New Marketplace 2015

When Do Provider-Sponsored Health Plans Make Sense? Part 1

Interview · March 22, 2016

“The fundamental relationship that enables health care to be delivered with higher quality and lower cost is a payer/provider interaction that goes beyond simply changing the incentives that go from the payer to the provider,” says Glenn Steele, Chairman of xG Health Solutions and former President and CEO of Geisinger Health System. He sat down with Leemore Dafny, Director of Health Enterprise Management at Northwestern University’s Kellogg School of Management and Lead Advisor for the NEJM Catalyst New Marketplace theme, to discuss the obstacles to establishing trust with payers in most marketplaces and whether there’s a “playbook” to follow. Read or listen to Part 1 of the interview below.

 

 

Leemore Dafny: This is Leemore Dafny for NEJM Catalyst. It’s clear that health care needs to move away from fee for service. In order to do that, providers are going to have to bear risk in some form or another. Today, I’m talking with a physician leader who knows a thing or two about risk. He led Geisinger Health through a turn around. He even considered getting rid of his health plan, but decided not to. I’m speaking with Glenn Steele of xG Health Solutions and I wanted to ask you, Glenn, if you might be able to help us understand when it makes sense for provider systems to dip their toes into insurance.

Dr. Glenn Steele: First of all, it’s great to be with you, Leemore. There is no set formula, so we’ll try to generalize a little bit, but a huge amount of this is dependent upon specific culture and specific markets. I think the first requirement for considering a provider sponsored health plan is really strong operational margins and a real mission commitment to continue to achieve those margins on the provider side, knowing that the fee for service — I think, dominant payment — is going to disappear. So if you have great leadership and you’re doing well in the old fashioned fee-for-service way, but you know that’s going disappear, you’re faced with a choice.

The first choice, particularly on the commercial side, is, I think, always to see whether there’s a reasonable partnering relationship with your dominant commercial payer and if that’s not the case, then the issue is reasonable to consider a provider sponsored payer.

Dafny: Let me interject for a moment and just confirm. So what you said is the first ingredient that makes for a promising early entry into a provider sponsored health plan would be having a good balance sheet. This is for systems that have a bit of cushion, you would say, to play with and see the future.

Steele: Absolutely. A balance sheet plus a reasonable vision that the way to maintain that, or grow that balance sheet in the future, is going to be different than in the past.

Dafny: And then you moved into talking about how one of the first possibilities would be partnering with an existing insurer. Can you help me see when that is likely to work for a provider system and when you might want to grow it yourself?

Steele: I think the fundamental relationship that enables health care to be delivered with higher quality and lower cost is a payer/provider interaction that goes beyond simply changing the incentives that go from the payer to the provider. And what I mean by that is it’s a relationship that’s based on information flow between payer and provider, and actually from provider back to payer. It’s a relationship that’s actually based on some level of trust that is generally not part of the payer/provider negotiation in the old fashioned fee-for-service way. It’s a relationship that has payer and provider basically looking at different cohorts, whether they’re geographic or they’re disease specific cohorts of patients and saying, “How do we achieve what both sides would agree is an optimum or a near optimum outcome and what will it take in terms of information flow, what will it take in terms of enabling technology, and then finally, what will it take in terms of incentive change to get us closer to that optimal outcome”, and quite frankly, in most markets right now, achieving that type of a new relationship with an existing and quite often dominant payer is pretty rare.

Dafny: Maybe you could elaborate on that. What are the obstacles to establishing trust with payers in most marketplaces, because I doubt that those [who are] running hospitals always dreamed of running their own insurance plan, too. It seems [like] something that you’d get into because you can’t establish a high-functioning relationship with a payer.

Steele: Well, the most important aspect is that providers have to understand that payers have capabilities that providers will never have and obviously, payers certainly should understand that the provision of care is never going to be through the insurance company. It’s going to be through the provider, and so you start out with kind of mutual appreciation, and that hopefully then leads to mutual trust. But the other, much more tangible aspect, which is important, is if the provider does everything perfectly that brings [a] higher quality, better outcome for a group of patients, there’s almost always — not always, but almost always — a decrease in total cost of care, and right now the feeling more often than not is that that total cost of care benefit goes back predominantly to the payer, and some of that can be contractually adjusted, but some of it has to be not only contractually adjusted, but the two sides of the equation really have to feel as if they’re in it together, and that’s very unusual, and that has to develop over a period of time.

The other thing, obviously, is data flow. Now, I’m pretty extreme on this, but I believe that data that comes from the payer side and to some extent data that comes to the provider side, with the caveat that obviously pertains to confidentiality, is almost a public good and that data should be available. It should not be viewed as a proprietary intellectual property, but it’s almost a public good, and the competition should be based on which provider or which provider/payer partnership can transact from that data to actually produce higher quality, lower cost and that’s pretty extreme. It’s an extreme view on my part.

Dafny: Let me ask: so suppose I’ve got great leadership in place, a good balance sheet, I can reduce total cost of care, [but] for various reasons I’m not able to benefit sufficiently from that, and write global capitative risk contracts with existing payers and I want to dip my toes in the water. What is a playbook for me follow?

Steele: Well, you’ve got to have adequate market size. You’ve got to have adequate market, I think, penetration on the provider side. If you look at [it] — and I don’t what the number is, I don’t know whether the number is 450 thousand, 500 thousand. I don’t know whether the market share adequately would cover it for actuarial reasons at 35 or 40 percent, but the fact of the matter is that there is some minimum size of the market that you’re going to be servicing on the provider side, and some minimum credibility with one surrogate marker being market share, where you can have some actuarial confidence that you’re going to be able to manage risk, and not only do all the things that have to be done as close to optimum as possible, but not be hurt by unusual events at the margin.

The other thing, quite frankly, is this concept of leakage. If you don’t have an adequate market size, and you’ve got an important cohort of patients or leaders of big employer groups that are outside your market, and you’re losing a huge amount of either significant high-intensity care or you’re losing a significant number of key opinion leaders outside that market because you can’t service it, you’re going to be looking at a huge challenge.

Dafny: So help me see that. What are you talking about in terms of the broad coverage span that you need and why do you need to build those partnerships as opposed to allowing out-of-network utilization?

Steele: Well, because if you’re taking responsibility, for instance, in a global risk contract, and you’re losing a huge amount of your high-intensity, high-cost patients because they choose to go away from your network, you’re going to pay a huge financial penalty and you’re not — even though those patients are attributed to you — you’re just not going to be able to sustain that with a viable business model and you can’t force those patients to stay with you if they don’t want to. So what it means is, you’ve got to have the credibility, and you’ve got to have the market location, and the market diffusion so that you don’t lose a huge number of those patients.

Dafny: Glen, is it possible that provider systems in certain areas will be narrow- or high-performance networks, but limited in terms of the choice that they offer in order to hit an attractive price point, and therefore will only attract a segment of the market, but will serve them well?

Steele: Well, it depends on what you mean by service them well. Can they give good care? Yes. Will they have a sustainable business model under a full cap model — the answer’s no.

Dafny: Because of too much leakage outside of the system.

Steele: Absolutely. Absolutely. Can you construct a different contract, which is not a full cap contract and it could be a focused factory contract or what have you — the answer there is yes, but I think you’re asking me about full cap contract.

Dafny: I am and the question then becomes can you achieve this through arm’s length alliances or do you, as a provider system seeking to sponsor a health plan, need to have under one umbrella all of the capabilities that you’re discussing?

Steele: I have not seen an arm’s length arrangement that has functioned as well as what I experienced for 15 years at Geisinger, which was the 50 percent of our care that was both paid for and insured. Now again, we had a lot of the parameters that I talked about generally earlier in our conversation, with great market share on both the payer side as well the provider side. We had great credibility on both sides of the brand, essentially, and we didn’t have a lot of leakage, so it was the best and we had, at the time I left, almost 500 thousand members. So all of that was good for us. If that’s not achievable, I believe with provider-owned payers, I think there’ll be much more stress and much less confidence in the sustainable business model. In answering your question about can this be achieved by contract, I think whether it’s ACOs — and we haven’t talked about Medicare yet, we’re talking mainly about commercial — or whether we’re talking about, for instance, the quality contract at Mass Blue Cross Blue Shield, which is very, very innovative and which has been applied to a number [of], the very high-quality and, quite frankly, very high-cost providers in the greater Boston area, we’ll see what happens in terms of the value equation. I’m not certain I’ve seen too many successes yet.

Dafny: Thank you for sharing that perspective, Glenn, and this next question I have for you, I expect your views on it may be different because of Geisinger’s unique situation there, but one issue facing providers is the fear of retaliation from dominant insurers in their marketplaces because, should they enter the insurance market, even dipping their toes, they’re no longer just a supplier to the insurers, they’re also a rival. Do you have any guidance? Others have done this. In fact, we’re seeing some successful sign-ups by Northwell in the New York area in recent years. So when can you take that risk and should you really fear retaliation?

Steele: Well, I don’t whether I’d say you fear it, but you should know that there will be retaliation. There’s no question about it, and whether you fear it or not depends upon your balance sheet, depends upon how robust you are in the market. And I think Northwell’s a good example of being very robust in the market. So I think they know that there probably will be retaliation or there could be, but I don’t think they fear it. That’s number one.

Number two, even in areas where a provider organization is not as big, not as robust, not as healthy as Northwell, I believe that there are ways of tiptoeing into this that at least initially can prove that you can deliver higher quality at lower cost, and be under the radar. And a perfect example of that is what we experienced when we moved outside of our rural and post-industrial Pennsylvania market, and worked with some providers in other states, and the way we did that initially was to provide the services that would enable them to test their higher quality, lower cost reengineering on their own employee group. So that’s an interesting way of kind of testing out whether you’ve got the capabilities, whether they’re internal capabilities or capabilities with another organization — in the case it was our Geisinger insurance, and then our xG Health Solutions that went in. And at some point, though, if you can show significant decrease utilization or ideally, decreased total cost of care for your employee base, then the question is, are you going to expand beyond your employee base? And at that point you will no longer be under the radar, and then you’ll have to make a decision whether you can look eye to eye with your dominant payer, particularly if that dominant payer is not innovative and is not interested in moving away from the old-fashioned fee for service or whether you’re going to have to back down.

Dafny: Let me ask you a question. If I’m trying to do this for my own employees, because that sounds like a good strategy for testing it out, I’m going to end up changing behavior for my providers for all the components of the system in a way that affects multiple patient types. So I might end up reducing my revenue for a much broader segment of the population. How real is that, or is it just kind of inevitable and time for providers to take a chance.

Steele: No, no. It’s real, and the first sense that you have that it’s real is when the hospital-centric CFO leaves the room and usually comes back with a new shirt on or something. The only way this makes sense is if you are able to cut your costs. The first evidence of and the first marker for cutting your costs is decreasing acute care utilization, and I’m not just talking about going from four-day stays to the under two midnight rule, I’m talking about really taking better care of patients so they don’t need to be admitted and really affecting a 25 to 30 percent decrease in your hospitalization per thousand. Now, if you’re going to do that and not lose your hospital-centric CFO, you’re going to have to either backfill because you’re able to open up access to other patients who were not able to get in the hospital, or you’re going to have build market share, or you’re going to have to do both, or you’re going to have to attack your fixed cost structures, which is never, ever going to happen with a hospital-centric CFO. So those are really the options.

Now, I do have this kind of concept of the grand unifying theory of health care, which means if a provider organization, with or without its own payer, is capable of reengineering so that there’s higher quality and decreased cost even for hospital-based interventional episodes, you will be better able to compete in the era of reference pricing even if you’re still in a fee-for-service environment. So I think that this concept that “I can only do this cool stuff if I’ve really got a way of capturing a lot of the benefit of decreasing total cost of care by having a payer as a part of me,” I think a lot of that can be superceded by understanding that we’re going to get progressively less reimbursement per unit of work no matter whether we’re in a fee-for-service environment or we move to a shared risk population-based payment environment, and the winners will be able to reengineer for higher quality at lower cost period.

Dafny: So to sum that up, you would say care redesign is not just consistent, but essential for any form of payment going forward whether you’re fully vertically integrated or planning a more muted transformation utilizing a lot of bundled payments and reference-based pricing.

Steele: Yeah, absolutely, and quite frankly, if I could do it without necessarily having to set up my own payer, if I had a partner that was, if not a dominant commercial payer, but an important commercial payer that I could work with, with the right culture change and with the information flow that I was talking about earlier, that would be my preference.

Listen to or read Part 2 of this interview.

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