Battlefield Health — Provider vs. Payor

In developed markets like the US where 70%+ of the population is covered by a payor (public and private). Payors and providers have a typical buyer-supplier relationship — the payor’s role is to build a network of providers that the payor’s members can use while on negotiating the lowest possible rates for services. Given the high level of concentration in the payor industry as well as the geographical distribution of market shares amongst payors for most providers, the leading one or two payors account for more than 40% of the business. Given the hefty increases in health premiums of the last decade and a half, the primary focus of payors has been on cost resulting in the usually intense annual negotiations between payors and providers regarding rates. Payor-provider battles abound and every round of annual contracting and negotiation begets its own set of issues and headlines. As mentioned payors, have traditionally been more consolidated and thus typically enjoyed bargaining power over providers while in response sophisticated providers see negotiating rates as a CEO level issue and have invested in people, process and technology to build best in class capabilities in negotiation and improve rates for services. Overall it is essentially a vendor model that often results in sub-optimal consequences for the system.

Within the GCC while a full-fledged version of the above scenario has not yet unfolded a transition to market-based health care system has sown seeds of the same. A famous news clipping in Abu Dhabi mentions that “Fourteen private hospitals have discussed a possible 40% increase in medical prices by April 1, but health insurance companies feel the figure is too high and are debating the issue” seems like a stark precursor of this phenomenon.

IMPETUS TO FOCUS ON QUALITY AND REDUCE COSTS

However over the years as in other industries, payors have realized that exclusive focus on costs through a negotiation based model and hard bargaining for the lowest rates while ignoring quality yields only that much. Poor quality has its own associated costs — indeed studies have found overuse, misuse, and waste to account for $390B to $1T in healthcare expenses in the US not to mention the estimated up to 100,000 deaths caused by medical errors in the US. Hence quality has become the next frontier in the battle on healthcare costs.

COST AND QUALITY INITIATIVES:

Payors are pursuing a variety of cost-quality initiatives through these relatively early attempts to promote greater value in care delivery while providers and regulators have promoted with supporting actions, consider the five basic pillars of each:

Payor:

1. Launching provider transparency initiatives
2. Promote cost-quality mechanisms like P4P
3. Creating centers of excellence and steering patient volume
4. Reimbursing innovative provider models on an in-network basis (network design)
5. Funding/co-funding investments in health information technology

Provider /Regulator Support:

1. Making cost and quality data available to the public
2. Multiple experiments to drive cost and quality
3. Promoting specialty carve-outs
4. Encouraging low-cost retail provider formats
5. Building regional and local medical databases and networks

However, these early efforts have had varying degrees of success to date and have failed to have the catalyzing impact on the delivery system that health plans aspire to largely due to restricted execution i.e., not scaled up ventures, and siloed/ not integrated, and efforts often aimed at the wrong level e.g., an entire hospital situation. Hence not many of these efforts have had the wide-reaching impact that they were intended to have.

BARRIERS

The underlying root-causes for the restricted implementation and hence impact of these initiatives has been a highly fragmented provider sector with multiple stakeholders and competing interests leading to:

1. Strong interest in protecting the status quo, particularly around reimbursement
2. Variations in practice patterns, with limited progress towards evidence-based medicine
3. Myriad of micro initiatives that fail to add up to much in terms of system-wide change

Providers are also reluctant to a broad change in the status quo since that involves putting reimbursements at risk. Without a change in reimbursements, any fundamental change in provider behavior is difficult. Additionally, provider cooperation is essential to ensure that industry-wide standards on the measurement of outcomes are adopted to make a payment for performance system feasible.

On the other hand from a regulatory perspective, a developed market like the US has already evolved into a fairly complex state with multiple stakeholders, industry groups and different regulatory bodies, making system-wide change difficult.

Hence even though, payors-providers realize a need to jointly focus on cost and quality, they are unable to do so due to the fragmented nature of the system, while regulators have found it difficult to legislate any such change. As a result, any major payment reform which links cost-quality has yet to take hold.

REGULATORY IMPERATIVE

In GCC countries, the provider sector is likely to get fragmented while health insurance companies are likely to be focused on basic elements of value chain like customer service and claim processing. Hence it is not difficult to imagine for the system to morph into a similar rate negotiation buyer-vendor model. However proactive actions taken by regulators could save the day. To that extent, GCC countries are in a relatively advantageous position given the embryonic stage of health insurance in these markets.

The GCC countries have worked hard and invested a lot to raise the standards and quality of healthcare systems and do not want to sacrifice that due to a focus on costs. Additionally taking a cue from other healthcare systems, regulators in the region realize the need to focus cost and quality as joint objectives. Indeed most regulators in the region have made cost and quality as cornerstones of their healthcare policies.

While this is a good start to concretize this a proactive approach by regulators is required. One which leverages the learnings of other similar healthcare systems by utilizing the constructive aspects of the payor-provider relationship to ensure that the introduction of health insurance advances the broader objective of building a healthy society and does not result in a combative relationship between payors-providers. Ensuring that the initial payment systems put into place have a quality orientation to the extent possible would go a long way in embedding a similar orientation amongst the various stakeholders in the system namely payors-providers. A key step would be to study existing P4P systems and utilize learnings from the same to define payment systems in GCC.