provider/payor convergence: a path to continued growth
DESCRIPTION
As bottom lines shrink, payors and providers are beginning to see convergence, or vertical integration, as the path to growth, Panelists from Johns Hopkins Institutions, Buchanan Ingersoll & Rooney PC and Grant Thornton LLP share their experience and offer insight on the challenges and benefits of this strategy. Read the full paper at http://gt-us.co/1Cv6MRATRANSCRIPT
A path to continued growth
Provider/Payor convergence:
This presentation summarizes “Provider/Payor
Convergence: Regulatory, Governance and
Operational Issues You Need to Consider,” the
second of two webcasts covering the ins and
outs of convergence for health care providers
and payors. Panelists from Johns Hopkins
Institutions, Buchanan Ingersoll & Rooney
PC and Grant Thornton LLP share their
experience and offer insight.
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Author's note
What we'll discuss
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1. The current health care environment
2. Payors face regulatory scrutiny
3. The changing landscape for providers
4. The keys to successful convergence
5. Looking forward
The current environment
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INTRODUCTION
In health care, the traditional
growth model is obsolete.
As bottom lines shrink, payors and
providers are beginning to see
convergence as the route to growth.
"It’s time to thoughtfully
consider convergence as a
long-term growth
strategy.”
- David Tyler, Grant
Thornton Health Care
Advisory Services
principal
What are the challenges for payors?
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PAYORS
Adding provider operations to a payor’s
structure can create regulatory challenges.
The combined entity transaction may fall under
state statutes that regulate everything from
investments and investment practices to market
conduct, product review and approval to the
resolution of consumer complaints.
"Enterprise risk may be
heightened in convergence
transactions because risks
inherent in the provider
organization may have the
potential to adversely impact the
insurer.”
- Ronald E. Chronister
Specialist, Insurance
Industry Consultant
Buchanan Ingersoll & Rooney
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“As provider/payor converged
structures become common,
expect an evolving push by state
regulators for more authority,
along with a broader
interpretation of existing
authority.”
- Jack M. Stover, Shareholder,
Buchanan Ingersoll & Rooney
PAYORS
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Focus on governance
Some state insurance regulators are
concerned about exactly how actively
engaged the board is in meaningful
oversight in convergence transactions.
PAYORS
The landscape for providers
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Challenges:
• The reimbursement market is changing
rapidly due to capitation, quality and patient
satisfaction-based rates, and incentives to
reduce utilization.
• Providers have also made huge capital
investments at a time when there are many
threats to inpatient-based services.
PROVIDERS
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“We have a ‘health plan within a health
system,’ meaning we serve primarily as a
Medicaid MCO for the State of Maryland
that includes over 300,000 insured lives.
The challenges for the health plan lie in
rationalizing the cost of care (within the
converged entity versus out-of-network)
and issues within the converged entity
over minor things like billing and denials.”
- Francis X. Bossle, Executive Director,
Office of Internal Audits, Johns
Hopkins Institutions
PROVIDERS
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What providers need to know:
• Payors seeking to get into the provider business will likely underestimate the
complexity of providers.
• There are many steps and handoffs, especially in a hospital environment, that impact
the bills submitted to payors.
• Operational complexity, and overriding safety and quality concerns, make it very
difficult to streamline business operations.
PROVIDERS
The keys to successful convergence
Look to ACOs
Accountable care organizations (ACOs)
bridge the gap that has traditionally
existed between payors and providers.
ACOs are generally created through a
transaction, but creating a successfully
combined entity through convergence is more complex.
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OPPORTUNITIES
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More than 100 ACOs nationwide
OPPORTUNITIES
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4. SELECTION
How are they performing?
Encouraging, yet cautionary
report from 2012:
OPPORTUNITIES
Nearly 50% of ACOs
reduced spending below
their target
25% of ACOs
qualified for
shared savings
bonuses
Top-performing
ACOs earned
$126m in shared
savings paymentsOverall, ACOs
generated $128
million in net
savings for CMS
Five focus areas for buyers and sellers
1. Strategic risk
2. Operational decisions
3. Financial considerations
4. Cultural concerns
5. Talent
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OPPORTUNITIES
Strategic risk
It's important to understand the rationale for
the transaction — it shouldn’t be “me too,”
but rather a way to reduce costs, better serve
consumers and strengthen your
organization’s financial future.
Match the opportunity to the market by
carefully looking at timing and potential
partners.
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“Realize this is not a zero-
sum game. Look at other
payors, other providers and
other reimbursement
incentives.”
- David Tyler, Grant Thornton
Health Care Advisory Services
principal
OPPORTUNITIES
Operational decisions
• Transactions often call for new skill sets, expanded (or
consolidated) IT, management processes and a host of
new regulatory compliance capabilities.
• It's critical to review processes such as clinical
capabilities versus actuarial capabilities and dual-sided
analytics: Where synergy opportunities exist — the trick
is to recognize the real opportunities.
• Define revenue centers versus cost centers, how to
physically locate the organizations together, and where to
invest and where to cut costs.
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OPPORTUNITIES
Financial considerations
Financial system integration — EMR/ERP,
claims platforms, cost accounting and
business intelligence/analytics — must all
work together. It’s a critical component to
convergence success.
Other important financial components:
financial process integration (e.g., budgeting
and planning), shared services, cash flow
impact and reporting.
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"Not speaking a common
financial language can
easily lead to major issues
down the road."
- Mark Lastner, Director, Grant Thornton
Business Advisory Services
OPPORTUNITIES
Cultural concerns
A long-term change management
approach is needed to address such
items as physician relationship
management, medical
management, negotiations with
other entities and accountability for
decisions on things like narrow networks
and reimbursement premium levels
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OPPORTUNITIES
Talent
If your people aren't on board, there can be
major issues with business continuity. The
corporate culture can break down. A training
plan is important for learning new or
changed skills. A retention strategy is
important, too, along with aligning
incentives.
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“Your people are a major asset
and a valuable one, too —
recruiting, hiring and training
new employees is far more
expensive than taking good care
of the employees you already
have.”
- David Tyler, Grant Thornton
Health Care Advisory Services
principal
OPPORTUNITIES
Convergence is more than a trend — it’s a moving
train that you might be running alongside of, ready to
jump aboard. It’s a complex undertaking, and we
encourage you to fully investigate all that goes into a
successful integration.
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LOOKING FORWARD
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CONTACT US
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John Swanick
Partner; Practice Leader,
U.S. Insurance
Grant Thornton LLP
T +1 215 814 4070
David Tyler
Principal, Health Care
Advisory Services
Grant Thornton LLP
T +1 404 475 0180
Mark Lastner
Director, Business
Advisory Services
Grant Thornton LLP
T +1 215 814 1750
Francis X. Bossle
Executive Director
Office of Internal Audits
Johns Hopkins Institutions
T +1 443 997 6394
Ronald E. Chronister
Specialist, Insurance
Industry Consultant
Buchanan Ingersoll & Rooney PC
T +1 717 237 4851
Jack M. Stover
Shareholder
Buchanan Ingersoll & Rooney PC
T +1 717 237 4837