Healthcare Business News
Merrill Goozner, Editor

Share risk, not roles

Providers, insurers must forge new links to manage slower growing payments

By Merrill Goozner
Posted: March 16, 2013 - 12:01 am ET

Total healthcare costs have remained in check for three straight years. The sector's share of the overall economy hasn't budged since 2009—a welcome change from the experience of most of the past half century. But no one in Washington has conducted a careful examination of what's behind this trend. Did the recession and still-sluggish economy cause consumers to cut back? Have providers' herculean efforts to improve quality and lower costs borne fruit? Have insurers rediscovered their inner cost-control selves?

Instead, Congress in its infinite nonwisdom decided to pull out its preferred legislative tool for dealing with the nation's deficit problem: the meat ax. Earlier this month, it defaulted on its legislative responsibilities by imposing an across-the-board 2% cut that kicks in April 1.

Top hospital officials who attended last week's annual congress of the American College of Healthcare Executives weren't happy about the latest round of cuts. Yet there weren't many complaints, either. In interviews with Modern Healthcare, many said they had budgeted for sequestration by eliminating services, restricting hiring and re-evaluating capital investments.

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But that hasn't stopped those same executives from making the strategic investments needed to thrive in the reimbursement environment that is slowly being built through the Patient Protection and Affordable Care Act. That world—whether reimbursed by public or private payers—will be dominated by bundled payments and shared savings in the short-run and eventually by once-a-year capitation payments for individual patients. Fee-for-service medicine isn't dead yet. But it is on life support.

To survive in this coming world, providers will need to learn a whole new set of population-management skills for deployment across the so-called continuum of care. That's why systems have purchased physician practices, built ambulatory clinics and forged links with post-acute-care facilities. It is easier to coordinate care and control costs for patients with multiple chronic conditions when you own most of the network.

Not only do these narrow networks allow for greater coordination of care at the most cost-effective sites, but also all the revenue, even if reduced, remains within the system. Ideally, there will be multiple networks within each region. That will keep the antitrust authorities at bay, and it should allow for true competition on the only issues that should matter to patients and payers: quality and cost.

However, provider organizations developing these narrow networks cannot avoid the actuarial risk inherent in managing large patient pools. Those are tasks that have traditionally been left to the insurance industry. But the last time the nation made a large-scale attempt to move toward capitation—the managed-care revolution of the 1990s—insurers bungled the job. They managed risk by denying care. And when that failed, they simply defaulted by passing along higher costs.

Should provider systems and networks take on that actuarial task now? Some systems are dipping their toes in the insurance waters by acquiring small firms. Some of the most successful integrated systems in the country—Kaiser Permanente and Geisinger Health System, for instance—have always had insurance arms. But it would be a long and difficult task for inexperienced organizations to replicate the model.

The better approach is to maintain the arm's-length relationship between insurers and providers while working together on managing actuarial risk. In America's complicated employer-based insurance world, which includes large groups, small groups and individual purchasers, not to mention the growing role of insurers in managing Medicare and Medicaid populations, it makes a lot more sense for providers and insurers to forge partnerships around specific patient populations rather than waste time and resources trying to encroach on each other's turf.

Merrill Goozner, Editor

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