E78: Payvider Adoption: Dennis Butts Jr.

 

Every health system leader has unprecedented executive management challenges facing their organization in the wake of the pandemic. In this episode, Dennis Butts Jr. shares a tremendous amount of practical, pragmatic information on the payvider space and the state of payvider adoption in our current healthcare system. Dennis is a Partner at Guidehouse, leading the health strategy and innovation center, and an expert on today’s topic. Find out why payvider can and should be the next step in advancing and improving healthcare.

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Listen to the podcast here

 

Payvider Adoption: Dennis Butts Jr.

I’m honored and happy to be joined by some very good friends of mine who I’ve got to know well, Ben Sawyer and Dr. Darin Vercillo. They are executives at ABOUT Healthcare. It’s great to be with you as always.

It’s great to be with you, too. To the readers, I hope everyone had a great day.

Thanks a lot for all your support and everything that we’ve talked about. It’s been a great time and exciting. I wanted to take a minute to review what we’ve been discussing over the past and where we’re going to go in the future just to set the table. For those readers who have been with us, you know that we’ve focused on several important topics. One of those has been the challenges and opportunities coming out of the COVID pandemic, both operationally, financially, and strategically. We’ve talked about folks who have decided they will want to go back to what normal used to be.

We’ve also talked about something a little bit more exciting about folks who want to create a new normal and feel there are some things that they need to start doing differently in their organizations to improve their finances, operations, and strategies. We’ve also talked about how doing an annual or 1 to 2-year strategy these days is rather difficult and that more people are looking at strategy as being one quarter at a time, packing all of your 1-year strategies into 3 months and making sure that you accomplish that so that you can go on to accomplish things in the following three quarters.

We’ve also talked about the leadership challenges that you’re all facing and how there are some critical aspects of leadership that have risen to the top both during the pandemic and also after the pandemic. How do you manage all of the disruptions in your workforce? How do you get patients who you’ve been telling for months to stay away from your organization because of COVID to start coming back now? How do you start curating patients so that they have a better experience in your organization?

What we’d to do is start focusing on the patient or in this case, specifically the consumer. The way I think about patient and consumer is that a patient is somebody who’s already sick and looking for help from their healthcare provider to get well. A consumer is somebody who at some point in the future could be a patient, but is potentially someone, for example, that moved into a new community and is looking for who they want their provider to be.

What hospital are they going to go to if they do end up needing hospitalization? What provider in which type of organization do they want to become partnered with as they begin their health care journey? This involves a lot of alternative competitors. That’s what we want to start talking about. We’ll begin that journey with a very good friend and past colleague of mine, Dennis Butts.

He is a Partner at Guidehouse. He leads the Health Strategy and Innovation Center. He’s an expert on what we’re going to talk about, which is the payvider space. With many years of the healthcare industry experience, Dennis leads numerous enterprise growth initiatives. He is a nationally recognized expert in building developing and implementing advanced approaches in network design, innovative care delivery, and payment models, and mutually beneficial partnership strategies for health systems, employers, payers, and other healthcare entities.

Dennis helps healthcare organizations create integrated service line plans and revenue models that increasingly assume accountability for targeted populations and enable greater access to the premium dollar. He’s focused on ensuring organizations are future-proofed. That’s important context for what we’re going to be talking about. Welcome, Dennis. It’s great to see you. We’re happy to have you here.

Thanks a lot. It is an absolute honor to be with you and the team here. I’m looking forward to the conversation.

 

Let me start out with the first question. I’m sure that some of our audience knows what payviders are. Some of them probably are organizations that may already be payviders, but could you describe what a payvider means and summarize how the payvider market has grown over the past years? Maybe use some examples as well of some successful payviders and why they decided to become payviders.

In consulting, we always come up with innovative terms that we like to use and new acronyms. Payvider is probably one of those. If you think about a payvider, it’s a combination of the words payer and provider. Dealing with consumers, not just with patients, but in a consumer-driven market is requiring payers to act more like providers, providers act more like payers. The combination of those two entities working together in a mutually beneficial way is the foundation of the term payvider.

An example is if you think about a provider-sponsored plan where a provider owns their own health plan. We’ve seen payers hire providers directly. Optimum is probably one of the largest employers of physicians in the country. Joint ventures between payers and providers is going beyond maybe a typical contract to, “Let’s share together both in the rewards economically,” but also be a tighter connection than a typical contract that shares the risk. Not just looking at upside-only arrangements, but how can we share the premium dollar and risk with all the payvider opportunities?

To your point, around disruptors, a lot of the collaboration between health plans and the VillageMDs and Oak Streets of the world creates unique provider entities in the marketplace that disintermediate health systems to provide new aspects of care. When you hear the term payvider, sometimes it is confusing because it can be all of those different things. At the foundation, it is a payer and a provider working together to drive tripling value in a mutually beneficial arrangement that drives more value for the consumer.

I’m stuck to your other question of, “What’s happening in the landscape? Why is payvider activity continuing to increase?” We saw a lot of it through the pandemic. For providers who instantly saw their volumes decrease, physician practices that no longer were seeing patients, elective surgeries that drive the profitability for health systems, and those who were in risk relationships that had a capitated payment fare better.

They say that even if the volume went away, we were more successful at that time by having a capitated payment. As we’re moving beyond the pandemic, many organizations are struggling financially. Many of our health system clients are dealing with margin compression issues. They’re trying to figure out how we get more access to the premium dollar.

Partnerships with payers helped with that. Healthcare financers are also struggling as we continue to look at the affordability of healthcare, the lack of maybe quality improvement that we’re looking for, health equity is now a really big topic, access gaps that continue to be there, rural communities, and health plans need provider partners to begin to help solve for that.

As we look at the Medicare book of business, states, as well as the Federal government, continued to be compressed far as the solvency of the funds available for the Medicare population. We continue to see utilization increase in our senior staff who have chronic conditions, which means that cost is going up. We continue to see pricing going up on the commercial side. The cost of our healthcare continues to rise as all of us are aware at an unsustainable rate.

With the aging population every day, 10,000 or so seniors become Medicare eligible. For health systems who are out there, instantly, a payment rate that is profitable becomes no longer profitable, which is a crazy challenge. In this whole ecosystem of what’s happening in healthcare, we’re spending a lot and not getting the value that we’re looking for. The Federal government, states, employers, and health systems are hurting.

That’s creating this ripe environment for new levels of transformation and for each party to truly be successful to curb healthcare costs to drive more quality and try a better experience. We’re finding that health plans and health providers that work together are creating a meaningful impact on all of those domains, which is creating a lot of payvider activity.

Payvider means a payer and a provider working together to drive tripling value in a mutually beneficial arrangement that drives more value for the consumer. Click To Tweet

The last thing I’ll say and I’m not sure that people know this or not, but there is money to be made. When there is money to be made and a profitable line of business, it creates a new appetite maybe for partnerships that weren’t there before. The Medicare Advantage line of business is the most rapidly growing line of business in the country. The reason why that is the most profitable line of business in the country at $200 PMPM is the most profitable line of business that’s there.

From a growth perspective, MA enrollment grew 9% from 2021 to 2022. Beginning of 2023, it will cross more than 50% of the Medicare lives that are available in the country. It is projected in 2030 to be 69% of the lives. With rapid growth, that’s their profitability. The challenges for success in the market are creating an activity for health plans to be more willing to partner with providers and for partners on the provider side to look for a meaningful relationship with health plans.

Could you just be a little bit more specific about exactly how this partnership frees up additional revenue to the struggling provider as well as potentially decreases their overall costs and also how it benefits the consumer in terms of their experience? One of the things I know, when I was working in the space with you, was that there’s a tremendous focus, more so in a typical health system on the experience that the member gains in order to make sure that you keep that member. It’s important in terms of revenue. Could you just talk a little bit about the financial stability aspect and the experience?

The challenge with value-based care is that the economics didn’t work for providers. Anytime that you take $1 of revenue out of the system only you get $0.50 back. It’s easy to see that you don’t have to be a CPA or CFO to know that. That map doesn’t work over the long term, especially when you look at the level of investment required to truly drive value-based care related to data infrastructure, care managers, things that we might need to do for coding, etc.

In the MA space, which is where a lot of the payvider activities are going, there oftentimes can be $20 to $60 PMPM that providers can gain access to. That is a lot different than the economics available for a standard shared savings arrangement. For those organizations that can truly manage to care, and be held more accountable for overall performance, there’s greater upside in these types of relationships. There are also benefit design issues.

I’m getting to your question on the consumer experience. One difference in MA versus fee-for-service Medicare, as we accurately code for the complexity of the patient population, and Medicare Advantage programs, the risk adjustment allows for that to be fully accountable to the premium that’s available for the patient. There are a lot of people on both sides of this argument are we driving up the cost for EMF through Medicare Advantage because we’re playing a coding game.

For most providers, 70% of the risk adjustment scores are held within the hands of the ambulatory physician. Most have not had the education to properly document and code the true patient complexity. Many organizations are trying to be successful against a benchmark target. That’s lower than probably what the true health spend would be for that population.

Through Medicare Advantage, you’re not capped in fee for service Medicare and shared savings arrangement for only a 3% increase. You can have financing that allows you to get the full benefit of that. A provider may have a $10,000 annual spend benchmark per patient. In Medicare Advantage, that might become $12,000 because we accurately code and that can directly impact the finances. We’re inside a fee-for-service Medicare that becomes more problematic.

Point two, in fee-for-service Medicare, is open-access. To your point, it’s hard to manage the care if you don’t have it within a coordinated network of providers who are committed to triple-line value, and there’s no incentive to keep that patient within a defined network. If you’re trying to be accountable for something you don’t control, that’s virtually impossible and you can’t necessarily be successful.

In Medicare Advantage, you can create a benefit design that steers patients to providers who are committed to driving that quality of care. You can have higher levels of performance, but then also there are more seniors who are choosing Medicare Advantage. As you look at some of the supplemental benefits far as vision, dental coverage, etc., zero premiums are out there in most Medicare Advantage plans. As consumers are looking for better choices, options, and experiences, those are happening in Medicare Advantage.

 

Most organizations who are being successful in payvider relationships aren’t just taking the profitability and keeping it in their pockets. They’re putting it into apps for a better experience. They’re investing in care management so that we can truly care for the population. All the way around, Medicare Advantage provides greater financing for bill payers, as well as providers, a better benefit designed to keep more consumers inside of the network, but then also a better consumer package that provides more accessible care, a better experience for the consumer. That’s why you see a lot of the trajectory moving in this direction.

Ben, I know you have a question. Please go ahead.

That was a fantastic summary of what’s going on. For the reader, I’m wondering if we could look back at what you said through a few different lenses to unpack it. One lens is everyone has been aware that there’s been this fault line between the providers and the payers, and always looming in the background is socialized medicine, which in many countries hasn’t worked very well because it’s been restricting access.

It seems like through that lens what’s happening in the innovation of providers and payers collaborating in value-based scenarios with narrow networks that can be to the benefit of all parties, including the curated consumer experience. The other is the obvious lens of the provider and the payer. Who owns what? Does the provider end up getting into a situation where they’re basically commoditized and the payer is the owner, and essentially they’re determining the split in terms of the premium?

Are there circumstances looking through the payer lens where they would be essentially the claim adjudicator and the organization that is client-facing in terms of the large employer, but it’s the provider within that catchment area that is the owner? If we can look at maybe those three lenses, for the readers, depending on what particular vantage point they have, how would they decipher and take apart the information that you provided?

Physician groups and other providers won’t necessarily be commoditized. That creates an opportunity for those who are truly transforming care delivery, who have a documented value proposition to be rewarded with more members. With those members through any type of a payvider relationship, better economics for the reward of delivering tripling care. Historically, what’s happening with ACO is that ACO is ACOs on paper. Clinically Integrated Networks, CIN is only on paper.

The requested care management fees and other infrastructure payments without the fundamental infrastructure and commitment to drive AAA and care. There is skepticism of, “Let’s just not pass money over to those who aren’t truly going to transform care delivery. Deliver it at a more effective cost point and utilization point, and also a better experience.” For those organizations who have a value proposition because at the end of the day, what’s going to drive profitability for the health plan?

It’s not partnering with just Black and White providers who are out there who aren’t differentiated. Those who can drive down the health span are the ones that the health plans once they partner with. In our payer strategy practice, we get a lot of calls from a lot of the national and state-based payers who are looking to transform their relationships and help us curate a list of providers who can truly bring value. How can we best do that?

Through the lens of the provider, if you truly have the value proposition, it creates new conversations around delegated activities where it may not be just the payer dictating terms in a market and, “Here are our standard deal terms. Here is the infrastructure that we will bring.” There are some things that are better done by providers, utilization management, care management, and data analytics. In exchange for taking on those things, there are economic rewards for that.

There’s also a commitment on the health plan side. Maybe we’ll relax some of our denials. We’ll create a prior authorization process that makes your life easier as a provider. Those who are truly committed and those who have a double impact on the community can create new bill turns because it’s all towards this shared objective that they’re all going toward.

In this whole ecosystem of what's happening in healthcare, we're spending a lot but we're not getting the value that we're looking for. Click To Tweet

If you don’t have a value proposition and you’re just driving utilization and negotiating for the price point, those are organizations that will be at risk. As health plans, look to steer business to others in the market, either establish or new entrances like Oak Street, VillageMD, etc., who are bringing something different to a marketplace that responds to consumer demands.

Darin, I know you had a follow-up question.

Dennis, this has been fantastic. The detail and the applicability of what you’ve described are a new revelation. The readers will be emphatically absorbing it. There have been three areas in the work that we do with ABOUT that we’ve seen in our interaction with healthcare systems that usually rise to the surface as to their reasons for partnering with us. One is driving the business. Driving revenue, driving profitability, we’re providing a business, no margin, no mission. We want to make sure we have a good healthy organization. The other side of course is driving quality of care.

As a physician, I want to make sure that I and my organization are able to provide the best quality of care and that our patients in our catchment area are receiving that. As we see this dual purpose, organizations want to rise on both sides. You’ve described a lot of the approaches where they can maximize that. in the middle, something that we’ve seen certainly post-pandemic with organizations where there’s a lot of merger and acquisition activity, growth, and certainly in light of the downturn in personnel resources available to provide care.

We’re seeing now this focus on, “How do I create accessibility to my patient population? How do I best leverage my resources to provide that care?” In your work, you have all of these things that work together. How does your work address that issue, so organizations can better leverage their resources and provide care with maybe limited resources that they have? What direction can you give them?

This is probably one of the most frequent calls that we’re receiving, “How do we address the workforce challenges? How can we deliver care in a more consumer-centric way? How do we deal with access?” We feel like there’s probably a technology issue that should be considered here. We were helping a lot of health systems think through even utilization of digital twins of how can we begin to think about large data sets in new ways that allow us to maybe deliver care in a different way and transform care delivery without completely disrupting enterprise.

Can we create simulated models that allow us to maybe see how things will progress if we deliver more care in the ambulatory setting? Can we reduce our hospital footprint if care surely going to be 25% delivered in a digital format? We probably don’t need as many clinics. Do we need as many beds in the hospital? Can we free up capital that way?

If everyone’s operating top of license and we can maybe automate some routine things, can we provide a better experience where everyone’s operating top of license and have more joy in their work every day? We possibly don’t need as many positions because of some things that can be automated in the back office. We don’t need the workforce that we needed before.

That is a big conundrum. Many health systems right now are challenged financially because of their they’re spending a lot more on contract labor. I have one client who let me know that they had been estimating maybe around $1 million of contracted labor excess expense for the full year. Now they’re spending $1 million extra per month. The workforce challenge and what that means as far as the compression of margins is a real issue. As we think about access, it is interesting in Medicare Advantage, they’re relaxing some of the requirements for network adequacy.

Network adequacy is no longer being defined by a doc in a physical box inside of your market. If we can solve for access for things that can be delivered in a telephonic way or a digital way, it doesn’t matter if that position is in your market, another part of the country, or even another part of the world. Organizations are beginning to think about building their physician base, with physician practices, but also a more digital footprint that allows them to create the access that they’re looking for.

 

There’s also clinical integration. That’s at the foundation of this where organizations are thinking about what can truly be managed within the hands of their primary care physician, unless that may be passed things on to a specialist that is more routine so that we’re not clogging up schedules for things that can be truly managed to even in a primary care practice, or even by an extender.

The care model transformation that’s also happening is something that’s pretty exciting out there. That’s leveraging technology. I’m thinking about network adequacy in different ways, and also different ways of partnering with providers that are more digital, versus in-person visits that are allowing transformation to take place.

We always want to hit home some of the very pragmatic practical takeaways for our audience. Could you talk about how a hospital health system or large provider group can enter this market? How would you choose a partner? How would you decide whether to go it alone, and develop your own insurance package potentially? What are the characteristics of a good market to enter? What are the startup costs? Some basic understanding of if you’re interested in the audience and doing this, what would you do?

We do have a paper from the Center for Health Insights from Guidehouse that looks at it. This is the time for payvider adoption that will go a lot deeper into some of the things that I’ll touch on. I’m sure that we can make that available to the readers. Every market is different. Some markets are already more efficient with care delivery and are seeing more members that are in payvider relationships that provide opportunities in other areas of the country where there’s high utilization.

Unless we transform our care model, you can get yourself in trouble by moving into these types of relationships. Point one markets matter. If your market is low efficient, you can drive payvider activity and take advantage of your low-cost position. In other markets where you’re maybe more high cost, you’re going to have to build care transformation capabilities to drive down utilization before you can be successful in these models as far as who you partner with. The market share model matters as you’re looking to accumulate lives

A health plan partner is maybe number 1 or 2 in the market. How they’re currently looking at their MLR performance, those partners who are maybe around 80% to 85% MLR will be better along with those who have more of the administrative cost that’s reasonable, somewhere between 6% to 8%. If you’re in a Medicare Advantage product, there’s more premium for those who have at least four-star ratings.

The difference between 3 and 4-star can determine success or failure in these types of models. We are looking at their star rating performance for better will be important. If you can get someone who’s a market leader, someone who’s already effective at managing costs on an administrative side, and then also who has a good star rating will be good from a partnership perspective.

You’ve crammed a tremendous amount of practical, pragmatic information into a short time for our audience. You did a fantastic job. We’re going to be addressing this in one of our next webinars, so we can get into a little bit more detail. I’ll be talking to you again about potentially joining us because you did a terrific job. Ben, could you close us out and maybe let people know who they could contact if they would like a copy of the white paper that Dennis mentioned, some of the practical aspects of getting into this marketplace if you’re interested, and maybe let folks know what we’re going to be doing over the next couple of shows.

For the readers, remember this is the Baldrige Foundation LeaderDialogue program. You can find that website at www.LeaderDialogue.com. On there, there is a Request For Information. It goes right to the senior event coordinator, Erin Sellers. her email address is ESellers@BaldrigeFoundation.org. She can get you the information that you’re asking for. Chuck relayed that there was a white paper that came out of the CEO innovation council. That’s also available for readers that want to take advantage of the information that he talked about at the beginning of the show. That’s a good summation of that.

Dennis, if you might be able to join us for an upcoming show that will expand upon that topic, that would be great. We didn’t get into other entrances in the healthcare space outside of the payers like Walmart and so on, which is a whole other story. That’ll be interesting to unpack in the webinar format. It’s fantastic information. Thank you so much for being on.

Now is the time for payvider adoption. Click To Tweet

Thanks for having me.

That was a terrific summary in a very short period of time on the entire payvider space. Special thanks from all of us to you for giving us a mini Ph. D. in payviders and also being very pragmatic and practical in starting our audience down the road of how they might want to look at this as a possibility for their organization. In addition to that, I wanted to remind them again that everybody can go to the LeaderDialogue website, and you can see where it is that you can obtain a copy of that white paper. There are several other white papers that are available to you.

In our show, our guests are highly specialized in their fields. They tend to use a lot of acronyms that not everybody in the audience may be familiar with. Most everybody on our show is familiar with Medicare Advantage and some other things. I wanted to make sure everybody understood the term MLR because Dennis used that several times. MLR is Medical Loss Ratio. That’s the percentage of the premium dollar that organizations utilize to deliver care. What most experts like to see is that 80% of $1 going towards the delivery of care is used to care for the patient.

As Dennis mentioned, a highly efficient organization utilizes maybe 6% and a maximum of 7% of administrative cost in that dollar towards the delivery of care and the overall care of the patient. I wanted to point that out to make sure that nobody was left behind in terms of understanding those things. Thanks, Dennis, and to our audience for reading.

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We wanted to do a brief summary of our show, to bring everybody up to speed and to help summarize what it is that the three of us think we understand. It’s very interesting that so much of the payvider market is moving towards a Medicare Advantage. it’s also personally interesting for me. When I flipped over to Medicare, it wasn’t soon thereafter that I immediately started looking for Medicare Advantage providers because being a physician and even knowing as little as I do about all the details around it, it felt to me like it was a much better “value” than regular Medicare.

Some of the points that Dennis brought up were quite interesting. Probably the most interesting thing is the opportunity available to health systems, payer groups, and hospitals in the Medicare Advantage space. The most important thing to take away is that there is no cap on the dollars that can be received if the coding and documentation are done correctly. That’s not the case in regular Medicare. I’ve also done more reading on regular Medicare and it is a pretty restrictive space when you look at it. Providers like it because it pays regularly. It pays what it says it’s going to pay. Based on what Dennis said, I would strongly encourage everybody to look at the payer-provider space, but also specifically the opportunity around partnering with somebody in Medicare Advantage. Ben, what did you think?

I couldn’t agree more that it was a mini PhD in terms of the provider space. It was all of that in a nutshell. The readers will benefit greatly. He provides some very keen recommendations and practical recommendations at the end as to how providers may want to evaluate potential payer partners and the strategies that they should consider to be able to be successful in this space.

Darin, what are you thinking?

The risk of being redundant to what’s already been said. I don’t think we’ve had a presentation that’s been richly packed with so much information as we did. Dennis did a fantastic job and clearly knows a world of information that’s beneficial. What struck me interestingly was the ideas that could be brought to the table by senior administrators and those who are having to break outside of the way of doing things for their hospitals in their healthcare system.

Whether it’s relationships with personnel or ways to look at new revenue streams, provide better access, or how you put your organization together, rather than the traditional, “I’m going to build some new service lines or put up more bricks and mortar, ways of creating not only better revenue, but better profitability, better care all the way around.” I was impressed with the go-forward view of how we can do things better. I would hope that the readers would see that and come away with a wealth of ideas of ways that they could help improve their organizations.

Thanks.

 

Important Links

• ABOUT Healthcare
• Guidehouse
• Center for Health Insights
• www.LeaderDialogue.com
• ESellers@BaldrigeFoundation.org

 

About Dennis Butts Jr.