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GE Healthcare Camden Group Insights Blog

Improving Payer, Provider Dynamics: 4 Critical Components

Posted by Matthew Smith on Jun 24, 2016 9:24:08 AM

The core principles of the healthcare business model are changing in the Affordable Care Act world we live in. Less commonly will the “cat and mouse” game between payers and providers persist—the time has come for both parties to collaborate and seek to achieve optimal outcomes in terms of cost, quality, and accessibility.

There are four key components at the root of the changing dynamic between payers and providers: 

  1. Trust
  2. Cost and charge transparency
  3. Incentive structures
  4. Care management

As that dynamic continues to shift, and both parties work with one another, as opposed to against one another, we will continue to see improvements in the cost, quality, and accessibility of healthcare services.

Here’s more on the four key components, and what payers and providers should do about each of them.

1. Trust between payers and providers must improve

Historically, lack of trust between healthcare providers and health plans is rooted in the way that business has been conducted for decades. At the core of standard fee-for-service agreements, incentives are misaligned between the two entities, and providers are (by law) shielded from understanding the competitive landscape, in terms of reimbursement rates other competitor hospitals are receiving from health plans.

On the contrary, health plans typically have more available resources to understand whether their contracts (specifically, fee-for-service reimbursement rates) are in-line with the market.

According to a recent HealthLeaders survey, 39% of provider respondents noted that trust with commercial payers needs improvement, which is imperative as contracts move from a standard fee-for-service structure to risk-based, or outcome-based arrangements.

Providers should look for signs of trust from payers during value-based contract negotiation, such as a payer’s willingness to provide utilization or spend data broken out by in-network and out-of-network.

Providers will need to learn to reciprocate this good faith by no longer making unjustified, blanket demands for rate increases, and instead come to the negotiation table ready with cost and quality data that clearly illustrates a system’s value proposition to the payer and the members it serves.

2. Providers must be able to justify charges and costs

The hospital chargemaster has been a highly debated topic in recent years, specifically due to the notion that chargemasters are priced arbitrarily—which in many cases holds true.

Healthcare is the only industry where there is a defined price list of goods and services, and when those goods and services are delivered to the consumer, the total price is rarely ever paid (by any party).

Chargemasters, which were historically priced relative to Medicare rates (to avoid getting paid less than Medicare), in many instances, have not been well-maintained as reimbursement rates and methodologies have changed over the years. 

As a result, many hospitals struggle to justify how their cost structure correlates to what they charge for services rendered, and the result has yielded very high charge variation, even among hospitals belonging to the same health system.

As providers engage in value-based conversations with payers regarding what the payer should be paying the provider versus what it actually costs the provider to treat the patient, providers need to be able to support their chargemaster and have confidence in their cost accounting systems.

Hospital finance, revenue cycle, and managed care departments should work collaboratively in performing a thorough chargemaster pricing analysis, and ultimately, assess both price and cost to confidently justify to payers (and consumers).

3. Payers and providers must explore new incentive structures

As new forms of collaboration between payers and providers take shape, so do the types of incentives. Historically, providers have been incentivized to drive volume in a fee-for-service model, but in a value-based environment, there is typically greater emphasis on capturing covered lives, and managing that population effectively (i.e. capitation).

These types of arrangements offer varying degrees of risk, which depend on a number of factors, including demographics, regulatory environment, and market dynamics. Moving forward it will be important for payers and providers to work together in managing these factors through various techniques, such as risk-adjustment.

Before entering into any value-based contract negotiation, a provider should be able to determine their organization’s “tipping point,” which is the point in a mix between fee-for-service and capitation, that it no longer financially benefits the provider to focus on volume as the primary revenue driver. Not only should providers be able to calculate their tipping point, they should also be able to clearly articulate this to a payer in order to drive desired contracting outcomes.

Understanding the underlying economics and incentive structures from both a payer and provider’s perspective is an essential building block of payer-provider partnerships in value-based arrangements.

4. Providers must prioritize care management  

When one takes a step away from the business side of healthcare, providers are there to care for patients, and payers are there to cover the cost of care. As healthcare fundamentally shifts from “treating the sick” to “keeping people healthy,” the role that care managers (from both payers and providers) have is going to be increasingly important.

As contracts move to value-based, and payers and providers are financially incentivized to care for patients effectively and efficiently, care managers will play a crucial role in managing populations, both in care delivery and preventive care.

Furthermore, care management, which has typically been handled by payers, will take place closer to the point of care (providers).

As providers begin value-based discussions with payers, they should look to set up a care management structure to enable discussion and resolution of issues such as the delegation of care management services, and how varying levels of delegation may change current or planned care management infrastructure, and any future payments allotted for care management activities.

Success in a value-based environment will be challenging if care is delivered in silos, so an effective, longitudinal care management program can be the key to delivering affordable comprehensive care across the continuum.


This article was originally published by Managed Healthcare Executive on June 17, 2016.

Topics: Payment-for-Value, Payer Strategy, Payer Provider Relationship

A Business Plan of Operational Efficiency for a Value-Based World

Posted by Matthew Smith on May 17, 2016 10:34:14 AM

By Brandon Klar, MHSA, Senior Manager, GE Healthcare Camden Group

As health care continues its rapid evolution toward value-based reimbursement, health system leaders face escalating pressure to reduce their cost structure and enhance their value propositions. For many, the solution is to join forces with another provider through a formal partnership agreement. 

But once a new partnership has cleared the planning hurdle and avoided early pitfalls, it still faces a big challenge. How do you make sure the combined system achieves the full benefits of operational integration?

Our experience with providers nationwide has indicated that successful healthcare partnerships rely on one indispensable tool — a business plan of operational efficiency ("BPOE"). A detailed BPOE helps partnering organizations achieve the large-scale cost reductions necessary for value-based care and declining reimbursement.

The Business Plan of Operational Efficiency

A health system BPOE is a comprehensive, action-oriented system integration plan. It is designed by and for organizations that are forming a single corporate structure strategically and operationally. Simply defined, a BPOE is a road map for achieving the full benefits of an affiliation — operational efficiencies, cost savings and enhanced clinical value.

The most effective BPOEs are developed from the ground up. Departmental leaders identify detailed action items for aligning administrative, support, infrastructure and clinical functions. The key is to capitalize on the operational strengths of each organization and each department. A BPOE should:

  • identify and quantify specific affiliation-related cost-saving opportunities within each department;
  • identify barriers to achieving the efficiencies;
  • identify the resource and time requirements necessary to implement the action plans;
  • lay out a game plan for aligning specialty programs throughout the system;
  • ensure accountability by specifying the individuals responsible for implementing the plan.

Ultimately, the goal is to develop a clear list of achievable and sustainable performance improvement initiatives that will enhance efficiency and reduce the underlying cost structure of the system.

When Should You Develop a BPOE?

Many partnering organizations craft a BPOE before any affiliation agreement is signed. This lets system leaders proactively identify savings opportunities after the transaction. A pre-transaction BPOE also might be required for regulatory approval by the state department of health, state attorney general, Federal Trade Commission or the Department of Justice.

An inherent limitation of a pre-transaction BPOE is that the prospective partners are unable to share competitively sensitive information before closing. This limits the specificity and detail of cost-saving opportunities and action plans. But provisional BPOEs developed before the transaction are directionally accurate; they can also ensure that the prospective partners are strategically and culturally compatible.

A BPOE can be developed or refined with specificity and clarity after the transaction, even if the merger or affiliation took place some time ago. Many systems that have merged or affiliated in recent years have yet to realize the full benefits of operational integration. If this is your situation, commission a multidisciplinary team to revisit previous efforts. The team should develop a BPOE that identifies redundant costs as well as new strategies for better integrating, standardizing and consolidating functions.

Four Reasons to Invest in a BPOE

Every affiliation, merger or acquisition is unique. Every health system's story — and how it came to exist in its current form, with its current culture — is unique. In the background are variations within the consumer and payer markets, differences in strategic and operational strengths and weaknesses, and cultural nuances. These factors drive the need for a customized integration plan for every new partnership. A well-designed BPOE offers four important benefits:

1. A clear leadership structure. The most contentious point in transactions often centers on a single question: Who will be in charge? While it is critical to clearly define the executive hierarchy for the system and its business units (e.g., hospital, physician group, post-acute), it is just as important to outline the cascading leadership structure throughout all departments within the system.

Effective BPOEs identify the leadership positions most appropriate for consolidation; they also establish centralized management for all administrative, support and infrastructure functions. This not only creates consistency in decision-making, it facilitates and streamlines integration efforts. Adopting matrix organizational and reporting structures also will foster standardization of system processes, while allowing for moderate variation when needed to account for distinct organizational variables. In addition, developing a centralized leadership structure as part of the BPOE will help middle managers align interdependent integration plans through multidisciplinary teams.

2. Clear ground-level integration plans. For most system integrations, success or failure occurs at the department level. Effective BPOEs use a ground-up planning process to develop detailed departmental action plans that identify specific opportunities, obstacles and accountabilities.

Department-level plans set clear goals that are consistent with the system's integrated vision. Objectives should include standardization of policies and procedures, optimization of staffing resources, alignment of contracted services, standardization of equipment and supplies, and cost reduction through joint purchasing. Departmental plans also should address specific resource requirements, interdependencies with other unit plans, implementation timelines and responsibilities, and specific cost-saving targets.

Departmental action plans provide a detailed implementation path that can be monitored and measured. This establishes a platform for consistent and timely communication about integration activities and milestones. Collectively, the departmental integration plans will lead to a more integrated and streamlined system.

3. Realistic and sustainable cost-saving targets. Carefully developed BPOEs can lead to annualized system cost savings between 4 and 7 percent. However, during the development of the departmental integration plans, all savings opportunities should be validated by both the responsible department and the financial team prior to inclusion in the plan.

BPOE action items should be incorporated into budgets and could require capital resource allocation for implementation, so it is critical to quantify and rigorously validate cost-reduction opportunities in administrative, support, infrastructure and clinical departments. Operational and financial leaders should assess each savings opportunity to ensure it is realistic, achievable and sustainable. This applies to both salary and non-salary savings opportunities.

Non-salary savings opportunities are often easier to implement culturally. Health systems can achieve significant early cost reductions by standardizing equipment and supplies and aligning contractual services. These savings are not only typically achievable in the short term, but are also sustainable.

Salary savings typically are realized over a longer period. While centralizing management leads to early savings, staffing integration and optimization can take time and resources to fully achieve.

4. A strong foundation for a system-oriented culture. Joining two disparate business entities within a single consolidated health system is inherently difficult, and effectively integrating long-standing legacy cultures is a critical hurdle that can cause a partnership to succeed or fail. Leaders must encourage a cultural transition that moves the organizational focus from business unit priorities to collective system goals and overall performance. A robust BPOE process can aid this cultural transition.

BPOE development uses a structured approach that includes a blend of objective quantitative analyses and key stakeholder engagement. Stakeholder meetings provide a thorough understanding of the existing cultures and organizational barriers to integration. This helps to engage key stakeholders in the process while grounding discussions and action plans in organizational realities. Ultimately, the BPOE process challenges the existing provider organizations individually and collectively to think beyond current practices and strive collaboratively to improve performance as a system.

Protection Against Inaction

In a world that is becoming less hospital-centric, hospitals and health systems are trying to refashion themselves as care continuum organizations through strategic mergers and affiliations. But too often, good intentions fall by the wayside as inertia, politics and other obstacles prevent partnering organizations from realizing the opportunities of integration.

A well-designed business plan of operational efficiency guards against inertia by providing specific, achievable integration goals and action plans. Whether your organization is pursuing a new affiliation or is looking to maximize existing health system performance, a BPOE is an essential tool to achieving true system-level operational integration.


B_Klar.jpg

Mr. Klar is a senior manager with GE Healthcare Camden Group with over 12 years of experience in healthcare management. Mr. Klar specializes in strategic and business planning advisory services, including service line planning, master facility planning, and transaction work (e.g., mergers, acquisitions, affiliations, joint ventures). He has extensive experience in the creation of strategic partnerships, the facilitation of inaugural health system strategic plan development, as well as the creation and implementation of business plans of operational efficiency, system-wide integration plans, and clinical programmatic alignment plans. He may be reached at brandon.klar@ge.com.

 

Topics: Value-Based Care, Payment-for-Value, Business Plan of Operational Efficiency, BPOE, Brandon Klar, Value-Based Payments

Five Ways Medical Groups Can Prepare for Value

Posted by Matthew Smith on Sep 8, 2015 1:52:07 PM

By Marc Mertz, MHA, FACMPE, Vice President, GE Healthcare Camden Group

Healthcare payment is transitioning from fee-for-service to value-based. Although individual markets and organizations are at different stages of this transition, recent actions of the Centers for Medicare & Medicaid Services and commercial payers clearly indicate that the industry is moving in a single direction.

Here are five things that medical groups should be doing right now to prepare for value.

1. Reduce Costs

To prepare for success under value-based payment models, including risk-based contracts, medical groups need to take a critical look at their costs. The majority of medical group operating costs are in just a few areas: physicians and other providers, staff, facilities, equipment, and supplies. Physician compensation warrants its own discussion (see below), but groups should develop cost-accounting capabilities to evaluate and monitor the other cost categories. Each category of expense should be regularly compared against industry benchmarks. As outliers are identified, groups should quickly develop action plans to bring the expenses in line.

As groups advance into value-based models (including shared savings and risk-based models) they will be held accountable for the cost of care provided. Groups should prepare for this scenario now by collecting total claims data from payers and implementing systems for monitoring and reporting costs by clinical category and by physician.

2. Evaluate Contracting Opportunities

Medical groups are responding to the industry’s shift to value by beginning to develop population health management and care coordination capabilities. While these new approaches are largely about eliminating waste and providing the appropriate care at the right time, they may reduce a group’s payment under a fee-for-service contract. Any reductions in utilization or costs may help the patient, and certainly the payer’s bottom line, but do little to compensate the medical group that has invested in the care model redesign, IT, and staffing necessary to implement population health management.

Medical groups should take a more aggressive and proactive approach to payer contracting. Rather than waiting for health plans to offer new payment models while they invest in care redesign, groups should identify opportunities to negotiate care management payments or shared savings arrangements that allow the group to share in the cost reductions it generates. As the group gains experience, it can consider more advanced models, including risk-based models.

3. Update Physician Compensation and Incentives

As payment models change, medical groups should consider redesigning physician compensation models. Most physician compensation plans are predominantly based on volume—work relative value units, revenue, or charges. As groups progress down the path to value, they will need to implement performance measures such as patient satisfaction, access to care, quality scores, and other indicators that support population health management. Rewarding the behavior changes and the clinical cultural transformation necessary for success in the new value-based models is critical.

Consider the use of a physician compensation committee to ensure compensation plan design and performance measures reflect the objectives and values of the group, and to gain buy-in and support. The committee should include administrators and a representative number of primary care, specialty, and hospital-based physicians.

A new compensation plan should be implemented in a way that allows physicians to modify behaviors based on the new incentives. Consider a phased-in approach or “shadowing” process, in which physicians are paid under the old model but receive reports regarding projected performance under the new model.

4. Create Dashboard Reports to Monitor Performance

Ready access to data allows an organization to quickly respond to opportunities and to correct underperformance before it becomes a major issue. During the transition to value, medical groups should continue to monitor traditional key performance indicators such as physician productivity, revenue cycle performance, and operating costs while beginning to track value-based indicators such as cost of care, quality, patient satisfaction, patient access, and gaps in care. To facilitate this level of monitoring, the organization must develop dashboard reports that quickly indicate group performance relative to targets, and that highlight deficiencies. These reports should be shared often, and action plans developed to address any instances of underperformance.

5. Evaluate Your Fee Schedule

Groups should be aware that price transparency is increasing at a rapid pace. Reporting organizations are collecting charge data from medical groups and sharing it with the public via websites and other forums. Meanwhile, the prevalence of high-deductible health plans is increasing and patients are taking a more active role in deciding what care they receive and where they receive it. Groups with high published rates may very well see patients avoiding their services.

Hospital-based clinics that charge a facility fee in addition to professional fees should evaluate whether the high payment is being offset by decreased volume and higher patient dissatisfaction. All medical groups should evaluate their fees in the wider context of their market and consider how patients would view those fees. Groups then should consider promoting transparency by posting the prices for common services on their websites.


Mr. Mertz is a vice president with GE Healthcare Camden Group and has 18 years of healthcare management experience. He has 15 years of experience in medical group development and management, physician-hospital alignment strategies, physician practice operational improvement, practice mergers and acquisitions, medical group governance and organizational design, clinical integration, and physician compensation plan design. Mr. Mertz has managed private practices, hospital-affiliated practices, and academic physician practices. The Medical Group Management Association (“MGMA”) has identified practices under his management as “Best Performing.” He may be reached at marc.mertz@ge.com.  

Topics: Value-Based Reimbursement, Physician Compensation, Payment-for-Value, Marc Mertz

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