Health Systems Becoming Payers: 8 Observations

A report from Strategy& discusses how integrated delivery networks are taking on risk and payer roles in the current environment and the implications of this trend.

Here are eight key takeaways from the report.

1. Strategy& estimates that 300 to 400 integrated delivery networks are in a position to consider risk-based opportunities. In large metropolitan markets, three to five provider networks likely have the necessary brand awareness to explore risk-taking arrangements, while one or two may have such strengths in moderately sized markets.

2. Approximately 50 percent of health systems in the U.S. have applied or intend to apply for an insurance license, according to the report.

3. Most larger IDNs are developing accountable care organizations, but there are limited prospects for at-risk arrangements to account for more than 10 percent of revenue in the short term. "That is simply not enough to meet increasing pressures on providers to better manage care," according to the report.

4. ACOs typically have modest risk- and gain-sharing features. "While ACO-like programs may succeed in putting about 10 percent of revenues at risk, the potential benefit of having 50 percent or more of revenues in play is enormous," according to the report.

5. Payers are often the willing participants in bundled care arrangements while providers lead the charge, according to the report. Strategy& surveys have found consumers and employers are receptive to, and even eager for, bundles.    

6. Insurers today might seem like likely partners for risk sharing, but third-party administrators and specialist firms are mostly filling the role, as they aren't seen as future competitors. But if there is continued momentum for provider-as-payer arrangements, turnkey solutions may crop up, such as those offered by spinoffs of national large insurers that would sell a menu of administrative services and capabilities.

7. There are also questions about how providers as payers should go to market. Should they be co-branded with payer partners? Should existing ACOs be rolled up into the new product offering? Should they be offered exclusively as the only way to receive preferred pricing from the IDN? What pricing strategy will move the most volume to the most profitable products? These are just a few of the questions raised in the report.

8. Payers today need not be too alarmed about the possibility that delivery networks will delve into deeper parts of the insurance risk pool, particularly those that are first to market. But insurers will face some concerns: The largest and most successful health insurers today will need to find profitable ways to collaborate with and serve provider brands. If they don't, they risk losing significant pieces of their current businesses. "Some will almost certainly fail, likely causing another round of consolidation (particularly among the Blues)," according to the report.

More Articles on Healthcare Providers and Payers:
10 Top-Performing Healthcare Payers
The "Worst" Payers of 2014: 7 Observations From Hospital Leaders
5 Things to Know About the Merger of Health Systems and Insurance Providers


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