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“One Foot in the Boat, One Foot on the Dock”: Providers and Payers Forge a New Social Contract into Value-Based Healthcare

September 26, 2017
by Mark Hagland
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This summer, with so much public and media attention focused on congressional conflict over whether to repeal and replace all or parts of the insurance-related components of the Affordable Care Act (ACA), the unobservant might be forgiven for not realizing that the landscape on the ground within the healthcare industry had already shifted irrevocably. For all the conflict over the ACA’s insurance provisions, few mainstream media outlets noted the unanimity on both sides of the aisle in the U.S. Congress over retaining the aspects of the law that are commonly referred to as its “internal health system reform” elements.

What’s more, within the executive branch of the federal government, at the highest levels of the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS), there is policy unanimity on the desire for internal health system reform to proceed ahead. Secretary of Health and Human Services Tom Price, M.D., a former practicing orthopedist and former Republican congressman from Georgia, and CMS Administrator Seema Verma, have both reaffirmed in broad terms their support for accountable care organization (ACO) development, voluntary bundled-payment programs (though not mandatory ones), and the value-based purchasing program for hospitals sponsored by the Medicare program, under the ACA. They have also left in place the Centers for Medicare and Medicaid Innovation (CMMI), a division within CMS that has been acting as a facilitator of payment reform experimentation.

Meanwhile, things are, if anything, moving even faster on the private health insurance side. While Medicare’s various ACO programs continue to expand gradually, many private health insurers are moving very quickly to try to encourage forward physician groups, hospitals, and health systems to enter into risk-bearing contracts with them. And while only a small minority of patient care organizations have yet entered into contracts that involve any downside risk, the day when significant numbers do so is coming faster than many might have predicted.

At base, all of this is being driven by financial and demographic factors that loom large over all of U.S. healthcare. Back in February, the Medicare program’s actuaries once again reaffirmed projections that they had made in 2016 that envision an explosion of U.S. healthcare system costs. In February, the Medicare actuaries predicted that total annual U.S. healthcare system spending would go from $3.358 trillion in 2016 to $5.548 trillion in 2025, with the percentage of the gross domestic product (GDP) spent on healthcare rising to 19.9 percent by 2025. That projection of an astonishing 60-percent increase in total national healthcare spending within the next nine years is itself the product of projections around the aging of the U.S. population and the accelerating explosion in chronic illness among Americans.

So where does this leave payers and providers? Scrambling to build new contracts, new ways of caring for patients/plan members, and new information technology platforms and other foundations, to facilitate the new healthcare.

Don Crane

“The bus is moving down the road, and at some rate of speed,” says Don Crane, president and CEO ofthe Los Angeles-based CAPG, which describes itself on its website as “the leading association in the country representing physician organizations practicing capitated, coordinated care,” with “close to 300 multispecialty medical groups and independent practice associations (IPAs) across 44 states, the District of Columbia, and Puerto Rico.” “It naturally got its start with the ACA, with its provisions related to ACOs and PCMHs,” Crane says, referring to patient-centered medical homes, “but also got a huge boost with the implementation of the MACRA [Medicare Access and CHIP Reauthorization Act of 2015] law, which is not being challenged. And that tailwind continues to be strong. Likewise, the private market is demanding greater value—employer coalitions, health plans, are all demanding it. And performance measurement and quality measurement programs are moving forward as never before. And there’s a more sophisticated approach now at looking at the total cost of care. So the train is not being slowed. And the reason it’s going to continue to gain momentum, is that it’s the best strategy.”

A New Social Contract

At base, something is happening now that really is unprecedented: health insurers and providers are coming together and genuinely collaborating. In the “managed care 1.0” of the 1990s and 2000s, the “social contract” around managed care involved a fundamentally adversarial relationship between health insurers and providers, with health plans trying to hold down costs by restricting and attempting to control utilization on the part of plan members/patients, and often denying claims or delaying payment. For their part, providers—particularly physicians, but also in some contexts, hospitals—constantly played a game of “utilization chicken,” finding ways to get around health plan restrictions. Instead, now, real collaboration is possible, as health plans and providers literally share financial risk for outcomes, and move forward under the banner of population health management and care management.

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