Special Edition: In Health Reform 2.0, Provider-Sponsored Health Plans in Systems of Health Key

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week's article. 

What does the future hold for the U.S. health system? Given news last week that total spending increased 5.3% last year to more than $3 trillion (17.5% of the GDP; $9523 per person), health cost containment will be issue one facing the industry.(1)

The CMS Office of the Actuary forecast is for health costs to increase at least 5.6% annually for the next decade due to increased utilization by those newly insured and expansion of Medicare enrollment, and the soaring costs of drugs. (2) At the same time, the economy will likely grow at 3-3.5%, and inflation will average a 2-2.5% annual jump given the posture of the Federal Reserve toward our long term fiscal policy. (3) So healthcare will consume more of the economy: that means higher insurance premiums for companies that offer coverage, less discretionary spending for their employees who see higher co-pays and deductibles, increased numbers of uninsured who can’t afford coverage and a vigorous public debate about the next chapter in health reform.

The Affordable Care Act drew widespread and arguably needed attention to our industry.  We excel in providing the latest technologies and breakthrough drugs.  We train the world’s best scientists and fund the majority of innovations that benefit the planet. The ranks of the uninsured among us have shrunk to 12% as a result of its provisions for Medicaid expansion and marketplace tax credits, but 30 million remain tethered to a patchwork of public health programs and hospital emergency rooms that provide their uncoordinated care.

The ACA succeeded in addressing the issue of access for many adding nearly 17 million Americans to the ranks of the insured, but cost containment remains elusive. Its pilots and demonstrations—accountable care organizations, bundled payments, value-based purchasing et. al.—are gaining traction, but evidence they’ve slowed the cost spiral is still incomplete. Utilization is increasing and drug costs are exacerbating the issue. And premiums for insurance coverage are going up across the board; faster than wages, medical inflation and overall economic growth:

  • In the commercial insurance market, employers saw a 6.3% increase this year as the slowdown in health spending growth dating to 2002 seemed to come to an end. (4)
  • In the Healthcare.gov marketplaces, premiums for the second lowest silver plans increased on average 7.5% this year vs. 1.6% in the first two enrollment seasons. Still, insurers including United and HCSC have suggested they’ll drop out next year as the individual insurance market in the marketplaces becomes less attractive to their shareholders. (5)
  • In households, average spending for those with private coverage increased 4.7% from 2013 as employers pushed higher premiums and co-payments through, and as employees opted for HSAs as a mechanism to lower their risk. (6)

So as cost containment takes center stage, what’s next in health reform is the question industry watchers are asking.  Can the U.S. system address its costs aggressively while accommodating increased demand and somewhat utopian expectations of its citizenry? Tough questions.

For those who deliver services to patients– hospitals, physicians, post-acute providers, labs, diagnostic clinics,  allied health professionals, et. al.—the stark realities are these:

1-The burden to reduce costs will ultimately fall on providers. The snowballing cost spiral is the compounded effect of medical inflation, healthcare workforce wage increases, increased utilization, overtreatment, unhealthy lifestyles and a system of care in the U.S. where each sector blames the other for inefficiency and suboptimal results. The buck stops with providers. The cost problem in healthcare is not the fault of providers completely but is largely their problem to solve. Changing how providers do their work is the key to cost containment.

2- The major purchasers of healthcare services—Medicare, Medicaid, large employers and private insurers—are shifting the financial (insurance) risk to them. Purchasers want providers to bear risk for outcomes, safety and total costs of care. Thus, providers recognize that their clinical skills are not enough: they must be as proficient at diagnosis, treatment and care coordination as they are enrollment and eligibility, benefit and network design, premium pricing, claims adjudication, medical management and member services. Providers recognize they’re now in the insurance business whether they like it or not.

3- Relationships with insurers are changing. The traditional model–where providers contract with multiple insurers on an annual basis— is problematic and costly. The average physician spends $83,000 per year dealing with multiple plans at a cost of $28 billion annually to the health system. (7,8) In the old model, outside plans determined which providers treated their members, and how. They’d change these plans annually, and in some cases cancel them when they determined them to be actuarially unsound. Outside insurers created and protected “their data” and providers scrambled to gain access. The old model undermined continuity of care for patients, discouraged investments in preventive and community health by providers and was a “them versus us” storyline that played out in every community. No more. Many health systems today think sponsorship of their own health plan is essential. The old model: “them against us” is now “they are us” as insurance becomes a critical element in integrated systems of health.

The opportunity and challenge for most providers: transitioning from a delivery system focused on care for patients to an integrated system of health focused on the entire population. It’s a decidedly more complicated enterprise, but arguably the best path to managing costs and quality in the best interest of the communities served.

Source: Navigant Center for Healthcare Research and Policy Analysis

In these systems of health, sponsorship of a health plan plays a vital role. It provides the financial  structure through which care can be coordinated and providers in the system held accountable for managing costs. It provides the vehicle through which capital commitments and operational focus can be directed to community health and stronger primary care. It affords physicians and caregivers access to data about costs, quality, and care coordination necessary to measure and improve their own performance. It forces hospital, outpatient and ancillary costs to be low as to allow the plan’s premiums to be competitive. And it adds the functions, capabilities, and infrastructure necessary for providers to assume financial risk for the work they do recognizing the transition from volume to value is well-underway.

It’s not a new concept. For years, organizations like Kaiser, Geisinger, Presbyterian (NM) and others have successfully operated in the dual roles of delivery and financing. But given the resurgence of the health cost spiral, it’s a concept that’s getting renewed attention.

Three recent studies showed provider-sponsored health plans that achieve sufficient enrollment compete favorably against private plans on quality, member service, premium costs and administrative efficiency.(9)  And a recent study of health plan executives found private insurers know they’re a potential threat: “…health plan leaders feel that providers manage care most effectively and will drive this activity in the future, especially given providers’ universal dissatisfaction with plan care managers….a potential unintended consequence of transitioning to risk-based arrangements is that providers..may originate and/or sponsor their own plans..”(10) Indeed, provider sponsored plans might be formidable competition to private insurers in their communities: Consumers trust providers more than plans and the high touch role providers play in most communities is distinctly different than the online relationship most members have with their plan.(11)

Private insurers have history on their side to raise suspicions that provider sponsored plans might not be the answer: they’re quick to offer these observations …

1-“Providers are not capable of running their own insurance plans.” Like owning medical practices, owning and operating an insurance plan is a tough business vastly different than running a hospital. But the data confirm that many systems of health do both well.

2-“Providers cannot be trusted to manage costs.” The wildly variable intensity of services as captured in Dartmouth Atlas data quantifies the reality that much of what’s done is arbitrary, and often too much is done without adding clinical value (12). But that’s changing: valid and reliable data about the quality and costs of services is readily available, and the market, especially employers and consumers, is embracing these tools to keep providers honest.

3-“The integration of delivery and insurance in a system of health will drive costs higher.” There is also credence in this assertion. Hospital consolidation has, in most cases, not produced savings to communities. (13) Next to drug costs, hospital costs have risen faster than others. (14)  But Medicare, Medicaid, insurers and large employers have the mechanisms in place to cap payments: they can require cost constraint as a condition of participation, and full capitation is a certain lever to force cost constraint.

So the hypothesis is this: integrated systems of health inclusive of delivery and insurance capabilities offer the most viable solution to managing costs by managing care. Their plans will compete against private insurers for members, but their purpose—total population health management in the communities they serve—will distinguish their ambition. They’ll get no pass for higher premiums, poorer service or tighter networks or inadequate medical management because they’re provider sponsored. But they compete for a different purpose.

Is Health Reform 2.0 likely? It seems so.  Cost containment will be the focus. The convergence of financing and delivery in integrated systems of health is one of several paths to that end.

Are provider sponsored health plans part of the answer? It seems so, especially if purchasers (\Medicare, Medicaid, large employers, private insurers) continue to shift financial (insurance) risk their way requiring organizations to be effective care managers.

Will the transition to fully integrated systems of health be easy? Not hardly. It requires the addition of skillsets and capabilities foreign to many provider organizations. It requires boards to appropriate capital in different ways, and physician leadership that’s equipped to create high-performing clinical teams that embrace managing care and costs as an opportunity. And it means the scale or scope of these endeavors must dramatically grow to achieve optimal efficiency and performance.

So as candidates espouse largely partisan views about the pros and cons of the Affordable Care Act, the reality is that the looming cost spiral is a national threat to the viability of the system. Integrated systems of health that are capable of managing costs and quality is a solution: it’s common sense….

  • How can costs be controlled if the providers that deliver the services are unaware of the costs they’re expected to constrain?
  • How can purchasers expect to change incentives from volume to value by assuming financial (insurance) so providers manage population health without expecting them to sponsor their own plans?
  • How can investments in care coordination be rationalized if the patients-physician relationship is held hostage by private insurers?
  • And how can the U.S. system address the social issues that limit the effectiveness of healthcare services if community-based providers aren’t organized into cohesive systems of health?

Health Reform 2.0 is about managing costs by managing care. Its purpose is clear: to serve communities. Its focus is clear: Total Population Health Management. Its need is evident: what we have now is not working as it should. Provider sponsored health plans in systems of health is the solution worthy of serious consideration.

Paul

Sources

  1. CMS Office of the Actuary, “National Health Expenditure Projections 2014-2024
  2. Ibid
  3. Carlos Arteta, M. Ayhan Kose, Franziska Ohnsorge, and Marc Stocker, “The Coming US Interest Rate Tightening Cycle: Smooth Sailing or Stormy Waters?
  4. Herman B., “Employee deductibles, not premiums, continue heavy growth,” Modern Healthcare, September 22, 2015
  5. Cox C, Gonzales S, Kamal R, Claxton G, Levitt L., “Analysis of 2016 Premium Changes in the Affordable Care Act’s Health Insurance Marketplaces,” The Henry J. Kaiser Family Foundation, Updated October 27, 2015
  6. Patton M., “Health Insurance Premiums Are Rising Faster Than Income,” Forbes, June 30, 2015
  7. Dante Morra, M.D., M.B.A. et al., “S. Physician Practices Spend Nearly Four Times as Much Money Interacting with Health Plans and Payers Than Do Their Canadian Counterparts,” The Commonwealth Fund, 2012
  8. S. Bureau of Labor Statistics Consumer Expenditures – 2014 (Household spending increased for most categories in 2014 September 10, 2015: The average U.S. household spent $53,495 in 2014, a 4.7-percent increase from 2013)
  9. “The Performance of Provider-sponsored Health Plans: Key Findings, Strategic Implications” Navigant Center for Healthcare Research and Policy Analysis & The American Hospital Association (2015); “Provider-sponsored health plans positioned to win the health insurance market shift” Deloitte (2015); “Provider-Owned Plans Fare Well In Wake of the Patient Protection and Affordable Care Act” A.M. Best (2015)
  10. Journey to Value Based Care: Insights and Implications from Deloitte’s 2015 Health Plans Executive Interviews,” Deloitte
  11. Robert J. Blendon, Sc.D., John M. Benson, M.A., and Joachim O. Hero, M.P.H. “Public Trust in Physicians — U.S. Medicine in International Perspective,” N Engl J Med 2014; 371:1570-1572, October 23, 2014 DOI: 10.1056/NEJMp1407373
  12. Reflections on Variations,” The Dartmouth Atlas of Health Care, 2015
  13. Impact of Hospital Consolidation on Health Insurance Premiums,” America’s Health Insurance Plans, June 19, 2015. Trish EE, Herring BJ. (2015). How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums? Journal of Health Economics. 42(Jul):104-114.
  14. 2015 Employer Health Benefits Survey,” Segal Consulting, September 2015; Segal Health Plan Cost Trend Survey, 2016

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.