Looking at Healthcare Through Payer Lenses

Payers, as with the rest of the healthcare industry, have a lot on their plate right now. Healthcare reform, via the Affordable Care Act (ACA) continues its march forward despite legal and political uncertainty. Struggling to define the payer role in Accountable Care Organizations (ACOs), understanding the impact of Health Insurance Exchanges (HIXs) on their business (McKinsey survey results likely have many payers wondering how to market to what may be an enormous uptick in individual purchasers of coverage – something that most are ill-prepared for), and how to better engage consumers/members in proactively managing their health are a few of the top issues that were addressed at the AHIP Institute last week.

But when one sits back and reflects on the AHIP Institute – all of the sessions, all the discussions, the chatter in the halls, underlying messages within the message, the exhibit hall – it boils down to three key themes that this sector of the healthcare industry is grappling with, which much like the three stages of meaningful use, build upon one another:

  • Establishing Trust
  • Engagement
  • Collaboration

Establishing Trust
Health insurers have a major image problem and they know it. Providers don’t trust them, consumers don’t trust them and who knows, maybe even their spouses don’t trust them. Without that trust it is extremely difficult for payers to engage providers and members at a deeper level to improve overall population health and lower their risk exposure (MLR=medical loss ratio).

With the passage of the ACA, payers are now looking at the prospect of at least 30M more members (a significant portion Medicaid) joining their ranks. The 30M estimate could easily be tripled if McKinsey’s research (see above link) is indeed accurate. This creates a two-fold challenge for payers:

  1. How to market to these potential new members through a state-sponsored and run HIX. Payers do not know how to market to a market of one as they are more accustomed to marketing to employers or through brokers to reach that end consumer. Payers need to develop strategies that will assist them in attracting new members through these exchanges and one would imagine that ideally, a payer would prefer to attract the healthiest consumers on the HIX to join their ranks, again to lower MLRs. Successful marketing begins with establishing trust in a given brand and with a consumer trust ranking for payersthat is towards the bottom, payers have a long road ahead of them.
  2. How to ensure that these new members receive appropriate care when they need it and not have them turn to the local, and the far more expensive, Emergency Room (ER). Many of these new members are unaccustomed to having a primary care physician and have typically gone to the local clinic or ER for care. Ensuring that these new members receive effective, value-based care will require close collaboration (and education) not only with the new member, but more importantly, the care community in which that new member resides. Payers will need to establish a higher level of trust than they have today with that care community, be they ACOs, Patient Centered Medical Homes (PCMH), clinics, you name it to develop value-based care models. With a gapping shortage in primary care, that will only be exacerbated with ACA, very creative approaches are needed to develop these new care models and trust is often a foundational element to the creative process.

If and when trust is established, the next stage is engagement and for payers it appears that such engagement is sporadic at best. Sure, there are many examples where payers have established partnerships with provider organizations, but it has not been easy. As stated in Part One of this series, Blue Shield of California worked closely with Catholic Healthcare West to establish an ACO model that worked for both parties. This effort took four long years to accomplish which makes one wonder: if Kaiser-Permanente wasn’t beating up both parties in the market, would this ACO even exist?

Payers need this type of deeper engagement with providers to develop new models of care but do they have the time, do they have four years for each significant ACO they wish to establish in a given community/region? With 2014 a short 2.5 years away, one would have to logically conclude: No, there is not enough time. Payers will certainly take lessons learned from initial efforts, but definitely need to accelerate engagement of the provider community. But where is that engagement? While there were representatives of provider groups in attendance at AHIP Institute, AHIP’s failure to put such representatives on the stage to talk of their experiences and what they, the provider community seeks from payers is shocking almost to the point of disbelief.

Not sure if the payers are anymore successful on the member side but with an increasing number of future members being individuals, payers need to seriously rethink their consumer engagement strategies, which today rank dead last of major industries surveyed. Yes, most payers have a PHR offering for their members. Yes, most payers are seeking to engage members via calls to those with a condition. But is any of this gaining traction, engaging consumers/members in a meaningful way to help payers reign  in ever rising healthcare costs? Sure doesn’t look like it and payers will never make it to Stage 3 if they do not get members and providers engaged.

Collaboration is the final Stage 3 for payers. It is the nirvana of deep and meaningful collaboration between all stakeholders to improve healthcare delivery in the US – a new delivery model that reigns in costs, equitably distributes risk, and ensures accountability. This is a very elusive goal that the payer sector, which AHIP represents, is not even close to achieving today.

While a large portion of the “collaboration problem” can be laid at the feet of this industry sector, in all fairness, payers are not completely to blame. Providers, while by and large well meaning, do have some in their ranks that are less so and unnecessarily drive up costs. On the consumer side, for far too long consumers have not been held responsible for taking better care of themselves. There is very little personal, consumer accountability in today’s healthcare system but that is changing, will need to change if we as a nation wish to truly grapple with the extremely serious issue that we can no longer afford the healthcare system (system used loosely as it is hard to call the US healthcare industry a system) that we have today. As one of the keynote presenters, economist Laura Tyson so eloquently put it:

We do not have a debt problem in the US economy, we have a healthcare problem.

Without deep, meaningful collaboration among all stakeholders the debt problem we face today will seem a mere pittance to what we will face in the future. Payers can play an extremely important role in that collaboration but they have some very hard work yet to do to establish trust in the market and then engagement. Based on what we heard and saw at this year’s AHIP Institute, payers are seriously behind in these efforts and at times almost seem oblivious to just how critical these efforts are to their very survival.

John Moore is an IT Analyst at Chilmark Research, where this post was first published.

11 replies »

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  3. You may have not intended to do so, but I think you have mneagad to express the state of mind that a lot of people are in. The sense of wanting to help, but not knowing how or where, is something a lot of us are going through.

  4. After spending over 25 years as a consultant assisting employers in their frustrated and at times less engaged efforts to manage healthcare costs, I became CEO of an $ 8B region for a major national insurer. On my first day, I received an 8 page manifesto from the head of the local OBGYN society cynically congratulating me for my move to the dark side, returning to me an a $55 reimbursement check for an exam ( endorsed to me so I might take my family out to dinner ), and then proceeded to go on for 10 pages about how I as a payer was destroying the healthcare system. Thus began a three year odyssey where I was accused of everything from racketeering
    (the hospital executive who filed this complaint is actually now under indictment and I am sure will look terrific in orange ) to purposely attempting to delay or deny coverage for patients and providers.

    I read a lot of complaint letters and was annoyed at our very sterile and often poor efforts to educate people who were vulnerable, frustrated and misinformed about why their bill was not fully reimbursed or why they could not self refer themselves to an out of network provider who charged five times what others provided for a similar clinical outcome. But, my eyes were also opened to the opaque and unaligned incentives that permeated our system — and the sad fact, that as for profit companies, the insurers primary responsibilities were to its shareholders and its policyholders — the employers, many of which were very specific about what coverages they wanted covered, what plan designs they wanted adopted and even the network payment practices to providers in an effort to curb out of network utilization.

    Being a political Independent and a proponent of health reform, I was an odd choice but I give my former employer credit for trying to insert someone who wanted to mend fences and build stakeholder trust. However, trust is a two-way street and it was lacking everywhere.

    180m Americans are covered under employer sponsored healthcare. Employers prefer the insurers slug it out with the providers over unit costs and sensitive areas of medical necessity. Many do not want to engage in the complicated calculus of pay for performance. Employers want low medical trends, but also want limited disruption and open access PPOs with all providers included. In some cases, their expectations are totally unrealistic.

    I am appalled at the lack of engagement of some employers, including hospitals, who do not understand their own population risk, domestic healthcare spend or claims arising out of modifiable behaviors. The monopoly insurers have is only a problem when one fully insures their risks. When an employer self funds, they suddenly start to understand that claims drive 88% of their costs. Insurers now are claims adjudicators and the plan sponsor, the employer, is the fiduciary. As fiduciary, you can manage claims by either reducing the costs of units delivered or reducing the units consumed. Said another way, you either ration reimbursement ( with or without regard to quality ) or you keep people healthy and reduce chronic illness. As Don Berwick remarked, “my definition of health reform is empty hospital beds.”

    As the CEO I saw practices that clearly favored the insurer — especially fully insured arrangements. I disagree with Mr Halvorson as most fully insured plans are not driving 3% -5% margins but much higher margins, particularly for individual and small group whose loss ratios have historically run south of 80% and whose margins are much higher. PPACA MLR regs will not minimize this issue because most national insurers – once you net out deductions and other expenses that are now removed or can now be reattributed as ” Health Expenses” will enjoy per capita profits on par with their margins pre-reform. Unless, and this is a big one folks, as is the case with California, individual state regulators decide that PPACA does not go far enough and is a lowest common denominator. These states will seek to aggressively enforce prior approval of rates, resulting in a higher MLR on all insured cases and possibly reduce competition even further – giving rise for public option advocates to push for public alternatives. That is a scary thought at a time when most state budgets are wildly underfunded and there is universal discussion of reducing Medicaid spends.

    Insurers make much lower net dollars of profit on big, self funded national accounts because the larger employers purchase less insurance and negotiate hard on areas such as administration and access fees. Insurers need the membership to drive unit cost leverage in provider negotiation. The people who have historically gotten the short end of the latex glove have been the individual and small employer groups who are pooled and have little leverage.

    The insurers are certainly culpable for having such a low political and social IQ around the political consequences of 50m uninsured and the rising costs of care. However, there is so much culpability to go around. Literally, no one can throw a rock in this glass house. Consumers who currently enjoy coverage have unrealistic expectations. Providers have pivoted to driving intensity of services to compensate for reductions in unit cost. Government shamelessly cost shifts paying significantly less for Medicaid and Medicare and routinely wastes existing taxes already levied on health plans. ( In NY, insurers paid over $2B in HCRA taxes – of which less than $1B actually made it for earmarked medically related expenditures as originally designed. The other $1B + went to plug holes in totally unrelated areas). Albany was a joke.

    Waste, fraud, abuse, the sins of omission and commission find everyone guilty. Sadly, whoever plays the role of payer will always wear the black hat to some degree because they make the decisions around medical necessity, eligibility, clinical efficacy etc.. Radiologists constantly say “do away with precertification on PetScans, CatScans and MRIs because 90% of the recommendations are approved anyway.”

    It was my experience when we did away with precertification that utilization went up over five-fold. The deterrent effect of having precert helped ensure that courses of treatment were medically necessary and reduced frivolous claims. Try explaining that to someone who is sick or injured and wants their MRI now. That’s where trust works both ways as often the provider does not manage patient expectations but instead throws the payer under the bus by claiming that the insurer won’t pay for a procedure when they know good and well that is was likely to be denied. Enter tort reform?

    And god forbid, if you are a for profit organization in healthcare it is virtually a no win. You make money and they malign you for being a tick on the neck of the system. You do not make money, you are out of a job. Profit is a zero sum game in healthcare. When someone makes more, someone makes less — especially in a system that is incented to treat illness, not to prevent it. It is clear the insurers really have done little to try to force the systemic changes that might cannibalize their own precious insured profits but the large healthcare systems are not exactly falling all over themselves to find alternatives to expensive inpatient treatments. If anything, they are entrenching, buying primary care practices and seeking to become integrated delivery systems – with or without the insurer.

    I am gratefully back to consulting – sharing the PTSD of my experience, urging employers to self insure, to engage their employees, to focus on population health management and wellness, to advocate the return of the primary care provider and to support ACOs –but only when a system turned ACO can prove that they have taken their own domestic population of employees and lowered their medical trend to low single digits. Health System, heal thyself and then I will steer all my clients to you.

    So many of those that hate insurers have been marginalized by our system – – left by the side of the road as individual purchasers, small employers, unemployed…and is often the case, the private sector does not get that some combination of public private partnership is the only way to address these issues. Consumerism sounds great but you are only a consumer when you are entering the system standing up. When you are lying down, you are a patient – and hardly capable of making consumer decisions.

    However before I bash the insurers with a broad brush I think of many of my former employees – – medical directors and case management nurses crying at their desks trying to help a family with a sick child navigate a pediatric cancer process. I have read countless letters from patients delighted with the support they received and the information as they navigated a complex and contradictory system. I saw second and third opinions change the course of treatment. I saw egregious claims filed by doctors that were denied and then never resubmitted with no consequence. I saw foundation dollars spent on research and supporting orphaned diseases and conditions not covered by traditional insurance. I saw alot of people who cared.

    It’s not skin off my back anymore. You can eliminate every for profit insurer (converting all to non profit with 3% margins ) and save $ 40B of the $ 2.2B spend. You can eliminate the perks ( the G5 jet and expensive meetings ) and other hidden administrative waste that exists in some structures and probably save another $10B. Last I checked the US government had over $ 100B of fraud in Medicare and Medicaid. I assure you the billion dollar fraud costs can be counted on one finger in the private sector.

    You still are staring at a sick nation with 50m uninsured who must have some kind of basic coverage and 180m with coverage – many of whom are over treated and contributing to their own chronic illness and health decline. In the end, it may take the conversion to a single payer for everyone to finally understand that the elephant in the room all along — was us.

  5. Jonathan,
    In most states a small number of health insurers (often <5) have a huge monopoly. Most of these insurers have worked to disaggregate providers, dictating contract terms and fees, while garnering large annual rate increases for many years. These are facts, and facts are often uncomfortable, especially for those who benefit from the status quo. In my state, Anthem has kept physician fees flat for many years while getting large rate increases.Many other insureres have done the same, often paying below Medicare and Medicaid. You state, "They do not successfully drive down fees while increasing premium, pocketing the difference at some large and expanding rate. It just hasn’t happened in any kind of systematic way over the last 40 years." I don't know what markets you're speaking of, because that is not how it has worked in many markets nationwide.

    Insureres will need to revisit their strategy if they truely want to partner with providers in the future.

  6. Doug, there is some confusion in your response. Insurers are concerned about ACOs only to the extend that they will bring higher prices. Period. Do you want that? On this matter the insurer’s interest meshes, as far as I can tell, with the public interest. Why is it in anyone’s interest other than those who are employed by ACOs to keep increasing prices faster than inflation and the growth of GDP?

    On antitrust, the federal law states that states have the prerogative to set their own antitrust law. If they do not set adequate regulations, the Federal regulations take over. In any case, in every case where one insurer has a dominant market position (over 50% of the commercial market) this company is a Blues plan. And in nearly every case, it arose as a non-profit which literally created health insurance in the modern form in that state. There was no real competition, which is why the Blues got so big. Now, some have converted to for-profit. But note that only rural states have close to monopolistic dominance by a single payer.
    Competition among insurers has been studied multiple times by academics and think tanks, and lack of it is never deemed to account for more than a tiny fraction (probably not even a single percentage point) of total health care costs. This is not true of lack of competition among health systems.

    Insurers make a net income of roughly 3-5% historically (3% for non-profits, 5% for for-profits). There are cyclical changes, but the basic pattern has held for decades. So your statement that insurers “worked diligently to disaggregate providers and drive down fees, while regularly seeking double digit increases in premiums” can only serve to mislead. They have sought higher premiums to the extent that their efforts to drive down fees fail. They do not successfully drive down fees while increasing premium, pocketing the difference at some large and expanding rate. It just hasn’t happened in any kind of systematic way over the last 40 years.

    As for your last paragraph, I mostly agree. It is time to walk the walk. But your own words make me wonder whether you are an example of how suspicion can interfere with trust in both directions. There is a lot of misunderstanding and bad history going both ways.

  7. Establishing trust, engagement and collaboration with providers have not been high on most payer’s “to do” list for quite a while now. I find it ironic that AHIP gets their shorts in a bind at the thought of providers aggregating around ACOs, calling for vigorous antitrust enforcement, while the health insurance industry has been exempt from federal antitrust laws since 1947. In most states a few insurers have monoploy power and have worked diligently to disaggreate providers and drive down fees, while regularly seeking double digit increases in premiums.

    Many insurers give lip service to participating in groups like PCPCC, but resist putting real money toward care coordination and PCMH activities, expecting providers to make big investments in HIT and care coordination with little potential for a ROI here, which will flow to payers. Time for the AHIP crowd to get real about what it will take to collaborate and “walk the walk” to really partner with providers, especially physician groups.

  8. John, I wholeheartedly agree with your diagnosis but I reluctantly reach a different conclusion. (I say “reluctantly” because ironically I am writing this from Chilmark, and I think you know where I live…)

    “Deep collaboration” only works if everyone gets something out of it. If all parties are needed for “collaboration” each must be confident of at least “staying whole” or close to it if the collaboration fails, and also making the money on the upside if it works. This, in my humble opinion, is why the Medicare ACO regs are so timid: too many mouths need to be fed.

    So what is “the answer?” The answer, as we should all know by now, is that there is no overall answer. In this particular case, I think the addition of 30-million more members should provide a large impetus for limited-network plans (where both price and quality are used to credential providers)–exactly the opposite of deep collaboration. Once there is enough daylight between the cost of limited network plans and the cost of traditional coverage, you’ll see enough consumers and employers flock to the former to create a “virtuoous cycle” of what managed care was originally supposed to offer.

  9. HI, John,

    I would wholeheartedly agree with your diagnosis but I’m afraid I would have to disagree that “deep collaboration” is the answer. (I say “I’m afraid” because, as coincidence would have it, I am writing this from Chilmark and it’s a small town.) Thing is, in “collaboration” everyone has to sign off, which means everyone has to get something out of the deal, which limits the savings potential quite considerably.

    And that’s exactly the problem with ACOs as I see it: Too many mouths to feed. Too many people who simply have the ability to block entire initiatives if they aren’t dealt in for some of the booty. That’s why (once again, IMHO) the Medicare ACO initiative was so timid about risk-bearing and had so much micromanagement in it.

    What’s the answer? I think we’re going to find that “limited network plans” become immensely more popular than anyone predicted. By opting for them, consumers are voting for savings at the expense of choice, a belated recognition that they can’t “have it all.” Health plans will be more than happy to deliver this product becasue it puts them back in the drivers seat.

  10. Trust? These are the people who rejected clean claims until laws were passed to stop it. The guys who deny payment because someone made a minor mistake on their application. The latest? I recently got a message from Cigna saying that if they do not receive a bill within 90 days, they are not paying. Make them offer standardized lists of services, make it a lot of offerings so there is plenty of choice for consumers, then make them compete based upon price and quality. Then I will begin to trust them.