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Accenture

Payers and providers have attempted to create various versions of the chimera in recent historyand these efforts have yielded several lessons. In the future, new tools and technologies willaddress the common business needs of both organizations.

Ancient Greek mythology describes a fantastical creature, the chimera, which was made up of the parts of different animals: the forepart of a lion, the body of a goat, and the tail of a snake or dragon. That particularly fierce, fire-breathing monster didn’t survive its encounter with Bellerophon and Pegasus, but the name survives to this day. According to the American Heritage Dictionary, in genetics, a chimera refers to: “an organism, organ, or part consisting of two or more tissues of different genetic composition, produced as a result of organ transplant, grafting, or genetic engineering” (see Figure 1). Payers and providers have attempted to create various versions of the chimera in recent history. Drawing from the genetic code of both types of organizations, we have seen various attempts at collaboration come and go.

Examples of Payer-Provider Collaboration in the Past

The term collaboration is perhaps a generous term in describing past efforts. In most cases, payers and providers simply tried to recreate functions traditionally done by the other party. In some cases, they attempted to combine forces. The distinctions between activities in the marketplace has been blurred for at least the past decade. Many of these attempts actually did succeed and continue to exist in the marketplace today. It is not possible to describe every permutation of organization that combined functions of both the payer and the provider, so four illustrative examples are discussed below.

The Vertically Integrated Health Care Organization
The hallmark of the vertically integrated health care organization was having all the functions of a payer and provider under a single corporate entity, regardless of whether it was forprofit or not-for-profit. From marketing and sales of health insurance and/or an HMO, through accepting full financial risk, to the delivery of health care services, this type of organization did it all.

While there were several potential ways for the vertically integrated organization to come into being, the most common approach in the late 1980s and early 1990s was for a large health system to start its own HMO. This meant that the true basis of the company was the hospital system, and that the medical staff had privileges there. In most cases, the overall structure was seen primarily as a way to capture market share from other hospital systems, and secondarily as a way to capture market share from other health plans. A less common approach involved an actual merger between a health plan and a hospital system. Somewhat related to the vertically integrated organization is a health plan that has its roots in a very large medical group that also operates a hospital system.

An odd direction that falls into this same category was the acquisition of medical practices by health plans. On rare occasions, a health plan may also have acquired a hospital, but in general, health plans that chose to become vertically integrated systems did so by purchasing physician practices, most in primary care. At the same time, hospitals were also acquiring practices, and at a much faster clip than health plans. In most cases, once the practice was acquired, physician productivity promptly dropped and the practices became economically not viable. Health plans had no experience in managing practices, and hospitals had only a little more. Practice management systems, to the extent they existed at all, were not integrated into the overall IT structure.

Despite some notable successes, the majority of these organizations that were founded by hospital systems failed. From outright failure to divestiture of the HMO function, the majority of vertically integrated organizations were not able to achieve their overall goals. It is not the purpose of this paper to detail all of the reasons for failure, but in general it can be said that filling hospital beds is a good thing when you are being paid by someone else, but a costly event when you yourself are at risk for the associated costs.

The impetus for creating such organizations in the first place – putting aside the desire of a hospital to capture market share – was the belief that by placing all the functions in one organization, there would naturally follow greater efficiencies by cutting out the middleman. As is obvious in hindsight, the goals of an HMO to manage cost and keep utilization down are antithetical to the goals of a hospital to keep beds full and revenue high. Significant cultural problems arose based on the desire of the medical staff to avoid interference from the HMO.

What is a bit less obvious in hindsight is that the middleman has a lot of responsibility. Licensing and regulatory issues are complex, and marketing and sales are far different between an HMO and a hospital system. But equally important are the very complex activities of the basic back office: enrollment and billing, claims adjudication, customer service, and managing the IT function. At the same time that medical costs were skyrocketing in these organizations, the need to make significant investment in IT systems became apparent. Small systems were not scalable, functionality was limited, and the ability to simply keep up with ongoing functions became harder and harder.

Global Capitation and Integrated Delivery And Financing Systems
One step away from the vertically integrated health care systems is the organization that is accepting full financial risk for medical costs and delivery, but does not take on the other core functions of a managed care organization (MCO) or HMO. For a provider organization to accept such risk, it needs to have several attributes:

• It must be large enough to attenuate the effect of bad luck (in other words, it must be able to have a large enough enrolled population that all things even out);
• It must be able to provide nearly all medical services so that it doesn’t need to pay for services provided outside of its own delivery system; and
• It must have the infrastructure to support accepting financial risk.

Global capitation and large integrated delivery and financing systems (IDFS’s or IDS’s) became very popular in certain parts of the country, particularly California, but they were not confined to the West Coast. Large physician management companies took on global capitation, as did regional health systems and independent practice associations. They appeared to be successful for many years, but starting in the late 1990s, a number of them began to fail. Many more avoided outright dissolution, but still eventually stopped accepting global capitation and full financial risk, though some of these arrangements still continue.

The reasons for failure are once again multiple and often related to the same internal pressures working in opposite directions that were found in the vertically integrated systems. Revenue shortfalls in extremely competitive markets in the West made it exceptionally difficult to succeed. But problems with infrastructure were also prevalent, and are germane to this discussion.

Despite the globally capitated IDFS not having to worry about many standard functions of an HMO, it is surprising how much they needed to mirror that functionality. The HMO may have conducted the enrollment and received required information from employers and individuals (especially for Medicare members), but that information needed to be made available to the IDFS as well. Timeliness and accuracy were required since the IDFS did not want to fail to be compensated for patients that were no longer eligible, nor refuse service to a new member. The IDFS almost always ended up processing claims in one form or another since many of the providers within the system were still paid on a fee-for-service basis. Once again the problems of scale and functionality came into play, and typically the IDFS had an even smaller IT function than the vertically integrated system.

On the health plan side, serious problems occurred when an HMO paid a large IDFS for services, and the IDFS then failed. The HMO ended up having to pay twice, since services still needed to be provided. The ability of the HMO to transmit accurate and timely data to the IDFS was often erratic due to system difficulties at one or both organizations. Lacking common data formats, considerable work was continually required as the health plan tried to interface with multiple IDFS’s. Despite working to transmit data electronically, many globally capitated systems ended up defaulting to paper copies of eligibility rolls, authorizations for services, and claims.

Joint Ventures

Joint ventures (JVs) between payers and providers came into being at around the same time as the other types of organizations, and for the same reasons. In the case of a JV, each party was supposed to bring its respective expertise to the organization. The payer was supposed to handle all of the health plan activities with the usual exceptions of network and medical management, while the provider system (usually, but not always, a hospital system or large medical group) was to not only provide health care services, but manage utilization and quality as well.

The theory was appealing, but the same old tensions were at play. The provider system did not want the health plan interfering in patient care, and therefore was usually required to accept financial risk (above the risk of being a partial owner of the JV). The health plan’s desire to grow often was at odds with the provider system’s desire to capture and retain market share – growth often requires a network larger than that of the provider partner of the JV. Most of these ventures never got off the ground, and of those that did, most closed their doors after a few years of operation.

The data and communication issues involved in JVs were essentially the same as those that exist in general. Since the JV was oriented toward business issues rather than operational issues, little extra attention was paid to changing how the partners would actually collaborate. It was more a divvying up of responsibilities rather than fundamentally changing processes.

Community Health Information Networks
Community health information networks (CHINs) were an idea that made perfect sense at the time, except that they failed to account for reality. The CHIN was predicated on the idea that a single network for information exchange in the health sector would improve communications and efficiencies. Using common data definitions and open access to all parties, all hospitals, physicians, and health plans would all be able to access clinical and business information about patients and members.

This flew directly in the face of the competitive environment in which health care actually operates. Hospitals vie for loyalty from their medical staff, for patients to use their services, and for revenue from private payers. Health plans invest heavily in their own IT systems and it is the management and application of that data that is the backbone of a health plan. There was no perceived return to the parties involved to accommodate a CHIN and their development required deep pockets. While some experimental CHINs tried to get off the ground, for the most part it remained a concept with an extremely high talk-toaction ratio. Even if competitive issues could be finessed somehow, there was no practical standardization of data formats, further dooming the concept.

What Have We Learned?

Goals Must be Aligned
At the root of many failures in the past was a fundamental misalignment of goals. While both payers and providers have an overall goal of providing quality health care and coverage to individuals, and to do so while maintaining a positive financial result, the means of achieving those goals separates rather quickly. It is too simplistic and even unfair to state that providers want to maximize the amount of care delivered while payers want to minimize it. But it is fair to say that changes in cost and medical utilization affect payers and providers quite differently. Past types of organizations attempted to use business model designs to address that key difference, but the forces at work were far greater than anything that a corporate structure could address.

Does that mean that it is not possible to align goals? Not at all. It is more a matter of identifying the goals that do indeed align.

The Business Purpose and Value Must Be Clear
Closely related to the lesson of aligning goals is the need to clarify and assign a value to the business purpose of collaboration. While publicly using lofty language, many prior attempts were actually reactive, not proactive. They sought to use a business approach to protect market share and preserve older ways of doing things, or in the case of global capitation, frankly shifting financial risk to a party that could not always manage it.

If the business purpose is approached honestly and openly, without hidden agendas, then it is far more likely to identify the value that the collaboration brings, and to manage to achieve that value. If the overall business purpose is to lower administrative and transaction costs and to reduce errors, that is a pretty straightforward concept that needn’t get tied to the more complex issues involved in clinical quality and utilization. Furthermore, by clearly defining the business goals, it is possible to create measurable value, such as overall transaction costs, time in accounts receivable, and so forth.

That is not to say that clinical collaboration should be off limits. While business collaboration is less volatile, clinical collaboration should be addressed along the same basic concept. For example, both payers and providers have a business (and ethical) interest in improving patient safety and in promoting better care for patients/members.

The Scope of the Collaboration Must Be Manageable
One of the more striking lessons learned from past failures is how the size and complexity of the venture often presaged the degree of difficulty and lack of success. How providers deliver health care is highly complex, but so are the administrative (and medical management) functions of a health plan. To believe that a payer can easily learn to manage the complexities of delivering health care is naïve, as is the belief of providers that they can easily replace what a health plan does and be successful.

The lesson therefore is to do what you can actually accomplish. Put aside grand and bold beliefs that one organization can do it all and focus on what is credibly possible, which also makes it worth doing.

The Role of IT Versus the Role of Business Processes
In most cases of failed attempts in the past, one can find problems in both IT and in business processes. Most organizations actually resist change and much prefer another party to change what they do in order to accommodate them. A payer wants a provider to change how they submit claims, access eligibility, and so forth. A provider wants a payer to change how it receives and processes claims, provides information to the provider, and so forth.

In fact, a successful collaboration requires changes in both IT and in business processes. On the IT side, it is important for the IT systems of both parties to be able to transmit data, and that in the transmission of that data, preserve the integrity and quality of the data. Whenever data opts out of effective electronic interchange, it moves to paper, which then increases both the overall cost as well as the chance for errors.

IT connectivity is rarely sufficient to achieve overall business goals, however. Both organizations must change how their processes work. It is not a matter of forcing one party to conform to the business process needs of the other; rather, change is needed in the processes of both organizations to produce the desired result. The most successful collaborations can occur when the parties look at the process as boundary-less. Redesigning the process so that it is efficient and effective across the organizations – rather than just within each organization – is at the heart of collaboration and the path to real value.

What’s Different Now?

Is it simply a matter of applying what we have learned in order to achieve success in the future? If that’s the case, was every executive of every payer and provider organization a moron, unable to understand these relatively straightforward concepts? Absolutely not. The world has indeed changed in the past five years, making it more possible than ever before for payers and providers to successfully collaborate.

The Effect of HIPAA
The HIPAA has many provisions that fall under the general topic of administrative simplification. In addition to issues of privacy and security, there is substantial focus on standardizing the code sets and collecting key electronic transactions, including claims, authorizations, eligibility, and several others.

The deadline for implementation of the standardized transactions and code sets (TCS) was October 16, 2003. That date came and went without compliance being achieved. Fearing a debacle of unpaid claims under Medicare, the Centers for Medicare and Medicaid Services (CMS) announced that they would continue to accept nonconforming transactions from providers. The private payers followed suit. As this book goes to press, CMS has announced that nonconforming transactions will be paid at a slower rate than conforming ones, and it is expected that CMS will slowly continue to act to eventually achieve compliance. When that happens, payers will again follow suit.

But there is high value in becoming compliant as soon as possible. By using standardized transactions and code sets, information can be transmitted much more reliably and acted upon much more consistently. More to the point, by being compliant, both payers and providers need not spend excess energy in simply trying to get systems to talk to one another (or at least less energy than if they are not compliant).

HIPAA also sets the rules for closer collaboration between payers and providers. In this case, it is the combination of standardized TCS and the privacy and security regulations that make this possible. By clearly setting the standards that need to be met, a certain amount of guesswork is eliminated.

New Technologies
It would be patently unfair to imply that lack of success in the past was solely caused by managers failing to use technology properly. In most cases, it was extremely difficult to get differing IT systems to communicate even the most basic of data. And until the past five to seven years, even the Internet was not widely used by business and consumers. That has changed substantially.

New technologies that allow systems to talk to each other have been developed and continue to evolve, creating more flexibility than ever before. We can do now what was simply impossible to do in the past. Cost-effectiveness is similarly enhanced. Even when previous mainframe systems could be programmed to enhance communications with different systems, it was terribly expensive and terribly time-consuming. The new technologies have dramatically lowered the cost and speed to implementation, making new collaborative efforts much more value driven.

Consumerism
During most of the era of managed health care, the consumer remained relatively passive regarding business issues. Certainly consumers have become more informed about clinical issues, but in general they were insulated from the economic aspects of health care, facing relatively small copayments for services. Only the uninsured faced the full fury of high health care costs. That is rapidly changing.

As benefits designs move more responsibility to consumers for making informed choices about how they receive health care, that responsibility comes with higher potential costs that the consumer must bear. At the same time, consumers are demanding better service. It is common for consumer advocates, as well as health industry experts, to decry that while they can interact easily with their bank, interacting with health care systems remains Byzantine at best. The arena of consumer satisfaction is one in which payers and providers can and should collaborate.

Market Consolidation
In the past two decades, payer and provider systems were far more fragmented than they are today. While Blue Cross and Blue Shield (BCBS) plans often had a commanding market share, it was far more rare for a non-BCBS plan to have significant presence in a market, and even more rare for a provider system to be of any serious size. That simply compounded the problems of the high cost and difficulty of collaborating: There were too many organizations to interact with.

Market consolidation has changed that dynamic. As provider systems have consolidated on a local and/or regional basis, and large payers have survived at the expense of smaller health plans, critical mass is now more easily achieved. Instead of trying to collaborate with 10 health plans or 20 hospital systems, it now makes sense to focus first on the one or two largest payers and providers in each market. The potential value is directly related: Savings and decreased costs on a transaction basis are greatly magnified when the total number of transactions is high.

Cost Pressures
As medical costs continue to balloon, all segments of society clamor for more restraint in spending. Employers balk at premium rate increases and frequently increase cost sharing by their employees, and threaten to drop coverage altogether. Consumers complain about costs every time they need to pay a bill. Hospitals are faced with capital access problems and health plans are facing marketplace resistance to double-digit premium rate increases.

As public and private pressures mount for lowering costs (or at least lowering the rate of inflation), it is incumbent on all parties to pursue all available channels to achieve that end. Business collaboration is one of the most promising of those channels.

Conclusion

We have seen examples of past payer-provider collaborations that failed to achieve success. It is true that not all of them failed, and some shining examples exist even today of success stories. But in general, the history has been a bit bleak. From those experiences we have learned a great deal and can apply those lessons to future collaborations.

More importantly, we have seen that the world is a far different place today than it was even five years ago. The ability to succeed in a business-oriented collaboration is higher now than ever before simply because of new technologies and standards that increase the probability of success through better tools and techniques.

Corporate culture and imbedded ways of doing things must also be forthrightly addressed. In a successful collaboration, both parties will end up changing how they do some processes, and that’s as it should be. The ability to successfully address this issue is to try to keep the complexity of the collaboration as low as possible. Two moderate successes, one after the other, are worth a lot more than one large but poorly implemented quasi-success.