GE Healthcare Camden Group Insights Blog

7 Managed Care Trends to Watch in 2016

Posted by Matthew Smith on Feb 5, 2016 11:13:56 AM

One month into 2016, it’s clear that this will be a year of massive change for the managed care industry. Here are seven predictions for some of the key issues that will emerge, intensify, or be resolved by the end of this year.

1. The impact of recent health plan mergers will come into focus

It is likely that the major payer consolidations will get sorted out this year. The big mergers are already starting to impact contract negotiations between the health plans and providers. As the larger health plan organizations continue to cut operating costs and slow the growth in reimbursement rates, providers will respond by consolidating to form larger and more integrated health systems. Expect the Federal Trade Commission to expand its examination of provider consolidations. Organizations that are consolidating must demonstrate both pre- and post-merger consumer benefit as a result of these affiliations or acquisitions. 

2. Value-based arrangements will gain more momentum

The industry is still waiting to see if the federal government will make a move on the “Cadillac” Tax, which Congress delayed for two years at the end of 2015. The question is, will Congress eliminate it all together? If they do not eliminate it, we can expect to see further benefit reductions and higher deductibles and coinsurances as employers focus on meeting the cost limits prescribed. The government and employers will continue to develop and implement new ways to bend the cost-curve. Health plans will double their efforts to create “value” or “high performing” networks that will offer narrower networks in exchange for lower premium and out-of-pocket costs to consumers. This will accelerate provider consolidation, either through mergers, affiliations, or clinically integrated networks as they attempt to offer a broader, yet differentiated, “high performing” network to the market. Once formed, these newly established networks will have to demonstrate value to attract employers and effectively move market share. Positioning your organization as the lowest cost leader in your market will not be enough; quality and patient experience and satisfaction must be met simultaneously.

3. Provider-owned health plans will gain more interest from health systems

Health systems that are continuing their transformation to clinically integrated networks will face more pressure to have more control of their reimbursement streams and incentive systems. As such, expect more providers to become interested in owning a health plan or collaborating with other providers who already own a health plan. In addition, there will likely be a shift in strategy from competing directly with large health plans to a “plan-to-plan” strategy, which will allow the integrated delivery networks (IDNs), clinically integrated networks, and health plans to collaborate more easily. Finally, some recently established provider-owned health plans have struggled, so new entrants will be more selective and cautious as they refine their market and product approach to this strategy. 

4. It will be an important year for health insurance exchange products

With the Affordable Care Act (ACA) insurance exchange products continuing to grow as we move into 2016, eclipsing the 8.8 million subscriber mark, a critical success factor of this ACA provision relies on insurers continuing to offer these products, despite incurring losses in the initial years. For instance, UnitedHealthcare Group’s 2015 annual earnings report showed that the insurer lost $720 million from exchange products, but will continue to offer and closely monitor the performance of those products throughout 2016. As a result, health systems should expect a continued increases in high-deductible plans (more bad debt on exchange accounts and a need for ever increasing focus on revenue management), and increased pressure on reimbursement rates as health plans continue to adjust these products to the newly insured’s needs and their own need for profits.

5. Consumer Operated and Oriented Plans (“CO-OPs”) will continue to lose momentum

An alarming 12 of the 23 health insurance CO-OPs have failed in roughly three years of existence, and the trend is expected to continue into 2016, as the 11 CO-OPs that remain operational—are all operating in financial stress. The ACA-led program, which was funded with $2.5 billion of taxpayer dollars, has shown an inability to compete on the exchanges with the large commercial health plans. The original intent of these plans was to increase competition on the exchanges, and lower premiums for consumers purchasing individual exchange products, but without sufficient capital in reserves, state insurance commissions have forced many to shut due to lack of solvency. In all, closures of CO-OPs have resulted in over 700,000 Americans losing coverage, and over $1 billion of taxpayer dollars lost to-date. With the CO-OP program deemed largely as a failure, the result is fewer options for health insurance coverage to individuals and businesses. Expect to see further CO-OPs failures in 2016, and ultimately, movement toward exiting the market.

6. Compliance will become an important issue in the coming years

Federal and State actions and fines will highlight the new oversight and conduct expected of health plans and providers. Physicians and networks who are working to take on greater risk and seek rewards by lowering or limiting the number of providers in networks will come under greater examination by the regulators and by health plans. Building compliance in early to every policy and action, and then monitoring any delegated service providers, and any activities with potential member harm, requires focus and action at every level of management and governance. Do not be surprised if compliance actions become ever more common.

7. Is capitation making a comeback?

Expect to hear more about capitation this year, thanks to the implementation of the Centers for Medicare & Medicaid Services’ (CMS) Next Generation ACO (NGA) program. Most of the provider participants in this program are organized, sophisticated and have significant experience in managing financial risk. In addition, many of the participants are already at risk for managing Medicare Advantage populations through capitation or other fixed payment methodologies. Although performance year 1 (calendar year 2016) in NGA is still a fee-for-service platform, some participants may be willing to learn from their experiences and take the plunge in later years and go at-risk through capitation. Expect CMS to highlight and regularly announce the efforts for these participants. NGA could be the program that begins to further shape the health plans thinking and approach to providers taking more financial risk.

In coming months, the greatest challenge for most healthcare organizations will be finding the right pace for adapting to or embracing new payment models. Most organizations are now seeing the direction, but will have to find the right pace and organizational commitment to continue through this industry-wide transformation.

Originally published by Managed Healthcare Executive, 1/31/2016. This article is reproduced in its entirety.  

Topics: Managed Care, Trends, Matt Briskin, Adam Medlin

Thinking Payer Strategy? Think Care Delivery Networks Instead

Posted by Matthew Smith on Jul 7, 2015 4:30:29 PM

By Adam Medlin, MHA, Senior Manager, The Camden Group

Care Delivery NetworkToday, healthcare providers are facing several challenges related to the ongoing industry transformation from fee for service to fee for value. Physicians and hospitals alike are feeling the squeeze at the margin as increases in payment continue to flatten while expenses continue to rise. To offset these trends, providers are seeking new ways to increase their patient base and access newsources of “value” revenue. So how are successful providers achieving both these objectives? Instead of focusing on negotiations with payers, they are starting to consider their options in terms of participating in care delivery networks.

Why Do Care Delivery Networks Matter?

In the past, employers that provided health insurance to their employees—especially the large group employers—preferred a broad network that would appeal to the masses. Price (or premium) for the network also was an important consideration when evaluating product offerings, but employers would often value choice over price (although just slightly more) as they sought to remain competitive on employee benefits offerings.

Although some of these dynamics still exist today, the value proposition has changed as employers are faced with complying with the “Cadillac Tax,” which is scheduled to take effect in 2018. The need to be more cost competitive has prompted health plans to engage in two key strategies: value (or tailored) networks and private exchanges. In many cases, both of these strategies include a tiered approach to the network through the benefit design. Meanwhile, the Medicare program is accelerating its plans to further its value-based programs by 2018 and has announced that it will be accepting applications for the Next Generation Accountable Care Organizations ("ACOs").

All of these changes are designed to support the Triple Aim and demand that providers offer a value proposition, which, in turn, will be determined by the networks in which they participate. Thus, as they have come to share the same aims, payer strategy and network strategy both should address three types of networks: local, regional, and health plan.

The Networks

To be successful, each network should have a strategy that addresses the needs of each commercial segment—i.e., individuals, small group employers, and large group employers—which are very different and therefore require distinct approaches.

A local network would, preferably, provide a clinically integrated network ("CIN") and would center on a single hospital or health system. The local network would make direct connections with small group employers and some large employers (with a localized labor force). Because this segment tends to be most concerned about containing costs, the local network would offer a narrow value network that not only would be cost-efficient, but also would meet the network needs of the employees. The local network would essentially be a product sold to the employers through a health plan, with the local network placed in the first tier of the benefit design. The local network would manage the population through the CIN and contract to gain access to value revenue (shared savings or premium risk).

A regional network would entail a CIN, as well, but it would involve a partnership among multiple hospitals and or health systems across a defined geography or state. This network would have a similar approach to the benefit design (tiered), but would target large employers that are seeking a network to start to bend the cost curve, all while providing the geographic coverage that a local network could not. Regional networks also would be more likely to assume greater financial risk for their attributed population and would offer additional services such as on-site employee clinics, telemedicine, same-day access, and wellness programs. The regional network could be directly contracted with an employer, provided through a health plan or offered through a private exchange, or in some cases, could involve all three approaches. The local network could also be a subset of the larger regional network.

A health plan network would provide services for the remaining population that falls outside of the local and regional networks. Here, providers would more likely be placed outside of the tier-one position of the benefit design and have limited access to revenue from value programs. They also would be subject to higher copays and deductibles, thereby limiting potential volume of price-sensitive services.

What Is the Network Strategy?

In any of these cases, a network strategy must exhibit five hallmarks to be effective.

  1. Network partners that have been wisely chosen. Choosing a regional network means choosing a long-term partner(s). Providers should partner only with those that add value to the network. Attributes such as a strong brand, critical geographic coverage, service need, and population health capabilities should all be considered.
  2. A pluralistic approach. Providers should participate in all three networks with multiple payers, because no one payer or network will meet all the needs of all employers and individuals in a providers’ market.
  3. Effective use of metrics. Being placed in the first tier of a benefit design will likely mean a discount on rates. Local and regional networks should be clear on market share and value revenue goals before engaging in a product that requires a discount to participate.
  4. Limited reliance on the broad health plan network. Maximizing the population in the local and regional network will lead to better quality, market share, and financial performance.
  5. Knowledge of the local market. Providers should stay ahead of the game by fostering strong relationships with brokers and employers to better understand the local dynamics and products being offered.

Mr. Medlin is a senior manager with The Camden Group specializing in finance, managed care, and value-based payment models. He has extensive experience with hospitals, physician groups, managed care organizations, and health plans. His areas of expertise include valuations, financial assessment and modeling in support of value-based payments, managed care contracting and reporting, risk pool reconciliation, auditing, payer contracts, financial forecasting, transactions, and hospital decision support and operations improvement. He may be reached at amedlin@thecamdengroup.com or 714-263-8200.

Topics: Payer Strategy, Adam Medlin, Care Delivery Networks

Design Your Payer Strategy to Meet Your Financial and Market Goals

Posted by Matthew Smith on May 28, 2015 9:46:14 AM
By Surabhi Swaroop, MBA, Manager, and Adam Medlin, MHA, Senior Manager, The Camden Group

payer_strategy.jpgAs hospitals and health systems consider the shift from fee-for-service to fee-for-value in their strategic planning efforts, they face the challenge of better understanding what their organization should look like in the new world. This means incorporating new concepts to the strategic planning process, including a payer strategy, and the recognition that the organization will need to change how it will generate revenue. In an effort for the organization to better understand how it will compete, questions to be answered include: In what types of risk products should my organization be participating, if any? How will my organization use alternative payments or differentiating payer arrangements to move market share? What is our current contribution margin of each payer type? Will our access points (e.g., primary care, retail clinics, e-health) be adequate to reach the population base we need? Should my hospital be considering expanding our range of services to include other care settings such as post-acute?

The answers to these questions will vary depending on the payer focus and patient population (market of segments) to be served, as illustrated in the diagram below. In this article, we discuss a refreshed approach to strategic planning that helps answer these questions and connects an organization’s long range financial plan (“LRFP”) to its strategic plan so that LRFP targets are realized.

Pyramid_of_Success_2.pngTo help arrive at the best approach, providers should begin the strategic planning process by first evaluating the expected future utilization trends for each major payer (e.g., Medicare, Medicaid, commercial) for all of the care settings that are relevant to the organization (e.g., acute care, ambulatory care, physician practices, post-acute). For instance, organizations should consider the following as it relates to their market: What if inpatient utilization rates (per thousand) continue to decline? What if value-based programs continue to move more imaging and outpatient surgeries into non-hospital facilities? What if expanded urgent care sites and retail centers continue to impact the emergency room? By answering these questions and quantifying the financial impact, hospitals and health systems can then begin to better understand their goals related to

  1. How much more market share they will need (grow the population served),
  2. In which care settings should they consider participating,
  3. What their pricing strategy and pace of change to alternative payment models should be, and
  4. Determining if they need to expand into new geographic markets.

Ultimately, this approach will help each organization gain a clearer picture of what they will look like in a fee-for-value world and while reaching their financial goals.

Considerations for each of these goals are described in further detail below.

Increase Market Share

How much more market share can the organization attain? One percent? Three percent? Based on what? Sometimes a hospital’s LRFP reflects a growth target of five percent year over year. How does one attain this in an environment with decreasing inpatient volumes? Does the organization plan to increase access points in terms of additional clinics, a health plan, and physician providers? Will there be increased outreach to the community and providers? Will the organization enhance services within existing service lines or add new ones to attract a new segment of the market? If so, what is the incremental volume that will be realized, and how does that compare to the investment required? Will participation in a tiered network enable increased market share? An organization can partner with other providers to create a broad provider network that could be marketed to both health plans and local employers. Within the network, tiered pricing with payers could be established which would, in turn, drive both greater market share and premium revenue dollars to the organization. What is the cost of these strategic initiatives? What is the return on investment? These are key considerations when quantifying the impact of increasing an organization’s market share. Once the impact is estimated, how much more of the gap remains, and what other strategic goals should be considered? 

Enhance and Diversify Care Delivery Sites

What service lines or care delivery sites should be added in order to meet the demands of the population targeted and cost effectively deliver care? Which service lines may need to be closed or consolidated? The addition and diversification of sites of care or service lines not only enable additional volumes and revenues but also facilitate the higher quality and leaner expenses that result from offering a comprehensive scope of services across the continuum of care as effective care management is implemented. The addition of business units should consider extending beyond traditional acute service lines to post-acute and ambulatory services. Of course, additional services require some investment and typically different business skills and capabilities. Whether the organization builds its own infrastructure or partners with another provider, each option should be considered, and the return on investment and likelihood of success should be measured. The impact of additional business units or service lines should then be compared to the gap to see how much more is still needed to be filled.

Increase Top Line Revenue

Under a shared savings environment, expense savings and/ or quality improvement resulting from effectively managing care can result in incentive payments (pay for performance) on top of the baseline fee schedule that directly improve an organization’s margins. Through a defined provider network and effective care transitions and care management, the health system will be able to demonstrate value, therefore increasing market share (previously mentioned) and potentially access to new sources of revenue. Of course, if the organization decides to pursue full-risk or plan-to-plan arrangements, or even develops its own health plan, that comes with the opportunity to capture the benefit of effective population health management. With the potential for higher reward, also comes greater risk, so assuring the organization’s readiness for risk will have to be weighed carefully. All programs that include financial risk should be evaluated to determine the expected and actual return. In the future, most health systems will require some access to sharing in the benefits of reducing overall healthcare costs through either shared savings or direct participation in premium dollars to be successful.

Increase Population Reach/Service Area

stratgoals.pngUp to this point, we have assumed the service area remains as is. In some instances, an organization may need to increase the service area and its reach to capture a larger population. Generally, this is difficult to do and may require significant investment in terms of outreach efforts, and the resulting gain may be minor. Successful outreach may require partnering or collaborating with other providers or through expansion of relationships with physician groups in those markets. Regardless, organizations should evaluate the cost/ benefit of expanding its service area and use this in making an appropriate decision. It is important to note that the strategic goals above are not mutually exclusive; interdependencies do exist. Adding a service may not only result in higher revenue due to incremental volumes for that new service line, but also incremental revenue that results from effective care management across an enhanced continuum of care. An analytically-driven payer strategy that considers financial, market, and organizational capabilities will help organizations identify what will be required to achieve their goals. An objective approach will guide the prioritization of strategies to enable the achievement of the organization’s LRFP and its desired position in the market. 

Surabhi_headshot.pngMs. Swaroop is a manager with The Camden Group with more than ten years of experience in healthcare. She has assisted numerous hospitals and ambulatory care entities in their strategic planning and physician-hospital alignment initiatives with a particular focus on developing the business case for and financial models specific to the formation of joint ventures, strategic alliances, and acquisitions. She may be reached at sswaroop@thecamdengroup.com or 714-263-8200.



Adam_Medlin_headshot.pngMr. Medlin is a senior manager with The Camden Group specializing in finance, managed care, and value-based payment models. He has extensive experience with hospitals, physician groups, managed care organizations, and health plans. His areas of expertise include valuations, financial assessment and modeling in support of value-based payments, managed care contracting and reporting, risk pool reconciliation, auditing, payer contracts, financial forecasting, transactions, and hospital decision support and operations improvement. He may be reached at amedlin@thecamdengroup.com or 714-263-8200.

Topics: Payer Strategy, Population Reach, Adam Medlin, Surabhi Swaroop

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