As the Healthcare Landscape Evolves, New Provider Models Emerge

We recently discussed how vertical integration and merger and acquisition activity is transforming the health care industry. A major focus of that integration is provider networks, including academic medical centers, community hospitals and physician’s practices. Providers are aggregating at a rapid pace, sometimes in combination with local and regional insurance companies.

Valid points can be made for and against this consolidation. On the pro side, provider consolidation and integration can lead to a more streamlined patient experience. Primary care physicians can refer to co-located and affiliated specialists instead of having the patient drive miles for a consultation. Lab tests can be conducted by integrated labs with more rapidly available results. Patient data can be synthesized and stored in centralized electronic health records that provide a more comprehensive view of the patient’s medical history. Economies of scale free up cash to invest back into improved operations and technology and can enable recruitment of high quality doctors or investments in research and innovation.

On the flip side, consolidation can lead to monopoly or oligopoly. As with other industries, this can result in higher prices. Experience suggests that this has happened in certain markets. Quality of care improvements from scale have thus far been elusive. Additionally, there is not clear data showing improvements in overall patient satisfaction. Reduced competition also usually means reduced choice, and we all know choice plays an important role in patient satisfaction.

That said, different consolidation models have different outcomes. In many cases, hospital systems are expanding by buying up local physician practices. In other examples, regional community hospitals are struggling to stay afloat and have been acquired by larger systems. We also see the growth of Integrated Delivery and Financing Systems (IDFS) where the insurer and provider are combined. This latter model is all about alignment of incentives to provide and capture greater value.

Short of a full-blown IDFS, many health plans are partnering with provider systems and building out insurance products built around specific hospitals or physicians. “Narrow network” products limit members to a narrow scope of doctors. This helps the health plan manage provider cost and anticipate utilization patterns better. In exchange for the narrowed provider scope, the member pays a lower premium. A variant of this is a tiered network product designed to steer members to certain providers based on the cost or quality of the provider. Other variants such as Accountable Care Organizations (ACOs) put the onus of managing care on the provider and reward the provider for managing cost and quality. Patient Centered Medical Homes (PCMH) focus on team-based, coordinated comprehensive care again relying on the provider to manage the patient holistically.

Managing these varied approaches to provider networks as well as their associated benefit designs and contractual terms can be a logistical nightmare. In addition to keeping contractual terms straight, cost, quality and patient satisfaction metrics need to be tracked. Many millions of dollars hinge on the accuracy and timeliness of this data.

The internal logistics of managing these many products, contracts and payment terms are a challenge. An even greater challenge is making the back-end systems seamless, transparent and comprehensible for the member. Just shopping for or trying to use insurance benefits can be confusing to the member. Finding a simple provider directory requires specifying your product/network, which must be chosen from a drop-down menu with dozens of similar sounding options. If you choose the wrong one and mistakenly think a certain doctor is in-network, you could face some major surprise charges on the back end.

Things will only get more complicated as the provider and product landscape evolves. Health plans need systems in place to manage the complexity and data. The right systems manage internal complexity, feed data to all departments to ensure accurate payments, manage the provider network, and simplify member/provider interactions.

Which health plan/provider models work and which ones don’t? Only the data (quantitative and qualitative) can help answer that question and be made actionable to improve health care for all.