In today’s evolving healthcare environment, providers and payers alike are exploring competitive strategies. Innovative provider-payer partnerships that integrate care delivery and financing are emerging at a rapid pace, ultimately aimed to enhance the essentiality of partnering entities in the communities served.
Providers are seeking to support system growth in their communities. Innovative strategies with payers can provide access to new revenue streams and new revenue models, each presenting solutions beyond traditional contract enhancement (Figure 1). Payers are looking to grow their membership base while better controlling the cost of healthcare for members. Collaborative arrangements with providers can im prove care efficiency and effectiveness, offering a com m itted and dedicated partner at the point of care.
The structure and key elements of partnerships between payers and providers vary significantly. Ultimately, innovative strategies are built and sustained on a mutual level of trust. Each participant must be willing to learn about the other’s business model and be comfortable with some level of uncertainty.
There are five considerations that providers should evaluate proactively when pursuing a partnership with a payer to develop a joint health product offering(s) or a joint health plan. These considerations—product, membership, network, partnership model/risk arrangement, and financial model—are strategic, complex, intricate, and interrelated. Their evaluation, therefore, typically is iterative. Discussions around many of these issues frequently occur concurrently, especially if the timeline to get a new product or health plan to market is compressed in order to meet key filing deadlines, or other regulatory milestones. Close consideration of each singly and in combination—often best accomplished through a facilitated process—will enable providers and payers to develop and implement attractive, differentiable, and innovative arrangements.
What insurance product (s) can we offer t hat best address(es) t he healthcare needs and preferences of our targeted markets?
Joint products and/or health plans that integrate healthcare financing and delivery have the potential to offer a differentiated healthcare vehicle in targeted geographies. As such, payers and providers need to develop and define their points of view regarding community need and how the innovative partnership could address potential opportunities. Key questions include:
- What is/are our targeted geographic market(s)?
- What is/are our targeted population(s) or consumer segment(s)?
- How can we collaborate to attract the targeted population(s)
- and meet their needs?
- What are the differentiators that will make our offering(s) compelling (e.g., price point, benefit design, member experience)?
The product(s) developed to address potential market opportunities will be designed based on careful consideration of line of business (e.g., Medicare Advantage, commercial group), how the product is funded (e.g., fully insured, self-insured), product type (e.g., exclusive provider organization, preferred provider organization), and benefit design (e.g., value-based insurance design, dental).
A well-designed product offering should clearly differentiate its value proposition from other offerings in the targeted m arketplace, including those currently accessible from the partnering payer and provider. In the long run, an offering will differentiate itself by the value it provides to the marketplace based on an ability to meet member or employer needs and preferences through benefit design,
price point, and the breadth, depth, access, and quality of the provider network.
What population segment(s) can we attract to the new product offering(s), and how quickly can we attract them?
The partnership must have in place the right infrastructure and capabilities to support member care needs, so developing a membership model with viable growth targets is critical to achievement of scale. Scale allows payers and providers to mitigate or manage risk, such as investing in innovative, creative care programs that meet member requirements, particularly with complex, high-needs populations.
Similar to and concurrent with product-related discussions,
the parties will need to identify and quantify the target patient populations/membership for each desired product, and how the partner will attract those members by line of business, market segment, and geography.
The best distribution channel for access to each target population should be determined as well. For example, the use of brokers who have strong relationships with key employer groups may be the most effective channel for pursuit of commercial small group employers. In other instances, brokers may have less impact, and a direct-to-consumer channel strategy may play a more critical role.
Payers and providers will need to collaborate to understand market dynamics and develop a membership strategy that incorporates such factors as population mix, targeted segments, interplay of product offerings, and channel distribution considerations. A key output of this effort is a well-defined membership model that includes future membership projections for the new product or plan, and sensitivity/scenario analyses that enable the partners to evaluate financial sustainability on an ongoing basis (Figure 2).
What is the composition of the provider network that will best serve members of the product offering(s)?
Collaborating providers and payers will need to identify which providers across the continuum of care will serve the target members. The geographic breadth and depth of the network, or its baseline adequacy (typically as defined by regulations), requires reasonable access to core services, such as primary care, specialty care, and hospital services, in a delineated service area. If the provider’s network does not meet adequacy requirements, affiliations with other providers will be needed.
For competitive and sustainable performance, the network of participating providers for a product offering m ust not only be adequate, but high performing. Partners must be able to ensure care quality while controlling the total cost of care provided through the network.
The perform ance of the network is driven by network influence and network tools, which each carry tradeoffs for consideration.
Network influence: What level of influence/impact does the payer or provider have over the practice patterns and care models of network providers?
In theory, providers will have greater autonomy over a network comprised solely of employed clinicians, as compared with a clinically integrated network or other network that includes independent/non-employed clinician groups. Network adequacy standards, however, likely are more achievable by incorporating providers that are not directly employed. For example, complementary alternative medicine providers such as chiropractors, who often are required by network adequacy standards, are unlikely to be employed by a health system.
Network tools: What tools/levers to enable high performance are available to the network through product and benefit design? Product design influences active patient steerage to higher- performing providers. For instance, the product may require a primary care physician in the network to be assigned to a member, and may even require the primary care physician to serve as a gatekeeper to other network services sought by the member.
When such requirements are not in place, “passive steerage” should be considered. For instance, the benefit design for out-of-network care will implicitly impact how members seek care. If the product’s benefit design offers coverage only for emergency services received outside the network, members are less likely to seek non-emergent care outside the network. Another way networks use passive steerage is by “tiering” higher-cost providers in the network to discourage their use.
These tactics notwithstanding, steering volume away from select hospitals or physicians has proven challenging for provider networks. If the provider network is comprised solely of employed physicians, friction surrounding work arrangements or other matters could impact physician satisfaction or the network’s ability to retain physicians. If the provider network is comprised of its clinically integrated network, tiering within this network could negatively impact volume if patients are steered away from the network.
The end-goal focus for the provider network should be to raise the performance of all network clinicians, and not solely focus on the methods to achieve this.
Partnership Model/Risk Arrangement
What partnership element s are most critical to a sustainable and long-term partnership?
The partnership model defines the relationship between the provider and payer. The primary objective of a successful model is to align incentives and establish an appropriate level of flexibility, scalability, and permanence. Terms discussed to define the partnership model include governance, equity model, revenue model, risk arrangement, and exclusivity. The key questions to answer include:
- What is the primary means of economic alignment—for example, contract, joint venture arrangement, or new-company agreement?
- How much risk is each party willing to assume?
- What is the anticipated revenue model (which informs the network and product design)?
- What assets are each party contributing to, or investing in, for this vehicle or venture?
- What assets are each party not contributing to this vehicle or venture?
- How is exclusivity defined in the partnership model?
Exclusivity can be a significant issue. The degree of required exclusivity often is tied to provider and payer positioning in the markets served. A provider’s delivery system typically is too geographically concentrated to fully serve a payer’s entire membership base. Conversely, a payer’s membership base in the service area may be insufficient to fully support the provider’s delivery system. Therefore, provider-payer partnership models are unlikely to be completely exclusive. In due course, both parties will need to determine the terms that support the long-term permanence and sustainability of the partnership.
How can the joint product or plan achieve a competitive and financially sustainable trajectory?
Purposefully presented as the last consideration, the financial model is developed through integrated strategic, financial, and capital planning that includes data from the preceding four considerations and those mentioned in Sidebar 1. The model’s goals are to ensure a competitive trajectory for both parties, and the necessary scale to drive ongoing resource and capital investment in a financially sustainable manner. Mechanisms include appropriate target setting, actuarial modeling, agreement on profit sharing, risk distribution, provider payment model, and funds flow arrangements.
The questions raised up to this point should be answered and their financial implications projected. For example, actuarial sensitivities related to membership numbers and timing, and product pricing and benefit costs, should be determined.
Figure 3 presents a conceptual model to illustrate key levers and questions raised through a financial modeling exercise for a product partnership. Questions include:
- What premium price will make the product attractive in the marketplace?
- What level of profitability is required by the product-related partnership?
- In order to reach profit targets, how do we make the middle of the equation related to claims per member per month (PMPM) and administrative expenses work?
Extensive actuarial modeling should be performed to substantiate the details of the framework, evaluate different scenarios, and quantify the likely distribution of profits/losses between the parties. For some partnerships, the parties also may commit to joint funding of operating expenses—such as marketing and care management— over the life of the partnership, with monies budgeted separately from the product P&L funds flow agreement. Capital costs also are a key consideration. Parties partnering to offer a new health plan may agree to fund their own IT investments, for example, with the payer responsible for risk-based capital.
Providers and payers nationwide are recognizing the ability of partnerships to change the way care is delivered and financed. Goals and objectives for each party can intersect to present a compelling and differentiated product or health plan to communities served, maximize the skillset and competencies of each party, and improve the efficiency and effectiveness of care delivery and financing.
Successful payer-provider partnerships often include the following attributes:
- Trust and transparency to support and drive agile decision making
- The creation of a unique and differentiable experience for customers (members and employers), providers, and administrators
- An aligned incentive structure
- A shared view of the marketplace
- A long-term commitment of leadership focus, resources, and intellectual capital
- An expectation from both parties to learn and evolve over time
- Leveraging of strengths of each partner along with a clear definition of roles/responsibilities
- Identification of “no-regrets” opportunities to establish quick victories that can pave the way for long-term opportunities that may involve greater risk, but also the potential for greater reward and better positioning for the future
Through thorough and proactive thinking about the considerations described in this article, providers and payers will be able to accelerate the partnership development and transaction processes, and start working on the innovative products and plans that differentiate their offerings to meet consumer needs, improve care, and reduce costs.