By Daniel J. Marino, MBA, MHA, Senior Vice President, The Camden Group
Many hospital leaders fear the consequences of moving too fast. Last year, we talked to healthcare leaders nationwide about preparing for value-based payment. For many, the biggest fear is reducing their hospital revenues. What will happen if you transition care to lower-reimbursement ambulatory settings faster than you can grow value-based revenue? How do you increase volume to cover the shift in revenue from acute to ambulatory or post acute? Others are concerned about investment costs. Value-based care is new territory. That means many big upfront investments could end up being unnecessary.
Yet moving too slowly carries significant risks. Hospitals that fail to act now could soon lose market share to value-driven competitors. Lagging organizations will be forced to accept lower reimbursement on their remaining volume. They will not be in a position to accept value-based contracts from payers and will also be unable to offset utilization reductions with new revenue streams.
The ultimate penalty of inaction is that you will allow others to dictate your future. How do you find the right pace in transitioning your hospital to value-based care? The key to establishing the right momentum is to clinically integrate with other providers. A well calibrated clinical integration strategy will allow you to maximize value for your organization while minimizing risk.
The Basic Framework
A clinically integrated network (“CIN”) is a group of provider organizations that come together to form an organized system of care. The network can include one or more hospitals, their employed physicians, independent community physicians, post acute providers, and other provider organizations. Member organizations remain independent but are aligned contractually. The entire network is physician-led and incorporates a multi-stakeholder governance body that oversees quality initiatives, financial goals, and other strategic issues.
Leading clinically integrated networks share a handful of key attributes and capabilities:
- Physician-led organization with a focus on quality of care within a patient-centric model.
- Care management capabilities to help improve quality and outcomes while reducing costs.
- Clinical programs that optimize services for specific diseases and patient groups.
- Advanced technology that is leveraged to improve electronic interoperability, standardize optimal care, and improve services at the point of care.
- Population health capabilities that allow the CIN to aggregate data and manage the high-level factors that influence health outcomes.
The ultimate goal of a CIN is to secure value-based payment contracts. Providers receive financial rewards for superior quality and outcomes along with successfully managing cost trends. Value-based contracts align provider incentives with the needs of payers, employers, and patients.
Plan to Evolve
While clinical integration is complex and challenging, it is also a versatile strategy. CINs can develop infrastructure and capabilities step-by-step. Member organizations are able to assume risk at a steady pace while achieving powerful forward momentum.
Here is a simplified pathway for transitioning your organization from traditional volume-based payment to robust value-based care:
Phase 1: Lay the CIN foundation. Start by assembling the building blocks of a clinically integrated network. The risk is low, and potential gains are moderate. Key activities include establishing the appropriate governance structure and building the provider network. Establish the desired care model and the focus of quality programs with the ability to track outcomes. Network leaders should begin negotiating limited risk-based contracts that include provider quality and cost management incentives. Emphasize referral management strategies to keep patients within the CIN and the organized system of care. CINs that properly execute on the foundational elements and establish an organized system of care can create opportunities to increase revenue five to ten percent.
Phase 2: Develop a clinically integrated collaborative. As a CIN begins to experience success in creating an organized system of care, the next step is to assume additional risk, but target bigger rewards, by expanding the network regionally. Move strategically into other markets by partnering with providers that can benefit from your CIN’s provider network, technology, and care management infrastructure. At the same time, refine the network’s ability to manage costs, expand clinical guidelines, and support risk-based contracts. Hone capabilities for managing the entire enterprise through monitoring, analytics, and reporting. Explore opportunities to partner with payers in narrow-network health plans.
Phase 3: Transition to full-risk contracts. The most advanced CINs are creating provider-sponsored health plans that offer compelling revenue opportunities. This phase carries the most risk, but it can be mitigated substantially through strong care delivery, cost management, and utilization management capabilities. Networks at this stage can function as full-service ACOs, including organizations acting as provider sponsored health plans assuming full-risk contracts, similar to Geisinger Health System, Intermountain Healthcare, or Northshore Long Island Jewish Health System. Another strategic option is to offer insurance products directly to the market, either alone or in partnership with a payer. Direct employer contracting allows the CIN to “commoditize” its services, potentially increasing revenue 10 to 15 percent over traditional contracts. In order for this to be achieved, provider-sponsored health plans would need to be in place accompanied by a large provider network and organized systems of care. If “payer dependencies” are removed or limited, the healthcare spend decrease translates into revenue opportunities for the CIN.
Target Financial Opportunities to Mitigate Risk
One key to reducing the risk of value-based care is to take full advantage of its unique financial opportunities. Pay attention to four categories:
- Infrastructure cost savings. Creating a strong shared administrative and care management infrastructure can allow a CIN to reduce per-member per-month (“PMPM”) costs 20 to 30 percent within 5 to 10 years.
- Increased volume. Entering into narrow-network contracts with payers and employers can drive strong membership growth and patient volumes.
- Increased domestic utilization. Minimizing patient leakage allows the CIN to maximize influence over care transitions and quality, a key to controlling costs.
- Advanced care programs. Hospitals have the opportunity to develop advanced clinical programs and centers of excellence. Offering these programs to other network providers will increase revenue while further leveraging network effects.
The Starting Point
As you plan and launch a CIN, keep in mind one absolute necessity. Your organization must offer a strong value proposition to participating providers, payers, and patients.
For physicians, participation in your network must be an opportunity to improve patient care through access to care management, as well as clinical program and technology resources. Your CIN should also provide a management infrastructure that eases the challenges of practicing medicine today. It must facilitate care redesign to enhance care efficiency and patient focus, and optimize clinical resources.
For payers, your network must provide higher quality care, better patient outcomes, and better patient access, all while reducing the cost of care.
For patients, your network must provide access, affordability, and tools to facilitate care coordination and engagement.
A strong value proposition is key to finding the right “change momentum” for your organization. Focusing on providing value helps make sure you do not embrace change too quickly for your market. It also ensures your organization can maintain a steady forward pace by balancing appropriate risk with solid potential for clinical and financial gains.
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.