Categories: predominantly on the basis of fee-for-service

Categories: Collaboration, health economics, health innovation,health system sustainability, patient care All Paths Lead to Convergence Dinesh Ganesan Mostof my work is encapsulated in numbers representing accounts, assets, debt orequity. I live and breathe this stuff, so it was a change of pace to sit downand write a blog post—with very few numbers—about some of the financial trendswe at Johns Hopkins Medicine International are predicting in the yearahead for international collaborative health.  Let’sstart with the convergence between payors and providers and what that mightmean for international health and health care.  In the United States, the vast majority of individuals—roughly150 million—are covered by private health insurance through their employer, whichselects insurers and negotiates health plan benefits on the employees’ behalf.

 This systemhas set up a patient-insurer-provider triad in which each partybasically operates with little overlap. Patients typically choose an insurerbased on their employer’s plans. When they go to see their doctor, they paytheir co-pay and leave the rest up to the insurance company. That’s that,unless there’s an issue with a claim, forcing a transaction—or sometimesconfrontation—between patient and insurer.

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 A moredysfunctional dynamic occurs between health providers and health plan administrators,who serve patients in a different—often conflicting—ways. Private insurers payhospitals predominantly on the basis of fee-for-service schedules that they setevery year. In this model, doctors are rewarded forproviding more care, while insurers have incentives to restrict coverage.  Fee-for-serviceis a cumbersome, highly labor-intensive process that adds significantadministrative costs in a country thatspends more than twice as much on health care as other industrializedcountries, yet continually ranks low with respect to quality and outcomes. Understandably,no othercountry in the industrialized world uses this model. This dysfunction iscompounded by the recent tax bill’s repeal of the individual mandate under theAffordable Care Act, the impact of rising medical costs on employers and consumers, and the increasingly limited profitability ofthe core insurance business. Health organizations are being pushed out of theirsilos and are merging to build stronger relationships between patients andinsurers, and to turn the reimbursement tug-of-war between insurers andproviders into a partnership.

 In this trend—called the payor-provider convergence—more health systems that are venturing into the health insurancebusiness by acquiring or starting their own health plans and by establishingjoint ventures with payers to jointly own and operate a health plan.  On the other side of the equation, insurers are moving into the healthcare provider business by acquiring hospitals, surgery centers, medical groupsand other providers.  In both cases, theorganizations are broadening their footprints by merging with other segments ofhealth care to gain access to new business lines and new supplies of customers.In the past five years, there have been about 200 partnerships created between insurers and largehealth groups. As they gird against upheaval in a rapidly changing health careenvironment, we’re seeing former adversaries band together.  The most readily known example of an organization that plays the dual rolesof provider and insurer is Kaiser Permanente, the largest nonprofitintegrated-delivery system in the country, which consistently ranks as a topperformer on key quality measures. More recentexamples include the drugstore giant CVS Health’s recent purchase of Aetna,one of the biggest health insurers in the United States, for about $69 billion.

The Cleveland Clinic recently joined forces with an insurance startup, OscarHealth, to offer individuals a health plan in Ohio. And UnitedHealth Groupacquired a chain of outpatient surgery centers and has a number of profitablehealth care businesses, including its own pharmacy benefit manager and variousconsulting arms. Many experts in the field see advantages in the payor-provider convergence.Because they become part of the same entity, providers and insurers are alignedbehind the same incentives. If they save money by caring for patients more efficiently, they share inthe savings.

Providers will be rewarded for making decisions that are not onlyclinically sound, but also economically prudent.  In the long term, this could resultin more integrated models that stress preventive care, better management ofchronic diseases, fewer readmissions and lower costs. It’s a win-win for financial ledgers and forpatients. Prediction: The payor-provider convergencewill accelerate as payors look for consolidation opportunities and seek growthin emerging economies and in regions with changing health care policy. This will result in deeper, strategic partnerships and joint ventures between providers andpayors domestically, but also abroad, where health providers will begin to introduce value-basedreimbursement models overseas.      

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