Moreover, they must become actively involved in the required reorganization of delivery patterns and organizational structures, so that higher quality care will be delivered at lower cost.
The reasons for this far outweigh simple altruism. According to Mr. Ruff, “It is plain business sense that this expands and sustains markets for us and so ultimately is the best way to improve the bottom line.”
Among other things, Discovery Health has rolled out a coordinating program for members with multi-morbidity and frailty by commissioning and funding new multidisciplinary teams of rehabilitation professionals. It is now piloting dementia services with willing collaborators in South Africa, thus beginning to fill a need which was not previously met, and is actively searching for other opportunities to stimulate providers to add value. Discovery Health is currently researching the financial feasibility of privately provided, midwife driven maternity services for their lower income members.
Similar developments are taking place in the US. Ron Williams, former Chairman and CEO of Aetna Inc. notes: “The payer no longer sits back, just paying bills. [They are] involved in continuous quality improvement now, helping providers improve, and in researching best practices. They’re more and more interested in improving outcomes and the care itself.”
Similar views can be found around the world. In the Netherlands, for example, activism has been around for a number of years. As Pieter Hasekamp, CEO of Zorgverzekeraars Nederland (ZN), the Netherlands’ Association of Healthcare Insurers explains: “The activist role of the insurer was at the heart of the system reform in 2006. That was the core idea: insurers would be incentivized to selectively contract high-quality care and reduce costs, working with providers on how to reach this goal.”
The story is the same for public payers. In the UK, where the National Health Service (NHS) has set financial targets, the newly formed Clinical Commissioning Groups will be expected to procure better care for less. Many are starting to recognize that the only way to achieve this is by transforming how care is being delivered.
“We know that we can [improve care], on a smaller scale: we have pushed down waiting times and reduced venous thromboembolisms, all through smart pressure and incentives from public payer(s) to providers,” explains Sir Bruce Keogh, Medical Director of the NHS Commissioning Board. Sir Ian Carruthers of the NHS adds: “We know that we now have to do it on a larger scale…yet we do not yet know how – although the Clinical Commissioning Groups will have a vital role to play.”
Back to top
Leading strategies from ‘activist payers’
By examining the approach taken by some of the more ‘activist payers’, we learn that the transactional strategies that have characterized this sector in the past will no longer suffice. More transformational approaches will be needed. The strategic choices for payers relate to how they want to approach the problem. Do they want to adopt a transactional approach which will often put them in an adversarial position in relation to providers and subscribers?
At the other end of the continuum is a more partnership-based model focusing on value. There is also the question of where to focus. Payers can focus on the details of care delivery, on the system, on changing patient behavior and/or on populations. Below, we have set out how some of these strategies are being turned into action by payers in different systems.
Controlling the detail of utilization and activity
Techniques such as pre-authorization, strict treatment criteria and physician profiling (to target variation) are generally well understood. But they can also be expensive to operate and unpopular with providers and patients as they focus on individual episodes rather than value for the patient. This not only fragments care, but also steers dangerously close to micromanagement where payers take on risks and responsibilities that should sit with providers.
Setting standards and treatment guidelines
The use of evidence-based guidelines linked to payment mechanisms (such as pay for performance) also creates certain challenges by taking the payer into clinical territory. As a result, some of the risks that might be – in some systems – held by providers, instead rest with the payer.
Even with the capacity that most of the major payers enjoy, scope for change is often limited. There is an issue about how many different approaches providers can manage and the costs associated with this. This suggests that more collaboration will be needed among payers to either agree on standards or use those set by national bodies.
Influencing the patient’s behavior and choices
There are several approaches that attempt to change patient behavior by directly altering or restricting patient choices. For example, by restricting networks to only include providers that deliver better value (increased cost effectiveness and/or quality) or use incentives – such as lower premiums or deductibles. This encourages subscribers to accept a choice of fewer providers and many insurers have found that they can increase their negotiating power and reduce the use of high cost providers. For their part, payers are also striving to influence patient behavior.
Some, for example, are providing patients with advance information on provider costs and quality or on the effectiveness of treatment options. Others are encouraging patients to access lower cost services (such as going to primary care rather than the hospital) through co-payments and other incentives.
Back to top
While there are some experiments where payers incentivize subscribers to adopt preventative health behaviors, some payers have found that an investment in prevention may not pay back, largely because subscribers often shift to other plans and new patients, who have not been in preventative programs, replace them. To overcome this, a few payers are now working with employers to provide services that go beyond conventional insurance policies by managing health and offering a range of preventative and behavioral health management solutions. This can be linked to incentives such as lower deductibles, premiums, or other benefits.
Using payment mechanisms to change provider behavior
Generally speaking, payers are getting much better at using payment mechanisms, incentives and contractual mechanisms to change provider behavior. There is a clear benefit to creating more bundled payments and following the patient over longer periods of time (including recovery, in elective care and for a whole year in chronic care). There is also an advantage to integrating doctors’ costs in these bundled payments. Likewise for primary care, including basic home care for the frail elderly, and fully capacitated payment models (paying a fixed fee per patient in the population per year).
Yet these tools may have started to reach the limit of their usefulness as long as we do not incorporate the outcomes that these care activities deliver. Importantly, this includes the appropriateness of the care: it makes no sense paying for a perfect hip replacement if the patient would have been better off not getting the operation in the first place.
For some payers, this means stopping any mechanism that pays for volume, and shifting wholesale to full population management – an idea that lies at the root of many of the Accountable Care Organization initiatives in the US. For others, however, that shifts too much of the insurance risk to providers, and just recreates clunky, old regional budgets for single provider systems – with all the problems they entail. Whichever path is taken, providers will have to increasingly take responsibility for a population or an identifiable group of patients and take some of the risk through capitation payments or models where one provider becomes the coordinator of the patient pathway. In all these scenarios, the outcome of care is what the providers must sign up for. The range of options for payment models and the implications for the shape of the providers is illustrated in the framework below in an analysis of the US market by the Commonwealth Fund.
Back to top
The payer as market manager
Payers are starting to use selective contracting techniques to influence the shape of the provider system. In the Netherlands and the UK, for example, payers are using standards set by professional bodies to refuse to contract with small volume providers and require the centralization of specialist services. In the US, Starbucks is moving key parts of its care for employees on the west coast to Virginia Mason and patients are flown to Seattle for some cardiac and back surgeries. In some cases payers are acting as the strategic planners for areas in which they operate. This is well established in the UK, Scandinavia, Italy and other systems with strong regional or national authorities. In the Netherlands there have been successful examples of insurance companies acting in this way to reshape the system.
Blurring the payer/provider divide
There are several cases where a perceived market failure has forced payers to also take on a provider role. So while the payer/provider split may be a neat concept to policy analysts, reality has shown that the concept is becoming increasingly blurred, particularly in cases where payers are filling a gap in the market or using new providers to disrupt some of the current patterns of service delivery. For example, one Dutch insurance company set up integrated primary care practices in areas where general practitioners wanted to participate, leading to proven cost reductions through better referral and prescribing habits. There are some similar small experiments with this in South Africa. In the US, Optum Health Solutions works with employers to reduce costs through better care management, prevention and psychological support to their insurees.
A partnership with a healthy tension
Payers may be wondering how they might become more activist in their current environment. Clearly, neither an overly confrontational attitude of “I’m going to transform you”, nor an approach that simply appeals to a sense of social responsibility to encourage cooperation will work.
There is simply too much at stake. This does not, however, mean that providers and payers cannot create a model for partnership that recognizes the functional and healthy tension between the two parties. Much like many supplier relationships found in industry, partnerships are a logical model that allows providers and payers to rally around a common goal of providing first-class services to their mutual clients.
In many countries, insurance companies and providers have taken a strong first step towards this goal by sharing their data. In many cases, professionals and providers are simply unaware of the outcomes of their care, or how these outcomes compare with the prices they charge, and so payers can make a significant difference just by showing them their results. This will require linked data sources between providers and insurers, which are often best managed through a trusted third party (TTP) solution due to regulatory concerns. This, in turn, lays the groundwork for incentivizing good outcomes. In time we might expect these data sources to increasingly cover issues of prevention and use data to facilitate and incentivize patient engagement in their own healthcare.
“Such partnerships are beginning to come to the fore in the US now,” says Ron Williams, former Chair & CEO of Aetna Inc. and member of President Obama’s Management Advisory Board. “This is quite something, because payers and providers used to fight each other to the ground until only a few years ago. That was the default, they were enemies. That is changing now, enlightened payers understand collaboration is the only way to create more value.” Pieter Hasekamp, CEO of The Health Insurers Association in the Netherlands, adds: “We’re learning that a partnership – with sharp edges where necessary – is the best model. Just ‘tough negotiating’, seeing each other as adversaries, will not work, that’s clear.”
As overall healthcare spending in most countries is expected to increase over the coming years, both payers and providers can reasonably expect their market to grow. Indeed, there are not many sectors where conditions for constructive partnerships between payers and providers are so good.
In this market, payers may consider sharing some of the costs for necessary transformation processes, or supporting providers as they go through a temporary dip in revenues. Of course, partnerships do not come without risks. For instance, payers will want to ensure that they do not become overly entangled with pre-existing providers for fear of obstructing the disruptive change that might be required. Clearly, a healthy tension in the partnership remains essential.
“The painful moments will come when the waste is really pushed out of the system; when you cannot help the hospitals to survive relatively easily; when organizations will simply not make it. Yet we have to face that,” says Ron Williams. “With many of our larger hospitals, it is much more likely that they will be thoroughly transformed than that they will just fall over and die. And we can help them with that transformation – we must.”
Perhaps the most important partnership in the future will be forged between patients and the wider population. Supporting patients in managing their own health, coordinating their own care and facilitating their participation in key decisions has huge potential.
Back to top
Key take away points for payers
There is a strong logic influencing the way that payers are adapting and changing; based on this logic, the steps they need to take are quite clear.
- Pushing care upstream (towards prevention, self-management and home care) has become the clear mission for everyone who wants to increase quality while reducing overall healthcare costs. This will mean finding new ways to connect to patients and influence their behavior, which includes being more active in the management of their conditions and adopting more healthy lifestyles. To make this possible, delivery models need to become more integrated which, in turn, means that current payment systems (that maintain fragmentation and pay for waste) urgently require reform. And while there are choices about how much risk should be transferred to the providers, it is clear that much more attention must be placed on the management of population health.
- Public and private payers increasingly find themselves in the driver’s seat; they can play a crucial role in realizing payment reform and influencing provider behavior. They are becoming increasingly engaged in actively pushing care upstream themselves – whether through interacting with providers or with their own clients.
- Incentivizing change will be essential. Change can be hard and the pain of that change should be shared between payers and providers. Payers will need to be open-minded and creative about how they support and incentivize providers in both the medium to longer term.
- Up-skilling in key areas such as data analytics, outcomes measurement, contracting, and care system design will be key, as will the inevitable leadership complexities that arise when moving from a traditional passive payer to a leader of the system.
Lessons from high-growth health systems
Three key words perhaps summarize what we can observe in the immediate and near-term future for emerging markets: growth, buzz, and leapfrog.
Almost by definition, emerging countries are experiencing economic growth while most of the developed world continues to face a slowdown which looks increasingly to be long-term. Populations are still growing at a fast clip, and with populations that are both growing and aging, some countries are experiencing the ‘double barrel’ impact of public health issues. Increasingly crowded urban centers, changing lifestyles and diets can be linked to a chronic disease epidemic among the middle-class, who also come with higher and harder to meet expectations.
Emerging healthcare trends in high-growth markets:
- Focus on prevention and primary care;
- Technology is seen as a key enabler to accelerate growth and is being rapidly implemented;
- There is much less nervousness about using private-public partnerships;
- Providers in these markets work their assets much harder; and
- Greater willingness to try innovative or novel approaches.
Within healthcare, as a fast-growing sector, the buzz is palpable. There is increasing private sector involvement and a rise in the number of public-private partnerships, as many governments realize their need to rely on private finance. New models for funding and financing healthcare are constantly being experimented with and implemented.
We are seeing innovative use of information technology, the rise of remote care delivery models (through tele-care, mobile health and the like), and social networking playing a role in chronic disease management where lifestyle and behavioral changes are important. In a way, “green fields” and “white spaces” in underserved regions and countries offer more opportunity for truly disruptive innovations, which are often simply new ways in which a product or a service is produced, delivered, used or valued.
Indeed, we can expect to see healthcare technology adoption and innovation in emerging markets leapfrog their more developed cousins, and not just play catch-up. This can already be seen in telecommunications in developing countries, where the ubiquitous mobile phone has replaced landlines to provide connectivity reaching into the most rural of areas. There are advantages of being a follower – not being burdened by the past or historical policies and structures, and the opportunity to learn from and not repeat the mistakes made by developed countries which have treaded the well-worn path of traditional healthcare system development. Already, we see electronic medical records and broader electronic health records impressively implemented in hospitals and systems in India, China and other developing countries. Mobile health in rural settings, retail-based clinics and other dis-intermediation models are thriving where primary care is weak. Low-cost delivery models and point-of-care diagnostics and interventions are capturing the imaginations of care providers, drug and device manufacturers and investors alike, and may well lead the next wave of “reverse innovation” which could see the developed world learning valuable lessons from their upstart cousin nations.
This is the space to watch and the scale and speed of change is extraordinary.