Let’s begin with some numbers that show our healthcare system is on the road to payer-provider convergence. They also help to explain why.
Market and Government Forces Driving Convergence
- For 2015, the Health Care Cost Institute research found spending for privately-insured patients grew 4.6 percent, far outpacing the increases of 3 percent in 2013 and 2.6 percent in 2014. Prices for outpatient, inpatient, professional services and prescription drugs increased 3.5 to 9.0 percent. Per capita expenditures are projected to grow from $10,345 in 2016 to $16,032 in 2025, an average annual growth rate of 5 percent.
- At the same time, health insurance premiums are on the rise. Research by the Kaiser Family Foundation shows premiums for employer-sponsored health insurance increased 203 percent between 1999 and 2015. The average annual family premium rose to $18,142 in 2016.
Healthcare Demographics and Outcomes:
- More than 10 years of Commonwealth Fund reports show the U.S. spends more per capita than other industrialized nations and ranks lower on quality measures and healthy lives.
- Silver Tsunami: Medicare enrollment is expected to grow by more than 30 percent in the coming decade, and the number of seniors will increase from 57 million today to more than 80 million by 2036.
- Rise in chronic illness prevalence:
- Nearly 30 million Americans have diabetes and another 86 million have pre-diabetes
- About 50 percent or 117 million adult Americans have at least one chronic condition
- More than 25 percent have two or more chronic conditions
- Among Medicare enrollees, 75 percent have multiple chronic conditions
Physicians - The Decline of the Independent Physician and the Rise of Physician Burnout:
- From 2012 to 2015, the share of physicians employed by hospitals or health systems climbed 86 percent.
- In 2016, the number of physician-owned practices dropped to 47.1 percent.
- Geneia’s 2015 national physician survey determined the Physician Misery Index was 3.7 out of 5, indicating the scales have tipped towards dissatisfaction.
- In just three years, physician burnout levels rose from 45 to 54 percent.
Drive to Quality:
- Quality measurement in the form of HEDIS®, Medicare Stars, MACRA and MIPS increasingly demands continuous improvement of payers and providers.
- The average physician practice spends 15.1 hours per week processing quality metrics, which translates to $40,069 per physician, per year.
- Practices average 785 hours per physician per year and invest a total of $15.4 billion to report against quality measures.
Shifting of Risk to Providers:
- Physician participation in value-based payment models increased from 25 percent in 2014 to 30 percent in 2016.
- Yet, few physicians participate in models with greatest downside risk; only 10 percent are in capitation models and four percent are in shared-risk arrangements.
Shifting of Physician Views on Value-Based Care:
- 82 percent of physicians believe value-based care is here to stay.
- 29 percent of physicians say the U.S. has value-based healthcare, up from 25 percent in 2016.
- 83 percent agree that alignment between payers and providers is needed more than ever to provide value-based care.
I recently was invited to discuss payer-provider convergence at Healthcare Informatics Denver Health IT Summit and these are some of the numbers that resonated most with the audience. They’re also key figures connected to the market and government forces that are driving change and convergence.
CMS Commitment to Risk-Based Payments
Without a doubt, the commitment of the Centers for Medicare and Medicaid Services (CMS) to risk-based models under the previous Presidential administration accelerated the change. In January 2015, CMS announced that 30 percent of Medicare payments would be risk-based in 2016, up from zero in 2011, and that by 2018, half of all Medicare payments would be under risk arrangements.
CMS achieved its 2016 goal and seems to be well on its way to reaching the 2018 threshold. In fact, Kate Goodrich, the director for the CMS Center for Clinical Standards and Quality, recently declared, “We’ve gotten a lot of questions about where the new administration is headed with value-based care. I want to send the clear message that value-based care is here to stay.”
Nonetheless, the movement preceded the Affordable Care Act and like many industry experts, I believe it has reached the tipping point. As one of my colleagues wrote shortly after the November 2016 election, “The value-based care and population health train has long since left the station.”
The Shift to Value-Based Care is Well Underway
In fact, payers have moved aggressively to create value-based contracts with their provider networks. Aetna, Anthem and UnitedHealth all report approximately 50 percent of reimbursements are via value-based care models, and Aetna has pledged to grow it to 75-80 percent by 2020.
The shift to value-based care isn’t limited to national payers. For example, Capital BlueCross, a regional payer in Pennsylvania, launched its first accountable care arrangement in 2011. Today, more than 2,800 physicians and 362,000 members participate.
Oliver Wyman reports more than 200 payer-physician partnerships have been created in the past five years, 92 percent of which “are emphasizing value-based compensation in some shape.” The partnerships vary in type, size, location, model, and level of provider risk, and include 50-50 joint ventures, accountable care organizations (ACO), patient-centered medical homes (PCMH), pay for performance, bundled payments and more.
Recent research by the Leavitt Partners Center for Accountable Care Intelligence reveals the number of ACOs and the covered lives has increased significantly between 2011 and first quarter 2017. Today, 32.4 million people are covered by one of 923 ACOs, up from approximately three million six years ago. Since the first quarter of 2016, there has been a net increase of 92 ACOs, a growth of 11 percent.
During the same period, the number of contracts has grown by 166 to 1,366 as many ACOs have increased their number of contracts. Of the 1,366 contracts, 715 are commercial arrangement representing 59 percent of the 32.4 million covered lives. Medicare accounts for 563 contracts and 29 percent of covered lives and Medicaid represents 88 contracts and 12 percent of covered lives. According to the Leavitt Partners, “On average, commercial ACO contracts tend to cover more lives (about 26,700 per contracts) than Medicare contracts (about 16,800 per contract.)”
ACOs are one of a variety of alternative payment models (APM) that together represented more than 30 percent of Medicare payments in 2016. ACOs account for the majority of APM dollars. Yet, more providers participate in other models, such as the oncology care and comprehensive primary care plus models.
Stay tuned. Now that I have reviewed the factors driving payer-provider convergence and the current state, I will be publishing a follow up blog on Sept. 19 that discusses how to facilitate and increase payer-provider alignment and convergence.