Emerging Trend: Payor-Provider Convergence

Payor-Provider ConvergenceWith the need to control fast-rising healthcare costs, and the implementation of new market rules under Obamacare, payor-provider convergence is a new trend. An increasing number of health systems are forming accountable care organizations (ACOs) and their own insurance, or managed care plans. Health systems are seeing payor-provider convergence as a trend that is part of the growth strategy.

Lisa Han, partner at Jones Day Global Law Firm, explains why payor-provider convergence is becoming more popular.

“Health systems see this as an opportunity to roll out their own healthcare strategy either themselves, or through another payor, while insurers see this as an opportunity to expand the market through close collaboration with large providers as their partners,” Han says. “Under the medical loss ratio, payors do not get to keep that underwriting gain anymore, but have to refund premiums to policyholders.”

Han says that payors need to get ahead of the curve and take control of the population health management. In order to do that, payors are employing providers, or contracting with accountable care organizations. For example, United Healthcare employs the largest number of physicians and nurses, and Aetna has set up an ACO division to provide insurance support and data analytics services for ACOs and other large provider networks.

“We’re really seeing the line between payor and provider blur; even the payors say it’s hard to determine if they’re a provider or a payor,” Han says. “Payor-provider convergence needs to be carefully planned out and evaluated, but it can be a winning strategy to create integrated delivery systems allowing for management of the population’s health.”

Han says that many health systems that have set up their own health plans are in a better position to control and direct the management of the population’s health. Health systems can focus on preventative care and wellness care, and manage the population of local communities, where they get most of their business anyways.

“There’s a very high level overview of the business rational behind the strategies,” Han says. “From the health system perspective, a provider-owned health plan can also be a platform to align with neighboring health systems, creating a regional or state-wide network.”

Larger health systems that have an insurance vehicle can readily implement the health population management philosophy. When the healthcare industry moves to reimbursement models that are more risk-based, those health systems are ahead of the curve and in a better position to manage risk under the new payment reforms, whether for government payors like Medicare or Medicaid, or commercial insurance, or even direct contracts with employers.

Providers are no longer just providers, and insurance companies are no longer just insurance companies. Providers have health insurance plans, and insurance companies employ providers. However, while this convergence is an upward trend, payors want providers to lower the cost of care.

Han says that there are many ways that the healthcare industry is trying to cut costs.

“For example, Medicare has launched bundle payment demonstration projects, as well as other payment reforms,” Han says. “Providers need to be more efficient, and lower healthcare costs on their own in order to survive in the new healthcare era.”

As the healthcare industry moves away from the fee-for-services payment system, healthcare providers need to be smart about the quality and the cost of care. Han expects that there will be many emerging ways to deliver quality care cost-effectively.

“Care redesigns and use of less expensive care model, or delivery methodology are all ways to be more cost-effective,” Han says. “Also, providers would be relying more on electronic healthcare delivery methodology, such as Telehealth.”

For example, many companies are offering therapy at home via the internet or other technologies for patients.

“Methods like these allow providers to save costs without compromising quality or outcome,” Han says.

Even though payor-provider convergence is catching on, there are still some elements of it that need to be worked out.

“Providers need to understand exactly what it takes to be an insurance company,” Han says. “They need to function like a real insurance company. A lot of providers think they just need to get their insurance license and then they’re all set, but that’s just the beginning point.”

In addition, Han says that it’s really difficult to manage the population and be efficient, and effective.

“Population health management can lower the cost and make payor-provider convergence a sustainable business model, but it does increase risks,” Han says. “If you have bad risk and don’t account for it, that can be risky for the providers to get into the insurance space.”


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