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Maximize Value May 31, 2016

Path to Value: Lessons Learned From Recent Payer-Provider Partnerships

Head of Health & Life Sciences, North America, Oliver Wyman
Partner, Health & Life Sciences, Oliver Wyman
Associate, Oliver Wyman
Key Takeaway
There's no single playbook for payer-provider partnerships; they vary by market, appetite for risk, capabilities +

Over the past five years, regulatory changes have driven payers and providers to experiment with new types of partnerships across a broad range of market conditions. The Affordable Care Act has created new market needs and incentives that encourage closer collaboration between payers and providers in order to drive improved cost, quality, and efficiency. As a result, we have seen an acceleration of unique payer-provider partnerships, including co-launched products, such as BlueCross BlueShield of Illinois and Advocate Health Care’s BlueCare Direct product; and a number of new joint ventures, such as Anthem Blue Cross Vivity, which brings together Anthem Blue Cross and seven health systems in Southern California. (You can read more about the growth of payer-provider partnerships in this article and this infographic.) Given the interest on both the payer and provider side in forming closer partnerships, studying the market activity to date is a valuable exercise. Here, Oliver Wyman’s Todd Van Tol, Head of Health & Life Sciences for North America, with Principal Tomas Mikuckis and Associate Becky Miller, shares four lessons on payer-provider partnerships in the age of value-based contracting:

1) Recognize that local market dynamics matter... a lot

Each partner’s competitive market positioning has an important influence on both the other partner’s goals and what the partnership can ultimately achieve. For example, high-share payers and providers tend to be less aggressive in their approach and generally fall into one of two archetypes. Product-based partnerships (e.g., narrow network products) between two market leaders often focus on targeted market segments and arrangements (including discounts) to achieve price points that help protect market share position. Alternatively, some market leaders continue to partner to develop a path to risk and clinical transformation, but frequently with a more incremental approach.

On the other side, partnerships between low-share payer and providers tend to be more collaborative and radical in their approach in terms of financial construct (think 50/50 equity partnerships) and ambitions to drive clinical transformation efforts and offer a differentiated, competitive product.

Understanding each partner’s positioning is critical to aligning on partnership goals and setting expectations.

2) Use shared economics to drive alignment

Many existing market partnerships have utilized discount-for-volume contractual arrangements (on occasion with additional shared risk/upside). However, we have begun to observe challenges in the sustainability of these sorts of arrangements, which often do not fully align incentives for improving care efficiency and quality.

Properly incentivizing all parties is critical to fostering collaboration and ultimately achieving the goal of the partnership. However, achieving alignment is not easy, particularly across payer, physicians, and hospitals; and things tend to break down when the tension between managing total cost and supporting the traditional hospital fee-for-service business are not tackled head-on.

The more successful partnerships tend to be open and collaborative in understanding how to make the economics work. In the short term, partners must explicitly define how the parties will collaborate to keep care coordinated within the system and must spell out how the partnership can drive market share improvements to manage the overall economics.

When approaching market partnerships, it is particularly important for payers to understand:

  • The provider’s appetite for risk. A provider’s risk appetite often informs both the financial and operational structure of the partnership
  • Physician compensation structure. In the transition to value-based care, understanding how to properly incentivize physicians to drive behavior change and meet the partnership’s goals is critical.

Longer term, we see that partnership success is most likely for those parties who truly commit to a shared vision with performance targets and key performance indicators, as well as the agreed-upon process and clinical metrics that will drive performance improvement across the partnership and ensure that the core underlying business is transforming.

3) Avoid a “contract-and-pray” approach; continued collaboration is key

Many of the current partnerships have made minimal market impact, and also battle low membership and operational issues. This is largely because partners have not devoted the proper commitment and resources to the partnerships. In addition to setting up joint governance structures at the beginning, more successful partnerships set clear expectations for clinical roles, operational roles, and data transparency.

Data transparency is especially important, as payers often struggle to provide physicians with the right data when they need it to drive care-management decisions. This limits the ability of the provider to effectively execute its clinical transformation strategy. Along with financial incentives, timely, actionable data sharing from the payer to the provider has emerged as a key way for payers to gain provider buy-in and alignment in a partnership.

4) Invest in consumer experience as a primary differentiator

Early partnerships have yet to crack the nut of creating a differentiated customer experience. For providers to transform clinically and deliver a superior customer experience, significant investment and collaboration is often needed. Otherwise, partnerships that are productized with a narrow-network construct will struggle to escape the “less-for-less” trap that most struggle with today.

In the near-to-medium term, co-branded products are just a small part of a provider’s overall patient population, and so creative work-arounds may be required. Most provider (and even payer) systems are not set up to deliver on what consumers are increasingly expecting (e.g., consolidated bills, a better in-office experience). However, market leaders recognize that delivering a better customer experience is critical to driving long-term success, particularly for those partnerships competing against integrated payer-providers. As the market evolves, partnerships will have to compete on more than price and experience will become an important differentiator.

Bottom line: No single playbook

What early lessons in payer-provider partnerships have taught us is there is no single formula for success. Partnerships vary based on market conditions, provider’s appetite for risk, payer and provider capabilities, and more. With no single partnership playbook to apply, what will ultimately enable success is flexibility, along with a deeper partnership and understanding of how each organization needs to transform and support the other on the path to value and risk.

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