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What will be the impact and implications of an increasing number of health plan and local health system product joint ventures around the country?"
 
Mark Lutes
 Mark Lutes

Mark Lutes
Chairman
Epstein Becker & Green, P.C.
  Payor provider joint ventures have had a long history. They arise out of a natural impulse to marry the skill sets of the joint venturers. I worked on a series of them as early as the 1980s. While the plans in many cases survived, they did not persist as joint ventures at the equity level. For that reason, as some identified in this piece, lawyers will always spend much of their planning and drafting work around exit contingencies.

As with other joint ventures, the payor/provider variety must weather the vicissitudes of each of the joint venturer’s capital budgets and strategic goals. The revenue of the provider participant, and the specialist physicians in the community, likely remains volume based. The care management aspirations of the venture carry that burden. Moreover, it is likely that the co-venturers may differ as to product design preferences (e.g., how many eggs to put in a narrow network basket).

That said, they will remain compelling propositions to provider systems seeking full-risk opportunities, particularly without the challenges of fully capitalizing a new insurer, contracting a wrap-around network and standing up medical management, claims and other functions. However, decision-making in these endeavors is inherently more difficult. Participants should go into these ventures “caveat emptor.” That is, participants need to understand that the fundamental friction between payer and provider perspectives requires careful attention to the governance issues. Furthermore, participants need to anticipate what the path would look like if a particular book of business, developed off of the joint venture, needed to transition to a non-joint venture operation.
     
Bill Eggbeer
 Bill Eggbeer
Bill Eggbeer
Managing Director
BDC Advisors
  These new markets entrants are likely to be a transitional phenomenon. In the short run, they are a way for health systems to gain experience in managing risk without fully diversifying into the health plan space. In the longer term, many (most?) will fail to gain market traction, or the health system partner will fail to manage care effectively, or the health plan will fail to operationally support a narrow product, any one of which will lead to the dissolution of the venture.

 A few will be very successful in the market, and lead to health systems internalizing health plan capabilities (e.g. Inova dissolving their Aetna partnership). A small number may grow into durable partnerships.

The reality is that while joint ventures can be useful, they are hard to sustain. One partner or the other realizes that they are bringing more value to the relationship than the other. Or changes in corporate priorities and/or leadership alters one partners commitment to the relationship.
 
Wendy Gerhardt
 Wendy Gerhardt

Wendy Gerhardt
Senior Manager
Deloitte Center for Health Solutions
  Provider-sponsored health plans (PSPs) are growing in importance. PSPs give health systems an opportunity to use health care financing as an enabler to create innovative clinical care models. Health care organizations that successfully innovate to reduce costs and improve quality should prosper under new performance-based financial models; in particular, those called for by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

Collaborations between health plans and health systems for PSPs also are growing in number. The relationships can give health systems access to health plans’ expertise and deep pockets. Such collaborations have generated innovative approaches for health plans with population health, member engagement, predictive analytics, and member retention.

To better understand PSP opportunities, approaches, experiences, and potential concerns, Deloitte convened nine executives in 2016 from health systems, health plans, PSPs, and other organizations to discuss what it might take to develop successful PSPs. Deloitte also interviewed four executives from health plans that have PSP partnerships to better understand the strategy behind their collaborations.
 
Executives agreed with each other that more health systems than in the past are interested in developing PSPs. They also concurred that collaborative models are attractive to both parties because they offer access to:

•    Scale, which is important to be successful.
•    Required health plan capabilities and competencies that are usually not
      found inside a typical health system.
•    Innovation with population health, particularly cost and quality improvement.

Recent studies show financial struggles for PSPs in general. However, executives in our research agreed that developing a PSP can enable a health system to experiment and innovate in population health. There are challenges to running a successful PSP. However, collaborating with a health plan can provide needed capabilities and capital, enabling a health system to enter the health insurance market more quickly and more prepared.

For further reading, please see our research: Executive perspectives on provider-sponsored health plans: Collaboration meets innovation.
  
   
Lindsay R. Resnick
 Lindsay Resnick

Lindsay R. Resnick
Senior Strategic Advisor
Wunderman Health
 

Before he dies, Romeo & Juliet’s Mercutio cry’s out "A plague o' both your houses!" We see this result too often as providers and payers engage in contract disputes over network inclusion or payment formulas. Most of the time, they’re fighting these battles in the local media. Finger pointing in healthcare’s ongoing ‘who’s at fault or who’s breaking it?’ debate accomplishes little.

With spending for hospital care and total private health insurance expenditures each topping $1 trillion, "A plague o' both your houses!" isn’t going to cut it. The true answer lies in collaboration.

TOGETHER, payers and providers need to figure out how to align their interests, cultures and incentives to sharpen a patient focused approach for better care at a better cost. Examples of collaboration around value-based payment, direct primary care, online patient communities, chronic or behavioral care management, and digital health solutions are proving the importance of partnerships everyday.

Collaboration that takes the form of a joint venture (JV) isn’t easy when it comes to agreeing on financial risk, aligning brands, managing customer (member – patient) experiences, coordinating operating practices and communicating across organizations. It’s said there are two shining moments in every joint venture --- the day both parties sign an agreement and the day they say good-bye!

In today’s healthcare landscape JVs are more and more common. Going in to them smart saves time, money and aggravation. Scrutinize the hell out of potential partners to assess compatibility and value. Use an appraisal process no less intensive than you’d use for an acquisition…bring an investor's due diligence perspective.

•   What’s the JV's primary objective, core rationale, staying-power?
•   Who's bringing what: resources, specialty skills, brand position, products?
•   What are the exposures, scalability factors, and points of gain or failure?
•   Where's the value: up-front investment vs. pay-back targets?
•   What’s success: KPIs, benchmarks and performance scorecard?

Collaboration is becoming a cornerstone business practice in today's turbulent healthcare marketplace. For payers and providers willing to make the right investment, these arrangements can yield big rewards: open-up new markets, extend product offerings, expand customer base, accelerate innovation, and reap financial gain. More importantly, they can broaden access to care, enhance customer experience, improve patient outcomes, and bring efficiencies that lower overall cost.

JV partnerships can also take their toll: lost development time, unmet expectations, internal conflict, and ultimately, financial disappointment. Successful joint ventures incorporate effective, well-defined controls: know as much as possible prior to selecting a partner, devote adequate resources (and C-Suite commitment) to aggressively managing the venture, and employ meaningful partnership performance measures. Go forth and collaborate: "A win o' both your houses!".
   

William Demarco
 William J. Demarco

William J. Demarco
President
Pendulum Health Care Development Corp.
  We are seeing several health plans private labeling their health plan for a health system in order to do the back office work and leverage their experience to help health systems start up their own product.

We have learned that this must be a joint venture in that the health system can no long operate business as usual but must tighten its belt and recognize there is a defined pool of money for care in their community. They will need to shift that money and use any to create a new high performance system to differentiate themselves from their competitors.

Many health systems fail at this by first putting themselves at risk for a substandard payment and then paying additional admin expense from their partner to manage the ACO or Health Plan. Many insurance company “partners” hold the actuarial risk with reinsurance and algorithms promising the health system that all shall be paid after the insurer’s expenses are paid. The pro forma may look lucrative but only if the health system can truly drop their utilization 18 % net of admin costs. Otherwise the excess utilization and admin costs are withheld and the hospital system may see a major reduction in revenue from these joint ventures.

There are many other assets a hospital system can leverage into the employer space. Many employers are paying thousands for the HMO to do care management and now some hospitals, especially those with an ACO where they can prove their care management works, have a means to charge employers a flat fee for assigning care management teams to a workforce and stratifying patient illnesses based upon severity and risk score. We have seen charges range from flat fees to an index of severity with a fee attached to each level. In some cases the employer is the client and in some cases the Health plan is the client hired by a national insurance company to manage a local population

If done well, the health system that reduces the employers expenses may receive some portion of the savings. This necessitates the employers to build a benefit plan that uses the single or partnered health system and medical staff more than other providers. This stand-alone service can generate dollars either by contracting with the employer, the employer’s health plan/insurer or TPA to become the preferred network.

All of these strategies are related to new patient growth through contracting and managing more effectively than ever before. Waiting until all is settled in Washington is a surefire way to get caught off guard by the local or regional competitor. What we do know is the health plan or hospital that brings profitable visits to the physician aligns the physician in their direction and earns their trust in a confusing market.
     
Peter R. Kongsvedt, MD, FACP
 Peter R. Kongstvedt

Peter R. Kongstvedt
MD, FACP
.
  In the commercial sector, the impact of health plan and local health system product joint ventures around the country will be similar to what it has been in the past: many will grind to a slow diminution or a halt and a few will do OK, but not much more. On the other hand, both health plans and health systems have a better understanding of each other’s needs than they had the last time we saw a wave of joint ventures and products back in the 1990s.

Both health plans and for health systems share one goal, which is to increase market share, but strongly differ on other goals. Many, if not most, hospital and health systems are able to enjoy market power and the ability to obtain high prices that has two major implications:

•      Any savings from utilization management comes right out of the
       hospital’s pocket, and
•      A product that requires the exclusive use of hospitals, physicians, and
       other services that are high priced will increase health plan costs, even if
       utilization is controlled.

Theoretically this is offset when the health system is also at risk, but unless the joint product accounts for the majority of a health system’s revenue, behaviors are not likely to change. On top of that, health systems are still rewarding leaders and managers for keeping beds full and revenues up, which will not be offset by having a few executives rewarded for a new product.

The other major factors are that health systems are adverse-risk magnets that often target their frequent users, and attract them even if they don’t target them. In addition, many of these products have focused on the health insurance exchanges, which are adverse-risk magnets on their own.

These are not insurmountable problems, but they take a lot of change and work to successfully address. Also the dynamics are different for the Medicare managed care market, but that’s another topic. Finally, changes in the healthcare environment will continue as they always have, and what I’ve described here will change as well. I just can’t say when.
     
 

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