Healthcare, provider reimbursement, and the changing financial terrain

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By Catherine M. Murphy-Barron, Rebecca L. Johnson | 19 March 2015

In healthcare, for providers of every size, the economic landscape is changing dramatically. More and more, hospitals and other large-scale integrated provider delivery (IPD) systems are being asked to take on increased risk. They are finding themselves looking at new contracts with payers, often with strange new terms. As the familiar fee-for-service business models of the past morph slowly but surely into new ways of capturing the market and creating revenue streams, the stakes are high. The time for healthcare providers to start thinking about key strategies for defending and gaining market share is sooner rather than later.

From a payer perspective, health plans have begun prioritizing lower premium options in order to make their offerings more attractive to potential new members. These low premiums are made possible, in part, by using narrow networks with the expectation by the payer that providers can be more efficient while still maintaining high quality care.

Sound too good to be true? It's not, at least in theory, with the advent of value-based arrangements, which are working to transform healthcare delivery into systems where better outcomes and lower costs go hand in hand. In these new payment models, insurers are attempting to squeeze the unnecessary costs out of the healthcare system by focusing on outcomes and passing financial risks traditionally borne by payers onto the providers with which they partner. Many of these new arrangements exist somewhere between fee-for-service and full risk capitation. Some of the most promising innovative models in recent years include the Centers for Medicare and Medicaid Services’ (CMS) bundled payments and accountable care organizations (ACOs).

For many hospitals and IPDs, this is a paradigm shift. These new models require whole new ways of looking at and thinking about how to achieve sustainable financial success. Providers need to look beyond a single payer’s contract and expand the view to the total population within their communities. The economic model of using historical volume and revenue to evaluate a contract is evolving to something far more complicated and challenging.

Two relatively new metrics—touch rate and capture rate—illustrate the shift in thinking about the challenge of doing more with less. These metrics may help providers focus more effectively on their strategies for achieving sustainable financial success within the new payment models.

  • Touch rate is the number of patients the provider treats and provides care to out of the entire payer’s population within a provider’s service area. This helps providers get a sense of the untapped potential of its market share, pointing to where it can be grown, and perhaps even suggesting strategies to approach it. For a given payer, touch rate gauges how many individuals presently use a provider's services—and, implicitly, how many of those people who use other providers could be reached and won over.
  • Capture rate is the portion of a patient’s total care captured by the provider, given that the patient had some services with the provider. Capture rate focuses on the individual patients, looking at each one's use of services spread out across the provider landscape. It helps to address the problem of leakage—people who need and want healthcare services, but who may be going to other providers for this care. Capture rate helps expose the broader referral patterns for provider systems, indicating areas where they may need to shore up their offerings. It may also expose types of services for providers that they may be content leaving to others. Either way, it helps to sharpen the focus of provider organizations in successfully moving forward.

To be sure, problems in the new healthcare regime remain complex with difficult trade-offs ahead for most providers. There may be a need for greater integration or collaboration with primary care physicians and specialist networks. There may be a need to determine which services and procedures are more appropriate for inpatient and outpatient settings. And there are always unexpected new problems whenever things change dramatically.

By focusing on strategies that maximize the number of patients using their services, and those that maximize the use of their healthcare services for the entirety of their needs, hospitals and IPDs are effectively protecting and growing their market share. Touch rate and capture rate are two useful ways of pointing toward long-term success for providers in today's shifting healthcare market.

Authors

Healthcare