To become more strategic and agile in our payment and delivery models, the network management function needs to be overhauled and upgraded. In this second part of our series, we’ll look at the features that health plans must reconsider, with the aim of getting health plans positioned for change.
Toiling at the books
By definition, network management involves a complex interplay of network design, provider information management, contracting and reimbursement. A health plan determines which providers it wants in its network, what services should be included, how contracts will be written, and how providers will be reimbursed to meet the needs of employer groups and members.
The design of the network satisfies a variety of considerations. What is the geographic region in question? How many primary care physicians, specialists, health systems and other provider services are included? How loose or tight should access be? Will specific outcomes be targeted for a given population? Those variables, among others, are the basis for the contracts with providers and the value proposition offered to members.
In a world of preferred provider organizations (PPOs) and fee-for-service (FFS) payments, network management can be relatively straightforward. Broad networks are not overly restrictive in terms of access, nor are they highly selective in the providers that are included. Information about providers and members has little strategic value. Contracts may include a complicated range of fee schedules and rate sheets, but they have few wrinkles in terms of performance or quality incentives. Providers are paid, more or less, on a relatively simple FFS basis.
Even so, the process of managing contracts, filling claims and making the appropriate reimbursements is time-consuming and labor intensive. Much of the work is done manually, gumming up the system, increasing the potential for errors, and making it difficult to share information and improve care coordination.
These limitations are a major impediment to the success of new care delivery models, such as accountable care organizations (ACOs) and patient-centered medical homes (PCMHs), which require reimbursement strategies that support change because they are in alignment with new goals. Significant experimentation is occurring with both care delivery and reimbursement innovations, yet their potential will be limited if health plans are unable to efficiently cope with their complexity, flexibly adjust based on market feedback, and scale to larger dimensions without incurring significant additional resources.
Why is network management important?
First, the network management function defines the health plan’s ability to manage its supply chain. Amazon and Wal-Mart leverage their supply chain strategically to deliver the right products to the right consumers every time while making improvements, wherever and whenever possible, in cost, efficiency and quality. Healthcare is becoming a similar kind of deliverable. A health plan will need to go beyond the status quo of adequate service at set cost. Competitive advantage will be achieved through a tactical understanding of the supply chain and constant innovation and improvement.
Second, in order to manage its supply chain, health plans must understand what their networks can actually do, and what incentives are in place to drive desired behavior. Provider contracts serve as the means for structuring and directing this capability.
Third, the network management function is responsible for reimbursement, and it is through this mechanism that costs are managed. In innovative payment models, contracts are particularly complex and dynamic. However, even current FFS systems can be better managed with a more robust reimbursement capability.
What must health plans do to operate with greater efficiency?
For a health plan to be competitive, effective network management must be considered not only a core competency but a competitive differentiator. This requires that the four critical functions of network management — provider information management, network design, contracting and reimbursement — be managed at optimal levels and automated as much as possible.
For example, plans must have a single source of truth when it comes to provider information, plus the tools to manage this information efficiently. In most health plans, provider data is collected and maintained by various siloed departments. Information can overlap or contradict each other, some departments can have more than others, and information sharing requires an email or phone call rather than direct access to a single system. Errors and inefficiency are hard to avoid. However, more effective management of costs comes through an active and intelligent understanding of the providers in a plan’s network — not just who those providers are, but what they do well, and their business relationships with other providers. This requires a single source of truth.
Health plans also struggle with designing and administering custom and innovative networks for their clients. As a result, some only allow these for their strategic accounts, risking the loss of business to competitors. Health plans must be able to design networks that can deliver the optimal clinical and financial results for certain members or conditions while also reining in costs, and they must do so across their member population. Ideally, benefit-based member incentives are designed to support steerage to these custom networks.
Contracts with those providers are too complex to manage effectively without automation to trigger incentives, track performance, and create a built-in optimization loop. For reimbursement to be effective, a health plan must be able to manage complex contracting with transparency, scalability and automation. By integrating a contract management system with its claims system, a health plan can adjudicate for value while still accommodating FFS payments.
Finally, reimbursement policies must be aligned to support the networks’ goals. Increasingly today, we’re seeing a lot of experimentation with innovative payment initiatives such as value-based reimbursements, pay-for-performance, and bundled payments. While such innovative models are possible in small pilots with close oversight and a lot of manual processing, bringing them to scale across a number of networks will be too complex and difficult without automation.
In the third and final part of this series, we’ll talk about how to build on this foundation of “getting the basics right” — in other words, once you have these functions operating at peak efficiency, what’s next? What can you achieve when you start to integrate these functions?
Jim Evans is vice president of financial and network management at McKesson Health Solutions, which produces clinical evidence and technology solutions to help payers and providers collaborate for better healthcare outcomes at lower costs.
