Payor-Provider Convergence: Designing High-Impact …...Payor-Provider Convergence Designing...

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Payor-Provider Convergence: Designing High-Impact Partnerships

Authors: Tej Shah, Rafael Viturro, Chetan Mahajan & Nick Herro

The traditional view of the transactional relationship between health plans and health systems is evolving as the two increasingly align to deliver the Quadruple Aim of higher quality, lower costs, and improved consumer and physician experiences. A variety of payor-provider partnership models have been forged – ranging from value-based contractual arrangements to joint venture products and health plans. However, concerns exist as to whether these partnership models are truly effective at providing integrated care solutions, primarily due to two interrelated factors:

• Many of the new partnership-based products are not sufficiently differentiated to attract a large base of members, and

• Providers and payors have been reluctant to deploy products and services that are disruptive to their core fee-for-service businesses.

As a result, many of these partnerships have been treated as pilots rather than positioned as long-term strategic opportunities.

Recently, payors and providers have been motivated to re-examine their market positions and strategies as collaborations by large companies are transforming health care industry dynamics; examples include Aetna-CVS, Cigna-Express Scripts, Amazon-JPMorgan-Berkshire Hathaway and Advocate Health Care-Aurora Health Care. Payor-provider partnerships formed with the appropriate long-term perspective and strategic vision can yield significant and durable strategic value; these partnerships can withstand and, in some cases, spark market changes that allow organizations to successfully pursue new business model innovation. Specifically, there exists a “Zone of Convergence,” in which achieving sufficient financial alignment through an integrated product or joint venture has the greatest likelihood to yield substantial value. Below we share key learnings from our work advising payors and providers exploring and entering into partnerships as well as interviews with leaders from established payor-provider ventures.

P A Y O R - P R O V I D E R C O N V E R G E N C E :

Designing High-Impact Partnerships


The Zone of Convergence is defined by payor-provider partnerships that include integrated product offerings and joint ventures.

Shared savings and upside/downside risk models that

incentivize better care outcomes and lower costs

Provider-owned and aligned health plan assets – either acquired or built de novo

LOWER HIGHER

DEGREE OF PAYOR-PROVIDER INTEGRATION

ZONE OF CONVERGENCEVALUE-BASED

REIMBURSEMENT MODELS

PROVIDER-SPONSORED PLANS

Joint & Integrated Products

Joint Ventures

Partnerships residing at opposite ends of the spectrum may be worthwhile for some organizations; however, both demonstrate specific challenges.

Value-Based Reimbursement Models exist to align payors and providers around a common set of quality and cost-management goals, but are typically transactional in nature. Although these arrangements serve as a helpful starting point for payors and providers they do not present opportunities for true alignment or depth of incentives. For example, shared savings models have not consistently demonstrated upside financial returns for providers. Another subtype, upside-downside risk models, are often capped to prevent care providers from accepting too much risk and often fall short of generating a meaningful level of alignment. These types of models, while common, do not create the deep financial and operational connections that are required to truly deliver on the goal of reducing costs and improving outcomes.

Provider-Sponsored Plans are either built de novo by providers or created through the acquisition of existing health plan assets. Of the 34 provider-sponsored health plans that have launched since 2016, 31 remain unprofitable and 30 have fewer than 50,000 members.1 For providers who purchased health plans, many have struggled to demonstrate added value and have not been able to create a differentiated product and operating model to scale covered lives. In addition, the health plan is often treated as a separate business with limited operational integration across the plan and health system, constraining the potential synergies. For systems that have sought to build a health plan, the required shift in mindset and infrastructure, including workforce and risk-based capital, has been difficult to achieve. In both cases, providers must develop a new set of strategic relationships with brokers, consultants and employers, which can take some time.


Emerging signs indicate that integrated joint product partnerships and joint ventures in the Zone of Convergence may provide compelling mechanisms for payors and providers to successfully partner and differentiate themselves to succeed where value-based reimbursement models and provider-sponsored plans have not. These models are experiencing an uptick in market activity, with over 200 joint product offerings2 and 15 joint ventures3 launched since 2013. We evaluated the performance of and interviewed leaders at a select group of partnerships in this Zone of Convergence to understand factors contributing to their success in both forming and operationalizing their ventures.

REQU IREMENTSfor successful partnership deployment

Create a Unique Value Proposition

Scale the Business Quickly

Find Strategic Alignment

Commit to the Partnership and

to Execution

Payor and provider executives contemplating integrated product partnerships and joint ventures should consider the following

requirements for successful partnership deployment:


Zone of Convergence leaders highlight the importance of developing a value proposition that is differentiated in their local market for members and patients. Product partnership launches often include an initial unit price cut to the provider’s current rates for a specific product coupled with a narrowing of the network to benefit the provider. While often a necessary first step to convert members from existing products, it is independently insufficient. Payor-provider partners should advance quickly to developing products that feature unique offerings that they alone can deploy, such as same-day scheduling, targeted provider-led member engagement, member-oriented clinical and claims-based data analytics, and concierge-like navigation and appointment services. Ultimately, a unique experience built around services and care access unavailable through traditional product options must be delivered to consumers to capture their attention and maintain their loyalty.

We’re building wraparound services, such as navigation support and transportation to and from appointments, to make the experience in our joint product feel different from what a consumer gets in an open network product.

– Niyum Gandhi, Chief Population Health Officer, Mount Sinai Health System

Create a Unique Value Proposition


Find Strategic Alignment

A successful partnership starts by finding the right partner. Zone of Convergence leaders state that it is critical for both parties to gain and sustain alignment around a shared strategic rationale, and to do so over an extended time horizon. Examples of these rationales include taking an offensive position against a market leading payor; a defensive position against potential market entrants, such as an insurgent payor or provider; or creating an opportunity to participate in a new line of business. As a signal of the strength of the rationale, these partners are willing to pursue a deeper relationship with a single partner at the risk of upsetting their relationships with other payors or providers in their market, even if only in a single line of business, such as Medicare Advantage. Another feature that characterizes these partnerships is a rich history of collaboration; leaders describe relationships developed over many years of working together on value-based arrangements as a catalyst to the decision to make a deeper commitment. Lastly, as a distinct area of alignment that has captured the attention of payor and provider executives, these partnership models enable both organizations to leverage existing, complementary strengths and avoid upfront investment in potentially duplicative capabilities and expertise. Accordingly, most leaders cite the opportunity to avoid operational costs and reduce administrative burdens related to health plan infrastructure as an important near-term win for each partner.

We have always said that the opportunity to change healthcare for the better in Louisiana

would be for the two largest players in the market, BCBS Louisiana and Ochsner, to work

together on creating a better model and that’s what we’re doing.– Brian Keller, Chief Marketing Officer, BCBSLA

Local and national market conditions were key factors in coming together as a payor-provider

partnership. Providers were increasingly getting into the insurance space to support new

payment and delivery models; payors were looking for ways to contain costs through closer

alignment with care delivery. We wanted to see if we could work in collaboration on benefit

design, an enhanced care coordination model, and rich analytics through shared data that

would reduce costs and improve quality. Ultimately, we want to provide competitively-priced

products in the market that are sustainable for all stakeholders.– Roland Lamy, Benevera, Board Chair


Commit to the Partnership and

to Execution

The engagement of senior leaders, most importantly CEOs, is an imperative for success as it ensures that these ventures are given a favorable position in each organization’s strategic portfolio. Partnership leaders cite weekly or monthly meetings between senior executives as an important sign of commitment by each organization. These regular interactions also become a channel for continued discussions regarding strategic partnership growth and development. Leaders also stress the importance of partnership structure; by creating substantive disincentives and costs to unwinding the partnership, leaders acknowledge that there is no choice but to find a way to work together to create success after consummation. This requires alignment around key areas, including agreement on an extended timeline for partnership maturation and division of operational decisions, roles and responsibilities. It is also important to balance opportunities for collaboration (e.g., for product design, sales and marketing) with the need for independence to allow each organization’s expertise to drive performance (e.g., payors being responsible for actuarial analyses and providers being responsible for care management).

This isn’t just a pilot. We hope our competitors react to this. We know we are taking margin

from them. It’s making it harder for them to compete.– Joint Venture Executive (confidential)

We’re looking at these products as a gateway to open broader strategic discussions. Our CEOs

now speak on a weekly basis and often the discussion is about opportunities beyond the current

product partnership.– Brian Keller, Chief Marketing Officer, BCBSLA


Scale the Business Quickly

Given the difficulty of sustaining these partnerships in the face of initial investment and transaction costs, leaders identify the need to drive membership into the joint venture immediately as an important driver of sustainability. The most common method for scaling in commercial product markets is to place the payor’s and provider’s employee health plan lives into the venture. Doing so demonstrates to the market that the sponsor organizations believe in the product’s ability to achieve differentiated results for their own beneficiaries. As previously described, this also gives the venture credibility within each partner’s organization by signaling commitment. Another path to scaling lives requires the joint venture to purchase existing health plan membership for the line of business relevant to the partnership. Both this and putting employee health plan lives into the joint venture product allow for leaders to enter the market with a credible business development story. Ultimately, creating scale in the early years of the partnership triggers operational teams from both organizations to begin working together immediately to capitalize on their collective strengths and to define and demonstrate their unique value proposition.

There are challenges to having providers understand insurance and challenges having payors

understand providers, but over time, we are building the joint knowledge base to effectively

work together. It has taken time to build the scale necessary in the insurance market and

we’re now able to jointly make choices around financially viable market segments to sustain

the business of both payor and provider. We are learning from one another and through our

analytics on how to improve the quality and efficiency of care delivered to patients.

– Roland Lamy, Board Chair, Benevera

The [JV] is a strategic asset. We should be able to take that construct to other lines of businesss. – Joint Venture Executive (confidential)


ConclusionPayors and providers are increasingly challenged to respond to the accelerating pace of national and local partnership activity. Organizations contemplating payor-provider partnerships should consider initial objectives as well as ensure that relationships are forged with a focus on long-term growth. Partnership models that lie within the Zone of Convergence are best positioned to drive the alignment necessary to yield significant and lasting strategic value.

Payor and provider organizations contemplating deeper relationships should begin by considering the following questions:

Is your market demanding a value proposition that differs significantly from that currently offered through value-based reimbursement models?

Are you willing to commit the senior executive-level time, capital and long-term view of success required to enable a partnership to reach maturity?

With whom in your payor or provider portfolio are you most effectively aligned? Who offers the best cultural fit? Who demonstrates performance consistent with your objectives? Who defines the competitive landscape the same way that you do?

How would you develop a differentiated offering and potentially disrupt your core business strategy across various domains?

Are you willing to contribute membership to help a partnership scale quickly (e.g., employee health plan lives)?

What would be your strategic rationale and purpose for entering a partnership?

How are your major competitors shifting to value-based care arrangements?


Sources 1 Baumgarten, A. “Analysis of Integrated Delivery Systems and New Provider-Sponsored Health Plans.” Robert Wood

Johnson Foundation. June 1, 2017. 2 http://health.oliverwyman.com/transform-care/2018/05/analysis_payers_and.html 3 Joint venture press releases


About the Authors

Tej [email protected]

Tej Shah is a Principal with The Chartis Group with more than 18 years of experience as a healthcare executive and in management consulting. Mr. Shah advises regional and national health plans, hospitals and providers on population health management strategies, programs and capabilities. His areas of focus include: developing go-to-market products, clinical models, reimbursement and payment strategies, formal and informal alliances, mergers and acquisitions, strategic planning, customer experience approaches, and innovative care and payment solutions.

Rafael ViturroAssociate Principal585.330.4929 [email protected]

Rafael Viturro is an Associate Principal with The Chartis Group with more than 10 years of experience working in healthcare management consulting and public policy. Mr. Viturro is a leader in the firm’s value-based care practice and has advised major health plans, health systems and pharmacy benefit managers on strategic and value-based care arrangement planning, ACO and CIN design and development, and mergers and acquisitions.

Chetan MahajanEnagement [email protected]

Chetan Mahajan is an Engagement Manager with The Chartis Group with nine years of experience in the healthcare space. Mr. Mahajan has been an advisor to leading academic medical centers, children’s hospitals, integrated health systems, community hospitals, and payor organizations. His consulting experience at Chartis spans areas of: enterprise strategic planning, physician group and ambulatory care strategic planning, service line growth strategy, strategic due diligence for hospital and medical group acquisitions, value-based care products strategy and statewide CIN development.

Nick [email protected]

Nick Herro is an Consultant at The Chartis Group. He has over seven years of management consulting experience working with healthcare organizations. He has advised some of the nation’s leading health plans and health systems on a range of strategic matters from enterprise strategic planning, product development, service line growth strategies, payor strategy, mergers and acquisitions, and value-based payment models.

© 2018 The Chartis Group, LLC. All rights reserved. This content draws on the research and experience of Chartis consultants and other sources. It is for general information purposes only and should not be used as a substitute for consultation with professional advisors.

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About The Chartis Group

The Chartis Group® (Chartis) provides comprehensive advisory services and analytics to the healthcare industry. With an unparalleled depth of expertise in strategic planning, performance excellence, informatics and technology, and health analytics, Chartis helps leading academic medical centers, integrated delivery networks, children’s hospitals and healthcare service organizations achieve transformative results. Chartis has offices in Atlanta, Boston, Chicago, New York, Minneapolis and San Francisco. For more information, visit www.chartis.com.

Payor-Provider Convergence: Designing High-Impact …...Payor-Provider Convergence Designing...

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