Suzanne F. Delbanco is the executive director of Catalyst for Payment Reform (CPR), an independent, non-profit corporation working to catalyze employers, public purchasers, and others to implement strategies that produce higher-value healthcare and improve the functioning of the healthcare marketplace. In addition to her duties at CPR, Suzanne serves on the advisory board of the Blue Cross Blue Shield Institute. Previously, Suzanne was the founding CEO of The Leapfrog Group. She holds a PhD in Public Policy from the Goldman School of Public Policy and a MPH from the School of Public Health at the University of California, Berkeley.
This article is co-written by Suzanne Delbanco, PhD, MPH, executive director, Andréa Caballero, MPA, program director, and Julianne McGarry, MPP, director of projects and research, for Catalyst for Payment Reform, and Robert S. Galvin, MD, chief executive officer, Equity Healthcare, LLC.
The relationship between health plans and self-funded employers is on increasingly shaky ground. Almost every employer relies on health plans to pay doctors, hospitals, and pharmacies for the health care services their employees and families use; since the 1980s, employers and other health care purchasers have entrusted insurers to manage these expenditures wisely.
To this end, health plans have exercised utilization review, network contracting strategies, and condition management programs in their stewardship efforts.
Their success is questionable at best. The Milliman Medical Index, which measures the cost of health care, found that in 2020 the cost for a family of 4 in a preferred provider organization was $28,653, an increase of 235% since Milliman began tracking in 2005.
According to a PwC report, “…employer health spending has grown from 6% of total wages in 1988 to more than 12% in 2018." And while the COVID-19 pandemic may lower health care spending in the short run, purchasers will inevitably find themselves in the same boat once utilization again approaches normal levels.1,2
It’s no surprise that employers are frustrated with health plans. Over the past 2 decades, employers have been looking for intermediaries who can ensure that plan members are directed to the highest quality, most cost-effective providers. Entrepreneurial start-up vendors have built an entire shadow industry of solutions designed to lower the cost of health care.
Many of these solutions act as an “end run” around the supply side of the health care economy (ie, providers and health plans) carving out particular care delivery, administrative, and support services with a promise of superior access, efficiency, affordability, and patient experience.
So, given the state of the marketplace—ever-rising health care costs and a burgeoning supply of health plan substitutions—we at Catalyst for Payment Reform (CPR) were curious: what are health plans doing to combat cost escalation? What is their answer to the new market entrants who claim better outcomes at lower cost?
To answer these questions, CPR interviewed 7 national and regional health plan executives to understand how their organizations intend to improve health care value for their customers and members, and to probe their stances on the recent entry of noncarrier third-party administrator (TPA) vendors into the marketplace. We learned that health plans’ strategy for improving affordability revolves around network and benefit design strategies that drive members to providers in 2-sided risk contracts.
Regarding health plans’ response to new vendor entrants, we found a range of reactions: Some health plans view these vendors as competitive threats and strive to lock them out of the market, while others take a more collaborative stance and are open to partnership.
Health Plans Are Betting on High-Performance Networks Anchored in Value-Based Care—but Challenges Remain
In theory, health plans deliver greater affordability by aggregating member volume as leverage for discounted prices from providers. But in reality, provider consolidation—which occurs when 2 health systems merge or when health systems purchase physician practices—has tilted market power so strongly in favor of providers that health plans have all but lost the ability to negotiate on price in many US markets.
With price negotiations at a stalemate, the remaining bargaining chip for health plans is contracting strategies that reward improved efficiency and discourage avoidable utilization, such as shared savings arrangements, bundled payment, partial and full capitation. Health plans’ future strategies hinge on combining alternative payment models with narrow network products; this path to greater value is predicated on the following assumptions:
There are 3 potential problems with this strategy. The first bet—that efficiency will improve under downside risk—does not necessarily bear out. Instead, Centers for Medicare and Medicaid Innovation’s (CMMI) evaluation of the Medicare Shared Savings Program (MSSP) found that longevity in the MSSP program is a better predictor of success than downside risk.3
The second bet—that providers will accept deeper discounts in exchange for volume—will only benefit providers if patients are willing to change providers to lower their premiums.
The third problem may be the most challenging. Health plans risk alienating providers by excluding them from high-performance networks. In some markets, powerful providers have contract clauses that require them to be included in all networks, and in the top tier of tiered networks.
Will Health Plans Partner or Protest New Market Entrants? It Depends
Given that health plans, collectively, have not succeeded in stemming health care cost inflation, some purchasers are abandoning health plan models and substituting vendors who can replace the health plan in whole or in part. When purchasers individually or collectively carve out services to “point solution” vendors or alternative TPAs, it is natural for health plans to feel threatened.
After all, as the original TPA, health plans lose revenue for every ancillary service or service line delegated to another entity. Moreover, partnering with a constellation of vendors in configurations that vary across purchasers can create operational challenges for both the health plan and potentially for providers (or so some health plans claim).
Finally, health plans are wary of sharing their data with external vendors, out of concern that their proprietary approaches maybe come public, or that vendors will leverage health plan data to bolster their own revenue.
Yet, despite the obvious pitfalls, CPR found a spectrum of attitudes and approaches from health plans regarding their willingness to partner with external vendors. Some health plan representatives told us that their core business model and capabilities revolve around paying medical claims; consequently, they welcome any vendor partner who improves care efficiency, outcomes, or experience.
Other health plans take a more adversarial approach, resisting requests to partner with "point solution” vendors and instead, attempting to assemble any comparable services internally. Finally, some health plans have pursued a middle path, agreeing to partner with a limited list of vendors. Knowing a health plan’s stance is critical for any purchaser searching for greater value through an external health care vendor.
Change Won’t Come Without Purchaser Engagement
Despite differences in their approaches to third-party vendors, health plans were unanimous on this point: purchasers may ask for narrower networks, but then neglect to follow through. They either decline to opt into narrowed networks or decline to implement benefit design changes that will incentivize plan participants to switch from low-value to high-value providers.
Every health plan CPR interviewed emphasized that their ability to develop curated network strategies hinges on purchasers’ willingness to adopt and advocate for them.
So, here’s the takeaway: if purchasers want solutions to rebalance market power and improve healthcare value, they won’t succeed through passivity. For health plan network and payment models to be effective, purchasers must be willing to implement benefit designs that reward plan members who choose high-value providers and educate plan members about how these incentives work.
If purchasers want solutions outside of traditional health plans, they will need to conduct diligent research not only on an alternative program’s effectiveness, but also on their health plan’s willingness to share data, collaborate, and coordinate care with external vendors to the extent necessary.
There are no guarantees except for this: every system is perfectly designed to achieve the results that it gets. If purchasers want to see change in the health care market, they must take active ownership over their health care strategy; otherwise, the status quo of rising costs without accountability for outcomes is unavoidable.
1. Cox C, Amin K, Kamal R. How have healthcare utilization and spending changed so far during the coronavirus pandemic? Peterson-KFF Health System Tracker website. Published online March 22, 2021. Accessed May 13, 2021. https://www.healthsystemtracker.org/chart-collection/how-have-healthcare-utilization-and-spending-changed-so-far-during-the-coronavirus-pandemic/
2. Resnick, LR. Trends relevant in healthcare before COVID-19 will remain so after. Managed Healthcare Executive website. Published online April 21, 2020. Accessed May 13, 2021. https://www.managedhealthcareexecutive.com/view/trends-relevant-healthcare-covid-19-will-remain-so-after
3. Feore J, Sullivan G. Experienced medicare accountable care organizations generate savings. Avalere website. Published online September 18, 2018. Accessed May 13, 2021. https://avalere.com/press-releases/medicare-accountable-care-organizations-generate-savings-as-experience-grows