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"The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking."

One can't help but think of Albert Einstein's wise words when considering the major disruptions rippling across health care today. Leaders in every health care organization are trying to chart a new path forward to thrive under delivery system transformation, but they won't gain traction until they adopt a completely new way of thinking about how they operate. For trustees and their management teams, this means shifting their relationship model with payers from one of negotiation and competition to one of collaboration.

This is a lot to ask. Most executives appreciate that health care reform and the reimbursement pressures that come with it will require fundamental change. But they struggle to relinquish the volume-based care delivery view under which they have operated for the past 30 to 40 years: Do more, get paid more, and the more negotiating power you have, the better for your bottom line. As reform, growing consumerism and increasing cost pressure continue to foster a move toward value-based reimbursement and away from fee-for-service, hospital boards and CEOs must adopt a new way to improve their margins in this new world, and act on it quickly.

Re-evaluating their approach to payer relationships is a key first step. Success in an era of value-oriented care will require both payers and hospitals to leave behind the distrustful and often adversarial relationship they've had — a confrontational and competitive stance, which centered on debating approvals and negotiating contract rates — and adopt a more collaborative approach that emphasizes working together to create enhanced stakeholder value. Payer-provider collaboration is critical to delivering cost-effective, value-driven care, and trustees should encourage hospital management teams to steer their organizations down this path. Luckily, some different models are emerging that provide a road map for this transformation.

Key Collaboration Models

We have observed three holistic, integrated models of collaboration between payers and hospitals and health systems, differing primarily in the scope of care coordination and risk: focused transformation, population care and care bundles. Each of these emerging models transforms the way care is delivered, financed and consumed; as a result, the models aim to improve medical outcomes, improve affordability and enhance the patient experience. While many stakeholders are pursuing one model or the other, it's important to note that they are not mutually exclusive; in some cases, employing one model can be the first step toward eventually adopting another.

Focused transformation: This is a relatively simple model that may serve as a good starting point for hospitals and payers that are focused on capturing lost medical value. Paired with pay-for-value reimbursement mechanisms, this model relies on targeted collaboration among payers and providers to reduce specific high-cost, frequently recurring or clearly redundant activities, such as hospital readmissions or duplicate testing.

Focused transformation models have ranged from quality initiatives for high-cost procedures to discount programs for patients. For example, Blue Cross Blue Shield of Michigan implemented 12 collaborative quality initiatives with 30 Michigan hospitals to optimize care and identify improvements for high-cost, high-frequency procedures.

While previous models have used pay-for-performance incentives, focused transformation drives more comprehensive change by linking compensation not only to medical outcomes, but also to reductions in avoidable overuse of medical resources. Although a good starting point, focused transformation is limited in scope and may not have sufficient incentives to inspire significant change in provider behavior.

Population care: Perhaps the most challenging to implement for many health care organizations is the population care model, which typically covers the full spectrum of patients' care needs for a lump sum payment. This model drives cost-effective outcomes improvement for entire patient populations by enhancing primary care and prevention, and reducing costly downstream utilization. Unlike focused transformation, population care is not targeted toward a specific intervention or condition, but covers the end-to-end patient care spectrum.

The payment structure of the population care model initially involves shared responsibility and savings for health plans and providers, but hospitals eventually will need to take on a greater portion of financial risk in the system. Payers can start with reimbursing a set amount for the total cost of care based on historical costs — if providers keep patients healthy and out of the hospital, they keep the savings, but if they fail to do this, they lose money.

A total-cost-of-care budget construct like this may evoke memories of the HMO models of the 1990s, but new population care models provide more sophisticated approaches to care delivery and finance. The total cost of care is tied to historical levels of spending, and future increases are linked to the Consumer Price Index. Instead of mandating reimbursement rates, as in old-style HMOs, payers collaborate with providers to meet cost-of-care targets by participating in care redesign. For example, payers can use their data and analytic capabilities to identify gaps in care and help shape incentives that encourage collaboration for effective care management.

Appropriate patient engagement is crucial to the success of population-based models. Scalable approaches to patient incentives need to be incorporated to engage broad patient groups and encourage better health self-management, especially for those with chronic ailments. Different flavors of population models, such as accountable care organizations, are springing up across the country. The Centers for Medicare & Medicaid Services recently announced that 250 ACOs have been formed in Medicare covering 4 million beneficiaries. Fairview Health Services, a Minneapolis-based nonprofit system, is employing a population care approach by partnering with Blue Cross and Blue Shield of Minnesota in a team-based ACO that puts the responsibility on primary care providers to coordinate prevention and appropriate levels of treatment across patient populations.

Population models are the most ambitious of the three emerging collaboration models. Many of the efforts under way now are excellent starts and demonstrate potential, but most payers and providers have not yet developed the capabilities to support wide-scale implementation while lowering overall cost. None have incorporated many of the patient engagement tools required to make these models effective and palatable to patients. The straight transition from fee-for-service environment to population-based model is significant and not a leap that many providers will be able to make successfully just yet.

Care bundles: This model is designed to recoup medical value through a consumer-focused product offering that integrates care, financing and support for specific conditions and procedures. Bundles are a core driver of a more transparent, retail-oriented health care market: A single fee covers all patient services across the continuum of care for a condition or procedure, including hospital stays, physician services, medical equipment, post-discharge follow-ups, readmission and rehabilitation.

Bundles are emerging as the foundational unit for care delivery transformation. They can be employed on their own to drive improvements in cost-performance, outcomes and consumer engagement, or they can serve as a key building block for the population care model, giving providers better visibility into their risk. They also have wide applicability: While initial bundles have been created around inpatient procedures such as knee replacements and cardiovascular surgery, they also apply to outpatient and primary care services. The opportunity to shift consumer volume to higher-value providers likely will occur more rapidly with these types of bundles, particularly with the rapid growth in high-deductible products and greater price transparency. There is also a strong case for bundles to address chronic conditions such as diabetes or congestive heart failure, which can create major cost stress on the system downstream.

From a care-redesign perspective, bundle providers in diverse settings, such as primary care offices, hospitals or rehabilitation centers, work together to deliver care seamlessly. This collaborative approach leads to better coordination and less duplication of services, and potentially can lower costs. Payer and provider participants share responsibility for the development, rollout and ongoing refinement of their bundles, including the creation and continuous monitoring of evidence-based guidelines to shape these integrated products.

Payers and hospitals also collaborate to jointly devise new payment structures for care bundles, calculating the comprehensive price of each product as the cost of bundled service plus a fair profit margin. Typically, payers make a single payment for all services to the contracting hospitals, which then pay physicians and other providers involved if they are not employed by the hospitals. Similarly, payers and hospitals work together to identify opportunities to reduce the cost of the product, limiting price hikes. Benefit design can be used to drive engagement and attract patients to the products, thus increasing volume and further reducing per-patient costs.

Bundled care significantly improves the patient experience. Consumers appreciate features such as a single bill that easily explains pricing and benefits, seamless care delivered by a multidisciplinary team, and the ability to comparison shop for services. Bundled products are still taking shape as consumers' preferences and needs change, but research shows early support for care bundles on both the supply and demand sides. Close to 80 percent of consumers find bundles appealing, while 75 percent of payers and more than 80 percent of hospital executives report they are currently pursuing bundles or have interest in doing so.

Several hospitals and systems already are collaborating with payers to offer variations of the bundled care model. In Minnesota, UnitedHealth Group advanced a new cancer care payment model by partnering with five medical oncology practices. Anthem BlueCross and BlueShield of Missouri has partnered with SSM Health Care to offer a bundle for knee replacement surgeries that includes all components of care: the hospital stay, physical therapy, durable medical equipment, readmissions for revisions or complications and outpatient postoperative care. Other care bundle offerings range from complete health assessment packages during a single visit to all-inclusive packaged pricing plans for cardiovascular surgeries and fertility services. Multidisciplinary approaches in which specialists from different geographies collaborate to diagnose and treat patients also are being explored.

Choosing a Model

Several factors, such as local market dynamic and provider characteristics, will influence how leaders choose the collaboration model that will best fit their institution. It's also important to consider the health care landscape, the history of relationships between payers and providers, and strategic preferences and capabilities. The chosen model, or models, eventually will help to determine the nature of the payer-provider partnership.

For example, if a health system has a fragmented provider network and overuse of high-cost services, no history of collaboration and operates in a challenging local regulatory environment, it should not jump into developing a population care model. It would be wiser first to implement one or both of the other models of collaboration. Care bundles are, perhaps, the most applicable and adaptive model for many health care organizations, whether they have no experience of collaboration, or they already have substantial partnerships in care delivery transformation.

Additionally, these collaboration models can coexist as the health care system evolves. Focused transformation is often a good place to start, even in fragmented markets, especially for hospitals and health systems that have no previous history of payer collaboration. The care bundle approach offers a smoother transition path into value-based care delivery. Bundles can stand on their own or serve as a bridge toward a population care model as systems develop risk management and other necessary capabilities for this approach.

The structure of these collaborations can take many forms, ranging from a straightforward product partnership to a fully integrated multispecialty delivery network. Product partnerships can be product- or market-segment specific and do not involve shared ownership; partners steer members to one another, but are not integrated. A business partnership is more integrated, with a joint venture structured around targeted conditions or segments, and risk-sharing on overall medical spending and utilization patterns. Payers, hospitals and physicians also can form a multispecialty care delivery system with shared risk and incentives, as well as integrated administrative processes and informatics to enable quality care and cost-savings. This type of structure often requires a payer-provider asset merger.

When working to create a more collaborative relationship with payers, hospital and system executives should consider a few guiding principles. First, having shared beliefs is critical, as is believing that real collaboration is possible. Both sides must align around common ground and objectives, while sharing a mindset that is laser-focused on transforming the way care is delivered and financed. Only after a shared vision is identified should organizations take on specific initiatives, and they should do so thoughtfully and deliberately.

The Board as Catalyst

Trustees will play a critical role in encouraging their management teams to adopt this radically different approach to payer relationships and guiding them throughout the transition to a more collaborative model. In some cases, we have seen boards support the appointment of an executive to lead strategy and implementation of collaboration models and structure.

Boards also must consider the transition cost of such significant change, and give executives some leeway to pursue innovative risk. Finally, it's imperative that trustees recognize that this type of change requires a different skill set — one that currently may not exist on the board or in the organization. Some have addressed this by adding executives with insurance backgrounds to the board, or those who have managed through similar disruption in other industries, such as telecommunications.

As Einstein said, our thinking has created the world as we know it today — in health care that often means expensive care, fragmented services and information, and little collaboration between the hospitals that deliver care and the insurers that pay for it. This will not change until both payers and providers fundamentally alter their thinking about how they work together. Trustees can act as the catalyst needed to help them do it.

Minoo Javanmardian, Ph.D. (, is partner, Booz & Company, Chicago, and Sanjay B. Saxena, M.D. (, is partner, Booz & Company, San Francisco.

Sidebar - Best Practices for Successful Collaboration