As Catalyst for Payment Reform (CPR) and others have documented, payment reform is rapidly expanding across the nation. Providers and health plans are developing accountable care organizations (ACOs), patient-centered medical homes, and other health care delivery systems that require new forms of payment to deliver higher value care. At the same time, alternative forms of payment are encouraging health care providers to think in new ways about how they deliver care.
However, these national efforts do not adequately address the influence that local health care dynamics will have on the success of different types of payment methods. Such considerations may be frustrating for national players looking to implement a one-size-fits-all solution; while it may work in certain markets, it’s unlikely to work in others. Therefore, CPR pioneered a market assessment to provide stakeholders with a systematic method for evaluating the characteristics of their market and how those characteristics interact and impact options for payment reform.
Different Markets, Different Solutions
As an example of the importance of local market dynamics, blended payment for maternity care—in which the health plan removes the payment differential for cesarean versus vaginal deliveries (we usually pay significantly more for cesareans)—could save health plans money in a market where cesareans are prevalent, but add costs in markets where the rates are lower. A single approach may not deliver better outcomes and more affordable care across the board.
Also, although many stakeholders believe the system should transition to population-based health care, certain population-oriented delivery and payment reforms may accelerate consolidation among health care providers, and evidence is convincing that higher prices often follow. Simply allowing providers or health plans to choose unilaterally which type of payment reform to pursue may yield benefits for a particular organization but not improve the system as a whole.
Assessing Market Dynamics
There is a great need to tailor payment reforms to local markets by analyzing the influence and stance of key stakeholders—health care providers, purchasers, and health plans—within the context of the state legislative and regulatory environment to determine the barriers to, and facilitators for, particular payment reforms. Stakeholders that are “market shaping” have negotiating leverage and the ability to insist on or reject substantive changes in contractual terms and conditions, dictating in essence whether certain reforms can take place.
For example, in markets with high levels of provider consolidation, some provider systems may have the ability to resist payment changes they perceive as unfavorable. In this case, overshadowed purchasers and health plans may have little ability to request that providers assume financial risk. However, they might be able to implement consumer-oriented strategies—using benefit designs, for example—to encourage greater use of high-value providers. Or, they could start with upside-only reforms, such as pay-for-performance or shared savings, before attempting to transition into two-sided or downside-only arrangements.
Alternatively, markets with a relatively equal balance of power among health care providers, health plans, and purchasers may support risk-sharing arrangements; providers might be large enough to assume financial risk, health plans might be able to administer new models, and strong purchasers may be excited and willing to adopt them. However, pushing payments with downside-risk too aggressively, such as shared risk arrangements or non-payment for certain kinds of care (e.g., early elective deliveries), could lead to provider resistance or harmful consolidation, as providers seek the resources and infrastructure they need to succeed under these models.
CPR’s Market Assessment Tool: A Case Study of San Diego
A major stakeholder in San Diego asked CPR to assess the market there and identify potential strategies for procuring higher quality and more affordable health care. Through the market assessment process, CPR found that there is largely a balance of power between local stakeholders.
In San Diego, there are several large, competing health systems with a history of quality improvement activities and extensive experience with payment methods beyond traditional fee-for-service, including those that require assumption of financial risk (e.g., capitation). Additionally, health plans in the market have some experience with advanced delivery and payment reforms, but are at different stages of implementing them locally. There are strong health care purchasers in the market, with which both health systems and health plans are open to partnering to experiment further with reforms.
Based on these dynamics, CPR determined that San Diego is in the position to expand the prevalence of two-sided risk arrangements (e.g., shared risk or capitation). Health systems have the infrastructure to support complex data systems and risk-sharing, and experience with both; most health plans have risk-based reforms in place and can support new arrangements; and, purchasers have an appetite for comprehensive population-based care options for their members.
Several health plans in San Diego are also ready to support innovative consumer-oriented strategies to encourage their members to seek care from particular providers, such as those who deliver high-quality care at a low cost. As ACOs become more prevalent in San Diego, purchasers and health plans have an opportunity to combine shared risk arrangements with narrow or tiered networks to encourage patients to seek care from high-value providers.
The truism that “health care is local” suggests that communities will experience different risks and benefits from similar types of payment reform. With this in mind, there is a need to guide discussions around which reforms, based on local market dynamics, will lead to better community-wide outcomes.