By Patrick Riley
Principal Analyst/Consultant Transformational Health
Frost & Sullivan



The shifting national politics in response to proposed new healthcare legislation and the continued metamorphosis of the relationship between payors and providers post the Affordable Care Act (ACA) has created a unique and symbiotic ecosystem where physicians and payors are now joined in an effort to improve the quality of medicine patients receive. This is in stark contrast to just 10 years ago when doctors made every effort to see and bill for as many as 50 patients a day to hit gross revenue targets and payors sought to grow their risk pools by pursuing large businesses (> 500 employees) capturing covered lives in the thousands as a priority, to minimize their risk. There was no communication or effort to consolidate clinical pathways or operational efficiencies between providers and the commercial and government agencies responsible for paying for care. Doctors and healthcare insurance companies were at odds as to what health benefits should be covered and what reimbursement providers should receive for attending to patients’ medical needs; creating a dysfunctional environment where all too often patients bore the ill-fated consequences of an inefficient and disconnected delivery system.

Moreover, the cost per capita for delivering care in America was the highest of any western civilized country consuming close to 12% of the gross domestic product and monthly health insurance premiums were increasing as much as 400% from year to year causing many families to have to choose between paying their mortgage or paying their health insurance premiums. And businesses were paying more for healthcare than their cost of goods, which resulted in them simply unable to pay for healthcare for their work force.

The Tipping Point

Beginning in approximately 2014 payors realized that being at odds with their provider networks had ignited a tsunami of push back from patients, politicians, and corporations alike who were all dissatisfied with their care and what it was costing them. Physicians too were becoming disillusioned with their inability to improve the health of their patients having to instead constantly deal with lower and lower reimbursement in the face of increased demands to see more patients.

What has transpired over the past 4 to 5 years has been nothing short of miraculous in terms of American ingenuity and bipartisan efforts on behalf of clinicians and payors to simply do a better job of improving the quality of care provided to patients and their care givers. But, innovation is simply not enough as only so much efficiency can be gained in medicine, so emphasis was placed on defining value for defined populations of patients. And with the emergence of value-based care, came exponential gains in providing value to patients by improving their health, preventing and/or managing chronic and degenerative diseases.

New healthcare delivery organizations began to appear such as Integrated Delivery Networks or IDNs (Intermountain, Geisinger, and Kaiser-Permanente) where the healthcare system itself enrolls its membership and focuses solely on providing the best care possible for its patients. Accountable Care Organizations or ACOs emerged as well. ACOs coordinate all elements of the healthcare paradigm (Doctors, hospitals, pharmacies, durable medical equipment, etc.) to provide the highest level of coordinated care for patients. The ACO in turn contracts with payors to provide one all-inclusive bill for healthcare provided instead of disjointed and redundant billing from doctors, hospitals, and all other care providers.

And with these innovations and pursuit of defining value across the care continuum the cost of providing care per patient began to come down, steadily. Suddenly, what seemed insurmountable for U.S. healthcare appeared doable, that is, encouraging collaboration between those parties who are designated to pay for the delivery of care and those that are empowered to provide care.

So, what defines this new ecosystem of value-based care? What has changed for providers and payors, who are the new stakeholders? The answers can be found by first understanding how we got here.

U.S. Healthcare Was Not Designed to Encourage Cooperation between Stakeholders

From its inception, U.S. healthcare has been defined socially and economically in silos. Medicare Part A, hospitals, Medicare Part B, providers. Each billed and paid for independently with the federal government as the payor. For Medicaid, we discover basically the same thing. The only difference being that the payor for Medicaid combines federal and state governments.

For the beneficiary, strict and stringent qualifications for each federal or state health benefit define eligibility without any health related assessment, such as ability to pay, or examination of critical social determinants of health (permanent residency, access to primary care, transportation, sustainable nutritious diet, etc.) or recommendation by a provider.

Beyond federal health benefit categorizations and hierarchy commercial health insurance carriers or payors created their business model by providing a defined Explanation of Healthcare Benefits or EOB to employees for a negotiated and fixed monthly premium whose cost was to be shared by employer and employee alike.

A System That Rewarded High Volume

At the onset, Medicare and commercial health insurance were paying for care on what is referred to as a fee-for-service basis. In other words, whatever healthcare services were provided, hospitalizations, x-rays, doctor visits, Medicare paid for. There was no requirement for quality of care or improved health as a precursor to payment. Nor were there any limitations to what healthcare benefits could be billed for or how frequent. As a result, hospitals and private practice physicians quickly concluded; the more patients you see or admit, the more revenue you can generate.

Perhaps, worse yet, there were no provisions to prevent redundancy. If a patient presented with chronic knee pain to a primary care physician, a series of knee radiographs is ordered. In turn, when the patient is referred to an Orthopedic Surgeon, another set of radiographs is requested even though the x-ray images taken at the request of the primary care physician suffice for proper diagnosis. Both sets of knee radiograph films are billed to Medicare.

The Center for Medicare and Medicaid Innovation

One result of the ACA not impacted by the politics of Washington was the creation and funding for The Center for Medicare and Medicaid Innovation (CMI). With universal agreement that the current volume driven healthcare delivery system needed an overhaul, CMI’s charter was to initiate as many as 10 Pilot Programs designed to look for new and innovative alternate payment methods, or APMs.

This exploratory work in reimbursement models for Medicare has resulted in a number of innovative and largely popular ideas such as bundled payments, Medicare Shared Risk, value-based care, and financial incentives for hospitals and providers to improve quality outcomes. These experiments are designed to ease the economic burden for payors and replace volume with value driven patient care with financial incentives for achieving better quality of care.

Quality of Care Takes Center Stage

In 2008, Dr. Donald Berwick along with two colleagues published an obscure article in Health Affairs entitled; The Triple Aim: Care, Health, and Cost. In this publication Berwick explains that by continually driving down reimbursement to hospitals and providers in an effort to curtail healthcare costs, The Centers for Medicare and Medicaid Services (CMS) were actually negatively impacting the quality of care delivered in the U.S. and simultaneously driving up healthcare costs.

This phenomenon also impacted payors inversely as well. Any degradation of quality of care increases the cost of healthcare in real-time; such as redundant surgeries, readmission for same diagnoses, extended recovery time, additional inpatient days, etc., all contributing to cost increases for providing care which confound payors resulting in higher monthly premiums for health insurance.

The Emergence of a Payor – Provider Ecosystem

With emphasis now placed on value-based care and financial incentives to reward better quality of care across the care continuum, providers and payors find and enjoy commonality of purpose and operations. Whole processes and standards of care are being rewritten to eliminate redundancy, cost over runs, improve patient satisfaction, and allow patients to recover and manage their chronic conditions at home rather than a hospital bed. Whole populations improve their overall health, while costs go down, and large health systems, their payors and providers operate and practice as one.

New and innovative efforts by non-traditional healthcare players such as the Amazon, JP Morgan Chase, and Berkshire-Hathaway joint venture to improve how Americans purchase and receive healthcare are all clear indicators that a new payor-provider environment that attracts investors and promises to transform cultural perceptions is in place to stay.

The winner in all of this evolution is the patient. The final element of a three phased clinical and economic ecosystem; to improve quality outcomes, enable better health for all Americans, and lower costs per patient. With payors now working seamlessly with physicians in every aspect of delivering care to patients, the U.S. healthcare delivery system has evolved to provide the highest quality of care possible (Value based care) rather than focus on seeing and admitting as many patients as possible (Volume based care).

Patrick E. Riley, M.B.A., M.H.A., C.H.E, is a Principal Analyst/Consultant Transformational Health, at Frost & Sullivan in San Antonio, Texas. In this role he is dedicated to providing actionable results for clients to achieve excellence in an era of constant political and technology-driven change. As a part of Frost & Sullivan’s Transformational Health team, he provides in depth analysis of emerging trends in advanced medical technology innovation and authors market insights and reports.

Patrick has over 30 years of healthcare industry experience including expertise in U.S. healthcare policy and transformational health regulations and legislation. He has held C-Suite positions in several leading for profit U.S. hospital firms including Vanguard Health System, Nashville, Tennessee, Valley Baptist Health System, Harlingen, Texas and Trinity-Mother Frances Health System, Tyler, Texas.

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