementing] health behavior interventions targeted to specific clinical populations, and [supporting] community healthcare campaigns. If done well, closer relationships between payers and integrated health systems can improve care quality and efficiency, which brings greater value to the patient as well as those who pay the related health insurance coverage premiums.Ted Loftness, MD, medical director for Medica, a Minnesota-based not-for-profit managed care company with more than 1 million covered lives, supports Remark's premise as he speaks to what the markets-the buyers-seek compared with the realities of the current provider system. He cites Minnesota systems as an example:The buyers [government and employers] want value and affordable health cost inflation rates well into the future. . . . Furthermore, despite the consolidated nature of the Minnesota provider systems (which [Medica believes] to be of high quality with improving efficiencies), we see the need for closer (tighter) contractual relationships with fewer, larger, more integrated health systems that are capable of sharing financial risk, investing in expensive care management support systems and infrastructures, and transforming clinical care models while controlling alignment of financial incentives across affiliated providers. …