In a category going sideways, it’s time to go vertical.

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In the American economy today, one word seems to be garnering all the attention: inflation. Costs are going up on everything from fossil fuels to ground beef at rates we haven’t seen in decades. While these increases have consumers in a panic (and rightfully so), there’s one industry that’s watching it all and saying to the others “hold my beer.” Because double-digit rate increases have become standard operating procedure in American healthcare. Don’t believe us? Just ask any small business owner.

Despite the chest-thumping and bombast about the “quadruple aim” and other noble goals for the category, the reality is the American healthcare industry continues to get worse across every dimension. Costs continue to rise unsustainably. The patient experience becomes increasingly less personal. Health outcomes are worsening. And provider burnout and dissatisfaction are at an all-time high. “Other than that, how was the play Mrs. Lincoln?”

One would think an industry that spends billions of dollars on research, innovation, and venture investment would have more to show for itself. It may be minting entrepreneurial millionaires at a record pace, but it’s doing so while the industry delivers a poorer experience at higher costs, while chewing up and spitting out the people who work in it.

The obvious question that bubbles up from these depressing outcomes is “why?” The answer is quite simple…incentives. Let’s look at the players in this industry:

  • Do you think the average hospital CEO has much desire to go on a crusade to lower costs for their services? To stop building unnecessary hospital beds and clinical facilities? To move services out of their monolithic hospital to a more cost-effective location?

  • Do you think the average health plan CEO has much desire to truly move the needle on the cost of care and elimination of all the complication and confusion that exists in their plan’s offerings?

  • Does the average broker have much desire to move costs down when their commission structure is often tied to the premiums paid by his or her clients?

  • Does the average employer have the courage to pursue alternative options that have proven to lower costs, knowing it will likely cause some employee friction relative to the “all you can eat buffet” of healthcare they enjoy today, regardless of cost?

Everything can be traced back to one simple principle … ”follow the money.” And nowhere in the industry is the misalignment greater than between payor and provider. It remains largely a zero-sum game despite the many attempts to change it, most of which go by an alphabet soup of acronyms: HMO, MSSP, ACO, PCMH. While well-intentioned, these efforts typically only result in administrative bloat on both sides of the equation, with little long-term value to show for it.

Our contention is there is a single, old-as-time strategic option on the table for payers that truly want to move the needle and create a lasting impact on an industry desperately in need…vertical integration. Below, we’ll outline 5 key reasons why payers should be strongly considering vertically integrating into care delivery.

1. It’s the antidote for a shrinking value proposition

As the commercial market continues its shift to self-funding, this also shifts the role of the payor, from risk manager to administrator. In this role, there is less influence, less control, and most importantly, less margin. Stepping into care delivery enables payers to take on an expanded role in the healthcare equation for their clients.

2. Pull up a seat

Time and time again, we hear health plans talking about member engagement. Chances are good that something having to do with engagement is part of the strategic framework that sits on the wall of your plan. Everyone knows the key to managing healthcare costs is the engagement of members. The issue is members have little to no interest in outreach or advice from their health plan. Shifting from the payor seat to the provider seat changes your seat at the table in member engagement. You have a significant influence on specialist referrals, how someone is staying current with their chronic illness, like diabetes, or whether they schedule an age-appropriate screening.

3. VBC isn’t moving the needle

Despite many attempts at value-based care models, healthcare remains largely a zero-sum game. When the provider wins, the payor loses, and vice versa. Value-based care models are frequently nothing more than glorified bonus programs and, as such, are not delivering on the promise of value. The only true way to break through is to integrate the two, creating a real alignment of incentives oriented around successful outcomes.

4. They can’t quit you

A thoughtfully executed, vertically integrated health plan It becomes the stickiest product in your portfolio. Members and groups are less interested in transitioning plans when it also means the loss of their doctor relationship. Note that this only applies if the care delivery model is exclusive to your members and accessed through a health plan. Simply building a clinic and hanging a “come one, come all” sign on the door isn’t good enough.

5. Tit for tat

Health systems are beginning to jump into the payor business as well, seeing opportunities to more fully control the healthcare experience. As payers have increasingly tried to push risk to providers, some have opted to leap fully into the risk business by creating health plans. However, payers have an advantage here, as the shift is more difficult for health systems, as they must fundamentally change their mentality and reward structures. Payor incentives are already aligned with those of their members and are thus well-structured to move the needle on costs.

While the reasons to enter the space are compelling, there are landmines aplenty waiting to trip up even the most enthusiastic payers. At Barkley Health Innovations, we’re honored to have guided multiple health plans down the vertical integration path and have seen firsthand the approaches of others. From this experience, we’ve seen the good, bad, and ugly of vertical integration strategies and will share with you five recommendations for how to execute these models successfully.

6. The model should only be accessed through a product

Too often, payers try to build models that serve everyone. It’s a natural tendency, as why wouldn’t you want as many people as possible to have access to this amazing new concept you’ve built? The problem is that enabling access to anyone limits the competitive advantage you create. Even reducing access to only payor members adds complexity to the model administration and significantly hampers your ability to innovate on the plan design and experience.

7. Resist the urge to be all things to all people

This one rides along with #1 and, in our observation, is the thing that trips payers up more than any other. As these concepts begin to gain steam, an insatiable desire arises to shape and mold the model to fit any number of desires. “Let’s make it available to our Medicare Advantage members! Let’s build a version that’s compatible with HSA plans! If we add these three services, we can get this employer group to say yes!” While well-intended, the challenge with these urges is that slowly but surely, they strip away what’s unique and differentiating about the model. If you’re not careful, you wake up one day and realize you have just another care clinic with a slightly different ownership structure.

8. Getaway (far away) from the mothership

Building off of #2 above, another key issue that stifles innovation is using legacy teams and legacy processes to create these new models. It can be hard to resist the temptation to follow “standard procedure” with these efforts. But when the corporate culture gets its hands on the model, it inevitably comes out looking like the last part of Elvis’ career…bloated and uninspiring. Nominate a band of fresh thinkers, kick them out of the building, and stay out of their way unless they go way off the rails (and even that may not be all bad).

9. Have a technology game plan

Too often in these models, the technology and resulting experience become an afterthought. Whether from poor planning or lack of time, these choices ultimately result in a sub-standard experience, either for members or employees. Let’s not forget being “vertically integrated” actually requires integration. Simply standing up a clinical environment and mashing it into the payor technology stack isn’t going to create transformative change. It’s going to perpetuate the status quo.

10. Leverage the data collective

Another technology area where payers fall short is in the data space. The bringing together of payor and provider should yield a treasure trove of insights, as claims join hands with population health and clinical data. Unfortunately, too often, it remains just that: data. To convert it to actionable insights requires thoughtful technology decisions and supporting operational processes to take action.

While healthcare continues to have its share of challenges, it’s important to remember many of them are self-inflicted, stemming from the pursuit of self-interested incentives over all else. Those who can best control costs have no incentive to do so and those who most want to control costs are largely powerless to move the needle. Aligning these two entities holds real promise, perhaps the best promise, for true transformation in healthcare. The road is challenging and many tripwires exist. But with the right model and approach, breakthrough success can be achieved.

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