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Just When I Thought I Was Out, They Pulled Me Back In

There was a time – way back in 2013 and 2014 – when the advent of value-based care was expected to yield a more peaceful partnership between health systems and payors. Value-based care (VBC) is the idea of alignment between payors and providers to benefit employers and consumers in the form of the right convergence of high quality and reasonable cost. Everyone agrees VBC is the most important transformation underway in the financing of healthcare, yet VBC now seems to be facing many of the same payor/provider conflict issues that made contracting a challenge in the fee-for-service (FFS) world.

What causes this conflict? Is it provider resistance to VBC and pay-for-performance? Is it providers clinging to FFS and its straightforward incentives? Or is it the complexity of these new agreements and the time and analytics required to make them happen?

The answer isn’t simple, and the stakes are very high. In so many situations playing themselves out in the media right now – from Sutter and Blue Shield in California, to CHI Nebraska and Blue Cross Blue Shield of Nebraska, to Grady and Anthem in Georgia, to Carolinas Healthcare and UnitedHealthcare – payors and providers are battling over new contracts that have real implications for their communities.

What we learn from these articles and other media coverage on these situations across the country is that battles over VBC contracts are about much more than VBC. They are the latest manifestation of a decades-long battle between payors and health systems for market share, control, and a vision for the healthcare system.

Certain elements of VBC are no doubt driving conflict. Many providers are ill equipped in terms of systems, technology, and talent to operate under a VBC payment system. Many are making the transition, but the challenge of operating under multiple VBC schemes with multiple payors creates an incredibly complex environment. Trying to hit multiple sets of value and quality criteria can be like steering a ship in several different directions simultaneously. On top of those issues, the quality of the data available – either from the providers’ own systems or from payors – makes decision making tedious and limits the ability to react quickly to changing circumstances, physician quality issues, or other challenges.

Mix in payment cuts from government healthcare programs and rapidly accelerating bad debt from the commercially insured patients’ co-pays and deductibles, and you have a powerful cocktail of inertia and resistance.

Yet the recent payor/provider conflicts are not new, but rather part of a trend that started back in 2010. Before the recession and the ACA, payor/provider conflict was more common among the second- and third-tier providers in any market. Often this was a result of a health system seeking to re-base its rates or create parity among payors’ rates and contract terms. These were difficult battles and often high profile, but they had a certain common DNA and were almost always resolved because these health systems still had lower rates than competitors even when the proposed higher rates were factored in. Health systems usually won higher rates, dominant payors usually became more dominant by keeping their rates just below their competitors, and the system went through massive change caused by the Great Recession, the ACA, and the Obama presidency.

Yet the issues we’ve seen since 2010, and especially since the Supreme Court and the presidential elections settled the ACA question, have been a different breed of payor/provider contract negotiation conflict. Yes, VBC issues make the headlines and appear in the letters that payors send, but the real story is in the entities most often involved. Market leaders face conflict with payors that would have been unusual, if not unthinkable, 10 years ago.

We might look at the UPMC/Highmark issue in western Pennsylvania as the start of this trend of competing visions for the market defined by the dominant Blue and the dominant, high quality health system. Yet Highmark’s aggressive strategy to build a competing provider network and go head-to-head with UPMC made this situation very unusual, if not unique. The recent issues we’ve watched unfold involve powerful health plans that control the purse strings and largely view providers as a commodity to be priced as low as possible: large health systems that have consolidated their markets to build scale and implement clinically integrated networks and other important systemic changes, and the struggle for whose vision will be realized. There can be plenty of common ground if both sides look for it, but most payor/provider relationships have not progressed on that trajectory over the last two decades.

Naturally, there are arguments on both sides that have merit. Payors complain that healthcare is too expensive and point to a variety of factors that drive up those costs, but mostly focus on rates for the largest health systems and their employed physicians. Providers complain that payors’ systems are antiquated, slow, and prone to producing inaccurate data. They say that utilization management works poorly with most payors, and that the payors’ focus on VBC is really just a way to drive fixed-rate increases into variable VBC payments – often leading to lower overall payments based on constantly changing criteria, poor data transparency, and inaccurate measurement.

Who’s right? The answer will differ in every market and will depend on the market position of each payor and provider organization involved. Yet two things are certain:

1. We cannot allow VBC to become a victim of this conflict. The success of VBC, in a variety of different forms, is too important to the future of healthcare to be destroyed by misunderstanding, poor communication, and often hidden (or not so hidden) agendas. VBC must be the future.

2. Health systems that believe they are too dominant, or have built too much market share to be targeted by a large payor for a rate cut are ignoring a very real market dynamic. “Must have” health systems are being targeted for big rate reductions and the conflict between these health systems and dominant payors is often public, messy, and emotional. In many cases, it’s the first time in many years – or ever – these parties have battled and the market dynamic is very challenging right now.

After all, who wouldn’t want the same quality healthcare at a lower cost?

February 8, 2018
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