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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

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