iProtean—Imperatives for the New Payment System

Even if the Supreme Court overturned the Affordable Care Act, hospitals would still experience huge cuts in Medicare payment, and there would still be a movement away from traditional fee-for-service, said Marian Jennings at the recent iProtean Symposium in La Jolla, California.


“We have put a lot of things into the bucket called “healthcare reform” that already were in the works before health reform was passed,” Ms. Jennings said.  Significant restructuring of the healthcare’s payment systems have been underway for several years, including value-based purchasing and bundled payments.


This is not a transition from “here” to “there,” but rather an evolution so, in that respect, hoping for the dust to settle is only that—a hope, and not one based on facts, she noted.


Ms. Jennings’ presentation focused on the following points:

  • There is not enough money to sustain the current health system.
  • Maintaining balance between mission and margin is critical in an environment of uncertainty.
  • Payment models will shift more risk to providers—both for the cost of care and for population health management.  This may take a decade.
  • In the near future, hospitals will have to work with multiple payment models, often with conflicting incentives.  It is not clear when the system will move entirely to one payment model—again, it may take a decade.
  • Private insurers are leading the re-crafting of the payment structure.
  • Delivering high value care is always a good strategy.



Key Imperatives

The board’s strategic discussions today should focus on several key imperatives:


Shifting Risk to Providers

In addition to the relentless downward pressure on costs, the scene has been set for shifting risk from payers (CMS, private insurance) to providers—hospitals and physicians.  Provider risk and cost accountability will move from low risk, traditional fee-for-service prospective payment to increasingly higher risk models:  value-based purchasing, hospital-physician bundling, episodic bundling, the ACA Shared Savings Model and ACOs, to, finally, capitation.  Essentially, this means moving to population health management—spreading risk over a larger base.


If a hospital considers what would be the tipping point from the old business model to the new business model, one of the questions it should consider is how proactive it should be; how much risk it wants to take now as opposed to waiting.  Ms. Jennings posed these questions, “Do you push initiatives with insurers in your state to partner with you on a demonstration project—to make it happen sooner?  Are you waiting for it, or are you trying to make it happen?”


New Patient Approaches Reducing Utilization

Another imperative for hospital decision makers focuses on the outcomes inherent in the new payment systems; that is, reduced utilization.  Emergency room use and inpatient admissions will fall significantly because of the way patients will be managed through accountable care organizations, medical homes and value-based purchasing initiatives such as readmission rate penalties.


New Role for Primary Care

The new emphasis on primary care (and primary care physicians) will also have a significant impact on hospital admissions.  Insurers are working with primary care physicians to reduce health costs, including fewer hospital admissions, tests and procedures, and some private insurers currently are offering primary care physicians payment bonuses for significant cost reductions.


Scale Matters

Another imperative noted by Ms. Jennings involves consolidation and the rationale for consolidation.  Smaller hospitals may lack access to sufficient capital, and may not have the economies of scale that, by itself, creates demand.  Hospitals need a large enough population base for risk contracting and negotiating leverage with payers. So scale matters, and many new players are entering the hospital consolidation sphere.  Smaller hospitals need to assess their positions, and larger systems need to assess the feasibility and attractiveness of non-traditional partners.


The Emerging Initiatives of Private Insurers


The Affordable Care Act has constrained the way private insurance companies do business, so it should be no surprise that they are moving aggressively to use the ACA provisions to their advantage.


Private insurers are leading the re-crafting of the payment structure. They are very nimble, and can launch initiatives quickly.  Two examples of recent private insurer initiatives include:

  • A Blue Cross Blue Shield of Arizona and Banner Health joint venture to expand services to Medicare beneficiaries, plus the launch of “Blue Alliance”—offering lower premiums by using Banner’s local network of providers.
  • The purchase of a Catholic health system, Caritas Christi, in Boston by a private equity firm and subsequently named Steward Health Care.  Steward and an insurer established a “select network” with a plan premium at 20% to 30% below market.  In that product, they negotiated a deal with Massachusetts General and Dana-Farber Cancer Institute.  If Steward couldn’t provide the needed service to a subscriber, that subscriber could get that service at Massachusetts General or Dana-Farber.


Marian Jennings will be featured in three upcoming iProtean advanced courses:  Transforming Your Organization into an Integrated Delivery System, Affiliations & Partnerships and Making Difficult Decisions about Services and Programs:  A Portfolio Approach.  iProtean subscribers, please look for these courses in your course list over the next  few months.



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