Playing Nice in Healthcare

June 13, 2013
With an intensified, healthcare reform-driven focus on cost reduction and quality measurement across the entire U.S. healthcare system, the need for an improved partnership between healthcare payers and providers has become more important than ever.

One of the fundamental needs in today’s healthcare system is for its two core stakeholder segments—payers and providers—to work together collaboratively. Health plans and providers need each other in order to create the new healthcare through collaborative work—while payers have vast amounts of historical claims data, providers have the clinical data. Combining the two types of data for true population health and care management could be powerful, but until very recently, neither side has yet been ready to work together collaboratively, leveraging data at a really granular level.

For years, each side has worked largely internally to remove inefficiencies, reduce costs, and improve quality outcomes, with, for example, health plan-driven disease management programs with office-based physicians tending to deliver lukewarm results at best. Despite these efforts, ongoing challenges continue to impair payer-provider relations, adding unnecessary friction and costs. But with an intensified, healthcare reform-driven focus on cost reduction and quality measurement across the entire U.S. healthcare system, the need for an improved partnership between healthcare payers and providers has become more important than ever.


A key ingredient that in most cases remains desperately missing in efforts to connect the care process between payers and providers is trust. Simply put, battle-scarred from decades of skirmishes over contracting conflicts, payers and providers generally still don’t trust each other. A first step towards trust, industry experts say, is for payers and providers to agree, upfront, what information they will share. And they must agree to share that data in a transparent way.

“There is a trust challenge that needs to be gotten over,” says Fred Geilfuss, a partner in the healthcare practice at the Milwaukee-based Foley & Lardner law firm, where he counsels healthcare providers and health systems on general operational concerns, and regulatory and business matters. “There are tensions between them. Negotiations historically can be contentious, but there is recognition that they need each other and have to get along. If they don’t, there is trouble and both sides know that.”

Historically, payers and providers sat on opposite sides of the table, as each tried to “get their piece of the pie.” But now times are changing, says Simon Jones, director of accountable care organizations (ACOs) at Blue Shield of California, a San Francisco-based health plan.

Blue Shield launched its first ACO in 2010 with Hill Physicians Medical Group and with what was then Catholic Healthcare West (now Dignity Health), based in the San Francisco suburb of San Ramon and in San Francisco, respectively; and since then, it has launched nine additional ACO partnerships, connecting with a variety of different healthcare organizations. “We originally came to the table with extesive financial information, and there was a worry that could be leveraged by the providers in the contract talks. We had to swallow hard, though, and doing that was the best way to establish trust. It was necessary,” admits Jones.

Whenever there is a contract and lawyers involved, both sides feel like they will be taken advantage of, adds Alan Spiro, M.D., chief medical officer at Accolade, a consulting firm that partners with employers to simplify and improve healthcare for employees and their families. “In any negotiation, information is power. People share that data and power sparingly. They’re sharing aspects, but also holding back aspects.”

Alan Spiro, M.D.

Transparency means that each entity shares data that could be useful to the other. This enables providers—both hospitals and physicians—to understand how their reimbursement is determined and what factors influence the payments they receive. “We have historically kept our own data and not shared it properly,” says Jones. “But in order to accomplish the triple aim of accountable care, all the parties that work with the patient need to have as much access as possible to the data to do their job effectively. If you don’t have that [perspective], you will very much struggle.”

When Blue Shield’s provider partners came to the table, it wasn’t easy to immediately conclude that everyone was in it together, says Jones. “It took time—it was a year plus long conversation among the highest levels of the organization. We knew we had to change our behavior. We tried hard to do that, and they came to the table with the same intent. We have [sustained] that behavior, and the ACOs that have followed our first few have seen the results and discussed with their peers that it’s working.”


According to a recent study by the Framingham, Mass.-based IDC Health Insights, 64 percent of accountable care programs are governed through a joint partnership between payers and providers, and these partnerships will grow in 2013. Martin’s Point Health Care in Maine, with over 70 clinicians based in nine health centers spread across the Northeast, is a provider with its own health plan. According to Jeff Bland, Martin’s Point’s senior business consultant, delivery systems, having an integrated medical organization can be especially beneficial from a data standpoint, particularly when payers and providers are at odds with each other.

“Being able to get at data and see what’s driving the data is a big advantage for us in an integrated system,” Bland says. “We’re running reports on a monthly basis and can ask questions on the data and the methodology and look at [recent] trends. Basically, you walk over to the next office and you can have a conversation. That dialogue is key. Commercial payers are interested in becoming timelier with their data, but they’re not quite there yet.”

Martin’s Point built a $750,000 data warehouse, and it has paid back, says Christine Torraca, senior consultant, delivery system performance. “Data is one of the fundamentals. You can talk about collaboration and joint goal setting, but if you’re not working from a data-informed perspective, the likelihood of success is not great.”

Meanwhile, Banner Health, an integrated health system based in Phoenix, which operates 23 hospitals and other healthcare entities in seven states, has created the Banner Health Network, designed to take on ACO development both through the Medicare Shared Savings Program (MSSP) for ACOs, and via collaborative contracting with health plans in Arizona.

Leaders at Banner Health Network have been building a groundbreaking collaborative initiative with the Hartford, Conn.-based Aetna. According to Tricia Nguyen, M.D., chief medical officer of Banner Health Network, the organization could have done this more individually and purchased individual elements such as reporting solutions, population registry solutions, an analytics engine, and a health information exchange (HIE) capability, and chosen to integrate all these disparate data sources, itself. “The reality is that EHRs [electronic health records] don’t have the capability to integrate claims data together with the data we have as a provider. So this gave us the opportunity to use a single integrated suite of solutions to work with a partner like Aetna. That having been said, Aetna will not see any payment from us for their technology and services unless they can help us achieve savings. We recognize each other’s strengths. So this is a payer-provider-vendor partnership, and it’s unusual,” she says.

Tricia Nguyen, M.D


Shared risk is a fundamental part of a sustainable insurance system, say healthcare pioneers.  Providers and payers recognize that for ACOs to reach their potential, there is a need for payment models other than the fee-for-service approach dominant today. According to The Commonwealth Fund, as new ACOs form, payers are establishing shared-savings programs and other payment models in an effort to create financial incentives for high-quality care. Payers are also considering payment methods that confer a portion of the financial risk to the provider, seeking to create stronger incentives than shared savings only; in fact, the proposed rule for the Shared Savings Program (established by the Centers for Medicare & Medicaid Services) includes a shared-risk component.

Providers should be in charge of how healthcare is delivered, and for that to happen they have to be at financial risk as well as risk for the quality component, says Phil Kamp, CEO of Valence Health, a Chicago-based healthcare solutions provider. “Health systems are used to getting paid for what they do. The more patients, they better they are financially. So now, transitioning from volume to value is huge. The biggest piece of that is the transition piece—going from fee-for-service to risk.”

The best way to make this happen is to align incentives, Kamp continues. The insurance company wants to reduce utilization. And they want to make sure if they’re getting $100, they spend less than $100. But on the provider side, they want to do more. Those two things don’t coincide, says Kamp.

The best form of collaboration, Kamp advises, is when health plan and provider leaders can agree that the provider should take on financial risk, but also be given the tools, resources and skills to succeed at taking on that risk. In the 1990s, providers got into risk without the tools to support, and the insurance companies didn’t help them, Kamp says. They would instead focus on trying to give the providers as little of the premium as possible. “And the providers failed—they failed at contractual relationships, they didn’t have the right services, and they had the wrong people in charge. Today, the difference is we have the numbers, analytics, and experts to make it work. The data will show that provider-sponsored health plans are more cost effective and provide higher quality care than commercial payers. If you are providing the best care you possibly can, it will be the most cost effective. That’s what it’s about—getting doctors to play a role in cost effective population management.”

At Blue Shield, because all partners had both upside and downside financial risk for total healthcare expenditures, they had a powerful incentive to help each other. This imperative applied to all of the cost categories, which were divided as follows: facility costs, professional costs, mental health costs, pharmacy costs, and ancillary cost. Each partner’s degree of risk depended on its ability to influence per member per month costs in a particular category, Blue Shield’s Jones says.

Simon Jones

For instance, according to the September 2012 issue of Health Affairs,one partner, Dignity Health, carried more of the risk for facility costs; Hill Physicians Medical Group and Blue Shield assumed more risk for professional services; pharmacy cost risks were spread evenly across the partners; and Blue Shield assumed the greatest risk for ancillary services. In addition to developing the overall program structure and providing advanced analytics to help the ACO coordinate care more effectively, Blue Shield oversaw information technology integration and provided guidance on legal issues.


While payers and providers continue to work at playing nice, it is important to remember that hospitals and physician should be focused on helping the patient, says Accolade’s Spiro. “The payer should be focused on paying the right amount for the needed services. Ultimately, I believe the person in need in the [patient’s] family must be in charge,” he says. “It’s not an issue of the hospital or doctor or health system coming together and linking arms, but instead I think they each have to understand their role and understand they are there for service for that individual. The individual is the linking point for everything.”

The data should be used to help the person in need to make their own decision, Spiro continues. “We need to find ways to engage the people—they are the ones getting the service. The people are the ones that count, and sometimes we forget that. The health of the person itself is what is important and that is what we focus on.”

Alternative payment and delivery models such as patient-centered medical homes (PCMHs) are also growing in the private sector to test how best to change the prevailing fee-for-service reimbursement method and get better value for dollars spent. HealthLinc, for example, is a community health center based in Bloomington, Ind., and its Valparaiso-based clinic is a federally qualified health center (FQHC) and PCMH that had 1,827 encounters with 997 patients when it began in 2006. Six years later, the clinic saw 5,042 patients with 23,174 encounters.

The organization’s CEO, Beth Wrobel, says HealthLinc has always had a good relationship with all of its payers. “We are charged with improving health outcomes at a reduced cost. When you have a PCMH you are assuring the patients are getting the preventative services that lead to quality bonuses for the provider. But we still need to do more care collaboration. The bottom line is the more face to face time, the better the outcomes. It’s the best care we can give our patients.”

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