Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of the company. AHP accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided unless that information is subsequently confirmed in writing.
Anytime Amazon enters a new marketplace they make waves. Their recent acquisition of Whole Foods shocked the grocery industry and now Amazon has announced plans to join with Berkshire and JPMorgan to create a Health Benefits and Delivery Alliance. As expected, this created much furor and debate about how this will disrupt and reshape the healthcare industry. As healthcare actuaries with a deep understanding of the complex healthcare system, we recently sat down to discuss how this alliance might work and what innovations they could introduce. We identified five key areas for discussion: Network creation, Analytics, Process/Efficiency, Price Transparency and Lifestyle/Wellness.
How Would the Alliance Establish Networks for such a Geographically wide Group?
David Axene: The solution to our healthcare problem requires a fresh perspective, not an inbred one from the healthcare industry. This group has a chance to do that!
I believe one of the key issues is the appropriate matching of supply with demand for healthcare services. Kaiser has perfected this, while most others haven’t. Kaiser’s approach has been a narrow network which oftentimes in the market comes with negative connotations and an inadequate explanation of the realities of the importance of matched supply.
Tim Smith: The math can make a lot of sense in regions where these 3 employers have scale (lots of employees), and can align with great health systems at discounted rates. Are they willing to narrow their network in order to get discounted rates? Maybe.
Where the math has trouble making sense is in outer regions without significant numbers of employees. It would be very expensive to build networks in these regions, and they would not have any leverage to get good provider deals. So, they will likely have to rent an existing network.
The big question is whether or not the United’s, Aetna’s and Blues will rent their existing networks to these guys? Maybe, but I doubt it. They will likely end up with a rental network and significantly higher costs in these outer regions. If these outer regions make up 20% of employees at 20% higher costs, they need to find 4% savings somewhere else.
John Price: Developing regional networks to span the continuum of care in our fragmented health care communities is an area of much needed innovation in my opinion. Most health care providers are not sufficiently connected to other providers in the health care community. They do not have the comprehensive information needed to monitor, identify actionable changes, and respond easily to the challenges of improving overall efficiency and clinical outcomes. This is an area where vertically integrated health care systems are by the nature of their business model able to keep the key players in health care, including patients, connected with needed information and appropriate incentives.
There is a commonly recognized management precept that “If you can’t measure it, you can’t manage it”. The “it” in this case is a fragmented health care community. An example of a successful effort in this area would allow health care providers to see how, when and where they contributed to their patients’ care processes, costs, and how they compare to their peers under similar conditions.
How Could Amazon Leverage their Analytic Prowess?
Tim Smith: Many articles reference Amazon’s analytical capabilities and their ability to identify the best docs who manage chronic conditions the best. This is great, and I would argue many in the industry can already analyze this.
A question they will face is – Are they willing to make their employees who have below-average docs switch to the above-average docs? People like their below-average docs! What if the great health system they have partnered with has both above-average and below-average docs? Will the system allow them to carve up their network? Not likely.
Joan Barrett: Right now, everyone is talking about predictive analytics. To some extent, this is a good thing. Some analytical techniques, like artificial intelligence and cluster analysis, reveal patterns that may not have been recognized using more traditional techniques. The problem is, what happens once those patterns are identified? As an extreme example, in the Amazon world, you could conceivably have a system blindly generate a message like “people who had an MRI also had knee surgery.” There is still lots of work to be done to determine how to incorporate predictive analytics into clinical decisions and in financial analyses like pricing and ROI determinations.
John Price: My view of the challenge is that whatever processes and analytic tools are made available to patients is a smaller part of the task. The larger issue to me is to find ways that promote physician (and patient) awareness of the more efficient ways to manage specific diseases and chronic conditions at lower unit costs. I think much has been learned about best and efficient care in somewhat isolated pockets of the health care system. They may exist more often in vertically integrated health care systems when physicians and administrators have focused together on the challenges of managing specific diseases, armed with the right incentives and information.
It seems to me that finding ways to get the right incentives and information in place regionally with key health care decision makers is a step in driving a sustainable process to improve care efficiently. To the extent that those three organizations, and any others who join them, can help identify and drive regional processes of improvement, some sustainable successes could result.
Can the Alliance use this Opportunity for Process/Efficiency Improvements?
John Price: If those companies focus only on the providers who are currently more efficient, they will overwhelm that subset of providers if they are successful in sending patients to them. That does not do much more than send a message to the less efficient providers with no constructive plan to help them improve the processes of a fragmented health care system. For me the key is to drive community wide processes of information and incentives for improvement. From my experience I believe most physicians support clinically well-founded initiatives for improvement, given a productive environment in which to respond. Physicians are the highest impact decision makers on a daily basis. Building an effective environment on a community wide basis is the larger challenge and holds an opportunity for greater success in making effective health care more efficient.
Joan Barrett: I agree with John. The alliance community needs to focus on the provider community if they want to drive material process and efficiency improvements. For most large companies, only about 5% to 10% of total spend goes towards administrative functions like billing, eligibility and claims payments. Although the alliance may be able to drive some administrative savings, there could be a significant risk of losing economies of scale.
Is There a Chance this could Lead To Greater Price Transparency?
Joan Barrett: This question brought back memories of the 2014 discussions on reference-based pricing. Basically, under this type of arrangement, the plan sets reimbursement caps on so-called shoppable services. For example, if the plan set a limit of $100 for an MRI, then the patient would be expected to shop around for a provider who would do the MRI for $100 or less. If they used a provider who charged more than $100, then the patient paid the difference. This may work well for procedures like MRIs that are complete in a single day, but it does not work as well on more complicated procedures like knee surgery, that involve multiple providers over a long period of time.
One more thought. If prices are capped on shoppable services, then a provider may increase the price on non-shoppable services to offset the loss of income.
Tim Smith: My hope is that this could be a path to opening the world to price transparency in a way that is simple for consumers to understand. I have heard arguments from economists that improved transparency can cause prices to increase. I’m not sure I buy this and hopefully improved transparency would lead to hospitals realizing they need to become more efficient to compete.
David Axene: Standardized pricing of some kind will be key, more so than transparency. What is a fair price for procedure X or visit Y or Surgery Z? What is a fair price for specific types of hospital stays? I still firmly believe that all payers pricing has great advantages (i.e., everyone pays the same price whether commercial, Medicare or Medicaid). There will be a differentiation between services the patient can control and is willing to control vs. the catastrophic services no one can anticipate.
Can The Alliance Control Healthcare costs by Addressing Lifestyle/Wellness Issues?
Dennis Hulet: Consumer/patient behavior is an important key in overall health system cost. Lifestyle improvements help lower cost, being value-conscious helps minimize waste and compliance with treatment protocols reduces some disease progression and the need for continued and follow-up care (reduced trips to the ER, as an example). Since financial incentives impact behavior (although the impact may be minor in some cases), one of the proposals I have made is to link the level of cost-sharing with on-going compliance of treatment and/or drug regiments. For example, coinsurance, copays and deductibles could be reduced over time for patients who stay current with prescribed Rx, follow-up visits, labs, etc. Initial year would be unchanged but compliant patients in the second year would be responsible for only 75% of the plan cost-sharing, two consecutive years of compliance would lead to a reduction to 50% for year three, etc. – “vanishing cost-sharing”.
Provider behavior also requires improvement. Many initiatives have been tried with some successes. The overriding concept of practice guidelines was that treatment plans could be standardized for many patients and used as a baseline for care then supplemented as medically-appropriate based on the treating physician’s judgement and medical training.
Elaine Corrough: Another potential initiative would be to foster community health initiatives in those areas where they have significant employee populations. One of the constraints for employers has been the ability to reach spouses and dependents and those spouses are expensive. Presumably they’ll be looking beyond health care coverage to employee/family wellness and overall population management.
A focus on wellness and health prevention will be key as will care management. Care management is crucial to holding the providers accountable via medical oversight.
Joan Barrett: This is true and of particular note is the obesity rate for the U.S. is about double that of comparable countries.
David Axene: A focus on wellness and health prevention will be key as will care management. Care management is crucial to holding the providers accountable via medical oversight.
Any Final Thoughts?
Joan Barrett: I doubt that employers can make a big difference on their own. Admin expenses are part of the problem and there are lots of different reporting systems requiring difficult and complex reporting. The AHA published a report detailing the number and complexity of regulations. They have called for consolidation/streamlining of regulations and more realistic implementation timelines.
Dennis Hulet: My reaction to the Amazon+ initiative is that if done well, there is savings and health improvement possible but the track record for multiple site systems is not good. Small localized systems seem to be better able to motivate patient and provider behavior changes that lead to improved efficiency and health status improvement.
I commend the Amazon+ group for launching their effort. Only time will tell whether it leads to anything new and innovative.
Conclusion
Axene Health Partners, LLC (AHP) actively consults in these areas and is positioned to help your organization improve its market position in light of the emerging changes in the marketplace. Our multi-disciplinary approach (actuarial, clinical and IT) can provide effective solutions to the challenges your organization faces. Some of the areas we can provide strategic help are:
- Assessing and measuring network and provider performance and comparison to best in class practice
- Market-based comparisons of network and provider prices
- Resource planning and right sizing of provider networks
- Developing healthcare analytics and assessing current analytic processes
- Integration of care management practices, plan design and provider incentive plans
- Building efficient data repositories for comprehensive analyses (i.e., data warehouses and data lakes)
- Design and assessment of wellness programs and their effectiveness
- Strategic design of health care benefit plans
- Use of “big data” to better understand patient behavior
For more information about how we can help your organization please contact info@axenehp.com.