By Daniel J. Marino, MBA, MHA, Senior Vice President, The Camden Group
Healthcare leaders are asking some serious questions about clinical integration. How much will it cost to develop a clinically integrated network ("CIN")? How and when will the CIN begin paying for itself?
Here are answers to three important questions about the economics of clinical integration.Q. What Initial Investment Will Clinical Integration Require?
The upfront investment depends on the resources each participant can contribute to the network. The initial primary cost drivers of a CIN are information technology, professional and legal support, and staffing. The good news is that all three cost components can usually be managed within the available resources of the hospital partner.
Based on the work The Camden Group is doing with clients, new CINs typically require $500,000 to $3 million in investment capital. This money funds the network build and launch over a two- to three-year period.Q. What is the Net Impact of Clinical Integration?
Leading organizations are developing CINs with the idea that they will not achieve true return on investment until two or three years down the road. The sooner a CIN can manage population health and build an organized system of care, the sooner it will realize a net positive return. Two areas are key:
The CIN as a whole should focus on securing incentive payments. These include incentives tied to reducing the cost of care and meeting/exceeding quality thresholds under value-based and risk-based contracts. Networks can also pursue employer contracts that provide care management fees and revenue from employee health outreach, wellness, and prevention services.
Hospitals and physicians that participate in a CIN can expect a positive impact within their separate operations.
- As network-driven care matures, patient outmigration (commonly referred to as patient leakage) outside the CIN should decrease by 10 percent to 15 percent. Hospitals will see their utilization increase, even though typical indicators such as length-of-stay and readmissions will decrease.
- Many CINs begin by enrolling the hospital’s self-insured employed population. These hospitals will see a decrease in their variable employee costs and a decline in overall spending per employee per year.
- Integration will also complement a hospital’s internal quality improvement initiatives. Hospitals that participate in a CIN will have a greater ability to bend the cost curve, achieve quality targets, and improve patient access.
- Physicians have the opportunity to receive performance incentives in the form of shared savings distributions. Medical providers should also see a stabilization and eventual increase in their practice population, resulting in stronger practice revenue.
Ultimately, CINs need to look beyond short-term incentives and start developing the ability to assume financial risk for groups of beneficiaries.
Payers are beginning to offer complementary insurance products that leverage population health management. These payers need high-performing CINs that:
- Deliver a strong network of providers focused around organized care principles
- Demonstrate the ability to drive down costs for high-risk population cohorts
- Incorporate care coordination functions that result in high-quality care outcomes
CINs that can deliver on these points will build undisputed financial value, giving them a commanding position within emerging provider/payer partnerships.
Start with a Financial Model
Will your CIN be economically viable? The answer depends on many variables, including market forces and assumptions inherent in population health management.
The first step for any new CIN is careful financial modeling. Successful CINs get a fast start by building sophisticated financial models that take into account changing conditions and sensitivity analyses. These models help CINs build strong provider networks, align participants with a population health vision, maximize their net economic impact, and create true financial value.
Mr. Marino is a senior vice president with The Camden Group with more than 25 years of experience in the healthcare field. Mr. Marino specializes in shaping strategic initiatives for healthcare organizations and senior healthcare leaders in key areas such as population health management, clinical integration, physician alignment, and health information technology. He may be reached at firstname.lastname@example.org or 312-775-1701.