Building Successful Payer-Provider Partnerships for Cost Reduction

November 11, 2014

Hospitals and health plans need each other and can use this relationship to enable improvements that benefit both parties.

With U.S. annual healthcare spending[1] at nearly 18 percent of Gross Domestic Product and now topping $3.8 trillion, the need to reduce medical costs is critical. Many successful cost reduction strategies such as new payment and delivery models focus on hospital-physician alignment. Equally important, however, is aligning the two biggest players – hospitals and payers – in a way that facilitates better care quality and clinical outcomes at a lower cost.

While healthcare has evolved and changed, one fact remains the same: Hospitals and health plans have a symbiotic relationship. To go a step further, they need each other and can use this relationship to enable improvements that benefit both parties. Providers have access to stores of clinical patient data while payers have claims data. Combined, this information could provide an entire view of the episode of care that could be used to drive out high costs and inefficiency.

Even though this potential collaboration has enormous potential, it’s not currently being leveraged. In a survey of more than 300 healthcare executives[2], payers reported that building trust, aligning incentives and calibrating goals with providers would improve patient outcomes and position organizations for success. Moreover, two-thirds said sharing data and information across stakeholder groups is instrumental to the success of an interoperable healthcare system. Despite these perspectives, only half of payers and providers said they were willing to be transparent.

The apparent contradiction points to two underlying factors: a lack of trust resulting from years of fragmentation and a broken economic model that continues to pay for volume over value. For example, in the orthopedics department, surgeons weren’t incented to focus on cost containment strategies such as wellness programs, less invasive procedures, generic implants and interventional therapies until the passage of the Affordable Care Act. Now, however, they must respond to pressure to bring down costs without sacrificing quality. Similarly, new regulations are cutting into payers’ profit margins and compelling them to take a closer look at what they’re paying for. Historically, health plans have had little visibility into clinical quality data and outcomes; still, they’re expected to trust providers who control 85 percent of costs[3]. Not surprisingly, payers want to control more cost upfront by leveraging more proactive programs such as chronic care and readmission management.

As a result, both parties are identifying and working toward common objectives such as improved population health and reduced costs. They’re also learning to create stronger partnerships by aligning incentives around value. To help ensure success, improve trust and facilitate collaboration, payers and providers should consider the following best practices:

  • Appoint a facilitator: This role is important in helping gain buy-in around difficult decisions. This individual needs to have a high level of trust, reputation and the ability to develop consensus.
  • Receive equal incentives: Shared savings plans such as bundled payments enable everyone to receive the economic rewards that come from controlling costs and quality.
  • Develop partnerships: Design and implement a joint operating committee that brings together provider and payer leadership for strategic discussions and working sessions.
  • Work together: Healthcare stakeholders must work together to align goals that replace competing incentives with process efficiencies. Payers and providers need to invest in change management to ensure trust and cooperation. Activities that support change include setting realistic expectations, developing outcomes, aligning incentives and committing to ongoing communication and training.
  • Share information: Since both parties are working toward a shared goal of cost reduction, hospitals and payers must provide regular data and analytics to help determine the best care scenarios for patients at the appropriate costs. Sharing information fosters a commitment to continuous learning, process improvements and trust.

Through a commitment to collaboration, hospitals and payers will be able to clearly define patient care goals, how costs will be paid and the tools needed to deliver the best care. This can in turn enable true business alignment that delivers efficiency, cost reduction and most importantly, what’s best for the patient.          

Steve Lamb is vice president and lead partner of Implant Partners, a leading provider of orthopedic implants and services.

[1] Munro, Dan. “Annual U.S. Healthcare Spending Hits $3.8 Trillion.” Forbes Feb. 2, 2014. http://www.forbes.com/sites/danmunro/2014/02/02/annual-u-s-healthcare-spending-hits-3-8-trillion/

[2] “Health Care Executives Say Collaboration Improves Outcomes, But Find Success Elusive.” Quintiles. http://investors.quintiles.com/investors/press-releases/press-releases-details/2013/Health-Care-Executives-Say-Collaboration-Improves-Outcomes-But-Find-Success-Elusive/default.aspx

[3] Rizk, Emad, MD. “Three types of alignment for better payer-provider relations.” HealthLeaders. http://www.healthleadersmedia.com/HOM-233186-4625/Three-types-of-alignment-for-better-payerprovider-relations