Over the last 8 years, I met many executives from a range of healthcare organizations – medical groups, Medicare and Medicaid HMOs, MSSP and Commercial ACOs, IDNs, and large hospital networks that are taking on risk contracts and actively transitioning towards value-based care. Some of them are starting their own health plans.  

Several executive teams believe that a transition to value-based care is inevitable, and by actively working towards that goal, they can avoid being swallowed up by the tide; this group is made up of innovators and early adopters. Other executives think that value-based care is a trend that may or may not stay for a while. They tend to adopt a ‘wait and watch’ strategy until value-based care models become more mainstream, at which point they will jump on board. Some even feel that the rise of value-based care models is nothing more than a marketing ploy to gain favor from patients who want to see healthcare as a consumer market, and they typically won’t start adopting this model until very late in the game or will just fold and get acquired by more innovative leaders.

The Truth About Why Transitioning to a Value-Based Model can be a Monumental Task

Here are the 5 organizational capabilities that I’ve found make a difference in which organizations succeed during this transition, and which do not. These are the soft skills that drive hard results:

  1. Organizational Mindset: Providers are great at delivering care while payers are great at understanding financial risk for their members. Organizations that are adopting a value-based care model require a convergence of these two mindsets. Payers are business savvy whereas providers are more customer savvy.
  2. Collaborative Environment: Fee-for-Service (FFS) has led to siloed thinking which in turn has led to mutual skepticism between health plans and providers. It is not just exchange of data, but the struggles seem to be in the inability to interpret the data as they are trapped in their own siloed thinking. Value-based care needs end-to-end care delivery system thinking which is not possible without collaboration between team players from different career paths within payer and provider organizations. There are very few individuals who have successful career experience in both the provider and health plan environments. Unfortunately, the healthcare industry has not developed this critical collaborative working skills, which requires working with team members who think differently.
  3. Leadership “Dark Space”: Any organizational transition requires leaders that step up to the plate and can evolve quickly. There is a lack of leadership experience in some healthcare organizations which has led to an inability to operate in this new collaborative environment. Leaders need to think laterally rather than succumbing to traditional vertical thinking. Today’s healthcare leaders need to be able to connect the dots and operate in ambiguous scenarios with limited data. They need to be able to balance the pros and cons of complicated scenarios with limited visibility. They need to be able to invest in services and technologies that might not show immediate ROI. Most of all, they need to be able to steer their organization in new directions quickly by managing the score card – think long term investment as opposed expense management driven annual operating plans.
  4. Care Model: Health plans are great at population-level thinking but fail to deliver on member-level engagement. Providers, on the other hand, are good at hands-on member-level care but find it difficult to connect the dots to take it to process-centric population programs. How do you bring the best of both worlds into this new value-based care delivery model?
  5. Incentive System: Incentivization for most organizations are still stuck in traditional volume-based models. The metrics for success for a CFO of hospital system probably include numbers like how many beds were filled. This simply won’t work for a value-based care model. I see most finance teams spending significant modeling time on the trade-off between FFS revenue versus value-based care revenue.

At the end of the day, when a healthcare organization is transitioning to a value-based care model from an FFS model, their business objectives are completely changing. That sort of evolution calls for different organizational culture, leadership skills, business strategies, processes, analytics and infrastructure. What I have seen lately in the market is that provider groups are becoming payers by building health plans and signing value-based contracts, however, they have failed to invest in the organizational capabilities they need to succeed, and they really struggle with conflicting objectives. Then there’s payers buying providers and letting those providers run the clinical side of the business. In that model, payers can still operate the business side with incentive systems that make more sense for this model.

As an entrepreneur and management consultant who has seen market transformation in different industries, I know that no one player makes the market. So, don’t try to manage the market transformation, just play your role with a focus on the end customer. Markets make and destroy players during the transformation cycles. You will never go wrong if you do the right thing for your end customers.

So which model will succeed in the race to value-based care? Optum buying medical groups and running clinically integrated value-based care delivery networks (like USMD Physicians, Monarch Health) or hospital systems building their own health plans (like Baylor Scott & White or CHRISTUS Health)? What do you think? I’d love to hear your thoughts.

For more information on how provider groups can achieve success, register for my upcoming webinar How to Achieve Shared Savings for your ACO in the CMS Pathways to Success Program. You can secure your spot by registering here

Which models will succeed in the race towards value-based care?

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