As the healthcare industry steadily transitions from fee-for-service (FFS) to value-based payment models, the role of the provider is rapidly transforming. More and more, we are seeing health systems and physician groups move up the value chain and become risk managers, rather than volume-drivers. As a result, the line between the traditional roles of payer and provider is blurring. We expect this trend to continue for the foreseeable future, driven by ongoing regulatory and competitive pressure, as well as emerging market opportunity. Oliver Wyman’s Melinda Durr, Parie Garg, and Timothy Abbot have worked closely with many stakeholders on the forefront of this movement. Here they share five observations about the evolving role of the provider as a risk manager:
1) The Medicare Advantage (MA) program has fostered an early and rapidly accelerating hotbed of provider-centric, value-based activity.
MA plans are partnering with providers in value-based arrangements to control benefit costs and drive differentiated quality outcomes. Basic forms of payer-provider partnerships such as bundling, performance-based payments, and gain-/risk-sharing have long been ubiquitous in the market. As the market has evolved, we are seeing an increasing number of providers move up the value chain and offer their own MA plans, assuming the role of both provider and payer.
2) Provider-led risk managers have an inherent edge in the MA program; those that effectively harness these advantages can win big.
Providers have a natural edge on critical MA profit levers relative to traditional payers. Competitive advantages include:
- Stars: Greater integration and span of control over clinical activities position providers more favorably for success on HEDIS and other clinical quality metrics.(Read “2016 Medicare Stars: A Tale of Two MA Plans & How They Achieved Stellar Results.”)
- Risk Adjustment: Greater data connectivity/access to medical charts and clinical influence enables more complete and accurate HCC capture.
- Benefit Cost Management: Resident clinical expertise and access to patients can enable differentiated management of benefit expense.
- Membership: For certain health systems, high-density catchment areas and strong brand perception can drive substantial membership growth. For example, Johns Hopkins’ MA plan (launched in 2016) has already captured more than 4,000 lives in its first year of operations.
3) Managed Medicaid has traditionally harbored less provider-centric value-based activity than MA; however, evolving market and regulatory dynamics are making it an emerging imperative.
While many providers have experience managing Medicaid populations, risk-bearing arrangements are limited relative to the MA space. This is partly attributable to the growing Managed Medicaid market. However, several regulatory and market dynamics are stimulating evolution of the role of the provider in Managed Medicaid and accelerating movement towards risk arrangements.
These shifts include:
- Federal Regulatory Pressure: CMS has proposed several changes to the Managed Medicaid program that shift imperatives for success to provider-related competencies. Examples include a provision to allow states to require MCOs to create value-based payment models, as well as the introduction of MCO Star ratings (which are heavily provider-influenced). (Read "4 Takeaways: Managed Medicaid Moves Step Closer to Major Overhaul.")
- State-Specific Regulatory Pressure: States are jumping on the bandwagon, with many regulators pushing provider-centric value-based activity in their local markets. Notable recent examples include Virginia, which proposed a DSRIP program that would provide funding and support for the development of provider partnerships with Medicaid MCOs; North Carolina, which proposed a role for Provider-Led Entities (PLEs) in Medicaid; and Massachusetts, which is implementing ACOs that are partially funded through the Massachusetts Medicaid Policy Institute (a program of the Blue Cross Blue Shield of Massachusetts Foundation).
- Market Demand: Medicaid MCOs are increasingly looking for ways to partner with providers in innovative models to drive differentiated quality outcomes and manage benefit costs. Examples include the PCMH-like “anchor health homes” used by CCA Illinois, in which specialized primary care teams are employed by “homes” owned by local hospital systems.
And in some instances, providers themselves are positioned as MCOs – such as Texas Children’s Hospital, which launched Texas Children’s Health Plan, a CHIP HMO.
4) Despite inherent advantages, there are no guaranteed wins for provider-led risk managers; for every Kaiser, there is an Optima.
Many providers aren’t experienced at managing risk and do not possess the requisite administrative and strategic competencies to assume the role of a health plan. For every success story like Kaiser, there are instances of providers who rushed into the market, suffered substantial losses, and were forced to exit. Medicaid, in particular, has been a challenging market for many providers, even without bearing risk. As a risk-bearing provider, you have to be prepared to weather the storm and manage potential losses at the outset.
5) Strategic, calculated, and purposeful market entry and portfolio management is critical for success.
There are many different ways for providers to bear risk in the Medicare Advantage and Managed Medicaid markets – be it through risk-based arrangements with local payers, launching payer-provider partnered products, or even establishing their own health plans. And for each route, there are critical imperatives for success. New entrants must have a very purposeful strategy to succeed against incumbents in a highly competitive market.
Bottom line: Early steps and careful planning count
As the healthcare landscape continues its shift to value, providers are primed to take on a bigger and bigger piece of the pie. However, success is far from guaranteed, and there will be clear winners and losers. The early steps that providers take in their evolution to risk managers are make-or-break and must be grounded in a sound and purposeful strategy.