Categories: predominantly on the basis of fee-for-service

Categories: Collaboration, health economics, health innovation,
health system sustainability, patient care

 

All Paths Lead to Convergence

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Dinesh Ganesan

 

Most
of my work is encapsulated in numbers representing accounts, assets, debt or
equity. I live and breathe this stuff, so it was a change of pace to sit down
and write a blog post—with very few numbers—about some of the financial trends
we at Johns Hopkins Medicine International are predicting in the year
ahead for international collaborative health.

 

Let’s
start with the convergence between payors and providers and what that might
mean for international health and health care.

 

In the United States, the vast majority of individuals—roughly
150 million—are covered by private health insurance through their employer, which
selects insurers and negotiates health plan benefits on the employees’ behalf.

 

This system
has set up a patient-insurer-provider triad in which each party
basically operates with little overlap. Patients typically choose an insurer
based on their employer’s plans. When they go to see their doctor, they pay
their co-pay and leave the rest up to the insurance company. That’s that,
unless there’s an issue with a claim, forcing a transaction—or sometimes
confrontation—between patient and insurer.

 

A more
dysfunctional dynamic occurs between health providers and health plan administrators,
who serve patients in a different—often conflicting—ways. Private insurers pay
hospitals predominantly on the basis of fee-for-service schedules that they set
every year. In this model, doctors are rewarded for
providing more care, while insurers have incentives to restrict coverage.

 

Fee-for-service
is a cumbersome, highly labor-intensive process that adds significant
administrative costs in a country that
spends more than twice as much on health care as other industrialized
countries, yet continually ranks low with respect to quality and outcomes. Understandably,
no other
country in the industrialized world uses this model.

 

This dysfunction is
compounded by the recent tax bill’s repeal of the individual mandate under the
Affordable Care Act, the impact of rising medical costs on employers and consumers, and the increasingly limited profitability of
the core insurance business. Health organizations are being pushed out of their
silos and are merging to build stronger relationships between patients and
insurers, and to turn the reimbursement tug-of-war between insurers and
providers into a partnership.

 

In this trend—called the payor-provider convergence—more health systems that are venturing into the health insurance
business by acquiring or starting their own health plans and by establishing
joint ventures with payers to jointly own and operate a health plan.

 

On the other side of the equation, insurers are moving into the health
care provider business by acquiring hospitals, surgery centers, medical groups
and other providers. 

 

In both cases, the
organizations are broadening their footprints by merging with other segments of
health care to gain access to new business lines and new supplies of customers.

In the past five years, there have been about 200 partnerships created between insurers and large
health groups. As they gird against upheaval in a rapidly changing health care
environment, we’re seeing former adversaries band together.

 

The most readily known example of an organization that plays the dual roles
of provider and insurer is Kaiser Permanente, the largest nonprofit
integrated-delivery system in the country, which consistently ranks as a top
performer on key quality measures.

 

More recent
examples include the drugstore giant CVS Health’s recent purchase of Aetna,
one of the biggest health insurers in the United States, for about $69 billion.
The Cleveland Clinic recently joined forces with an insurance startup, Oscar
Health, to offer individuals a health plan in Ohio. And UnitedHealth Group
acquired a chain of outpatient surgery centers and has a number of profitable
health care businesses, including its own pharmacy benefit manager and various
consulting arms.

 

Many experts in the field see advantages in the payor-provider convergence.
Because they become part of the same entity, providers and insurers are aligned
behind the same incentives. If they save money by caring for patients more efficiently, they share in
the savings. Providers will be rewarded for making decisions that are not only
clinically sound, but also economically prudent.

 

In the long term, this could result
in more integrated models that stress preventive care, better management of
chronic diseases, fewer readmissions and lower costs. It’s a win-win for financial ledgers and for
patients.

 

Prediction: The payor-provider convergence
will accelerate as payors look for consolidation opportunities and seek growth
in emerging economies and in regions with changing health care policy. This will result in deeper, strategic partnerships and joint ventures between providers and
payors domestically, but also abroad, where health providers will begin to introduce value-based
reimbursement models overseas.