Value-Based Payment Edges into Employer Programs
David Snow has spent more than 40 years in healthcare with diverse experience running pharmacy benefit managers, health plans, hospitals and physician groups. Snow founded Cedar Gate Technologies in 2014, with the strategic intent to deliver an end-to-end platform for payers, providers and employers to move from fee-for-service to value-based care.
I used to run health plans all the way back to the early ’80s. We used to capitate delivery systems, and we used to try to get them off of this perverse incentive called “fee for service.” We’ve been doing it for decades. Delivery systems were willing to try it back in the ’80s, but the problem was always the technology didn’t support that play from an analytics perspective and the payers wouldn’t supply the data needed. So the payers (and by the way, I was a payer) would put you at risk as a provider but not give you data or the meaningful analytics that are actionable so you can be successful. They lost money, they got burned, and they backed out.
Flash-forward to today, the delivery systems have to be pushed back into value-based care because of those bad experiences going back decades. We are making enormous progress now with delivery systems that are willing to take risk and are willing to go direct to employers, which is a big opportunity for both the employer and the provider.
But remember, there’s a lot of competition going on, and payers are feeling disintermediated when the providers who are willing to go at risk go direct. So trying to get all these parties aligned is the difficulty now, but the good news is we are seeing a dramatic move to value-based care across the three verticals we serve today—from the provider side, the payer side and the employer side.
We have customers doing all types of value-based care, from primary care attribution upside-only to upside-downside risk primary care attribution, to retrospective bundles, to prospective, to global capitation all the way out to the end, primary care cap, specialty cap, global cap. It’s a journey, and people are starting to take the journey.
Our job is to make sure those who move from fee for service into those risk arrangements are successful so they keep on going and don’t turn back to this place we call fee for service, which is the root cause problem for all of healthcare’s ills, both in terms of cost and quality. I’m convinced of it after doing this for 40 years—fee for service drives all the wrong behaviors.
Employers are starting to take action in all kinds of ways. You’ve seen some of those actions not work, like Haven, which was the JP Morgan, Amazon, Berkshire Hathaway deal, but now Morgan Health has been announced. You see Amazon taking initiatives of their own. Walmart’s taking initiatives of their own. We have enormous numbers of brokers and consulting houses on our platform using our analytics today, and they are taking these analytics to help these self-insured employers diagnose their problems and create their opportunities so they can control their destiny. That was not happening five years ago. It’s happening in big volumes today.
We have four of the top 10 broker/consulting houses using our technologies and analytics today. Their whole goal is to figure out how these self-insured employers can take advantage of providers who are world class in terms of quality and willing to take bundled or capitated risk, and our job is to help them. But we’re seeing great movement. I would say we’re in the first inning of this movement, but what I love is all the key players in this space, including the government, have woken up and they’re on the same page about where we must go and they all understand why we must go there. It’s taken a long time, but I finally believe the players are in the right mindset to make a material difference.
We have a large employer who has been on our platform for a year and a half doing cardiovascular and orthopedic centers of excellence. They have seen dramatic savings, dramatic reduction in hospital days, dramatic reduction in admissions.
The number one tool for a self-insured employer that’s the easiest to understand and the easiest to implement is prospective bundles. So bundled risk versus capitated risk is a lever they can pull very easily. The improvements in both cost and quality are dramatic when you look at the case studies we’ve developed tied to those customers we work with. We also have a very large customer who’s been on our bundled platform—we’re doing four centers of excellence for them—they’ve been on it for 20 years. The results get better and better and better over time because the employees understand the benefit better over time; they get very comfortable with the high performance nature of that network. The network is performing all kinds of concierge services to make sure those patients feel welcome and well treated when they come. Because the delivery system loves those arrangements as well, it’s very much a win-win situation.
There are all kinds of best practices to drive adoption. Sometimes the employers are reluctant to do it, so they don’t get the same kind of results as quickly. A great way to drive adoption is to educate your employees through the Summary Benefit Plan Design—have them understand what a center of excellence is and why it’s a good idea and make their names well known.
More important, create a benefit design that encourages that use—whether it be the elimination of a co-pay, a reduction in the co-insurance or an elimination of the co-insurance, even providing travel arrangements.
The more you make it a value prop that crosses the spectrum from quality to service to dollars, the quicker the adoption is. And again, the employer controls benefit design levers. If you’re reluctant to tilt the playing field toward your centers of excellence, you’re doing yourself a disservice. But we have seen people who are reluctant to “discriminate.” When we run our analytics on a market and what providers are truly to the left of the mean of the bell curve in the market, they’re the ones you want to create these centers of excellence relationships with. If you aren’t willing to lean toward them, you’ve got people practicing their way to the right of the mean, that fundamental arbitrage is just a wasted opportunity. And you really do need to drive it. I think employers are just beginning to get comfortable with that. They prefer not to pick sides, they prefer not to make those kinds of decisions. But at the end of the day, they aren’t solving their problems if they don’t.
We take enormous numbers of sources of data—over 35 different sources, 350 different players across the country. We take medical claim data, we take PBM data, we have EMR connectivity, we take EMR data, we can take wearables, we can take benchmark data, we can take workers comp data. We load data real time, weekly, monthly, quarterly, whatever the need is, and we rerun all the data together to show progress period over period when you make a decision and you change a benefit design or you enter a center of excellence, so you’re always getting feedback on the decisions you’re making so you can do continuous improvement relative to your performance, just like any business would.
The employer has not had that until very recently. And that’s where we’re doing a ton of innovation. [Employers] are more in the driver’s seat today than they were five years ago. Some of them don’t know it, but the opportunities are enormous.
COVID-19 was a massive tailwind to the telemedicine industry. The funny side-story to me is that, prior to COVID-19, physician societies and medical boards fought telemedicine, and as always they hid behind, “Oh, that’s not quality to diagnose and treat using vehicles other than face to face.” We all knew it wasn’t true. But we also knew if you’ve been in healthcare a long time, you know the ultimate driver of that kind of argument is money. And the truth is, telemedicine wasn’t reimbursed by most commercial insurers. So of course you’re gonna say, “Oh, no quality, you can’t do it.” But as soon as COVID-19 hit and everyone changed their reimbursement, the physicians took it on like it was the best thing in the world. They’ve realized they can optimize, get paid for what they do and their knowledge but they can care for a patient over video, over the telephone, or in face to face depending on the situation, make the employees’ time more efficient, make their time more efficient, get more done in a day. So it was a forced education plus a forced change in the reimbursement mechanisms inside most payers. It’s here to stay. It’s going to grow, and more innovation will occur.
For example, virtual primary care is coming. The ability for those virtual entities to also help the referral side to high-performance specialties as needed, it’s on the way. Ultimately, we’re going to have a hybrid capability that is leveraged as we move the delivery systems away from fee for service to value-based care where the choices will be optimized. It’s like site of service. You do a surgery in a freestanding ambulatory surgical center for low risk, easy stuff. Costs are dramatically lower versus paying for the overhead of a tertiary care institution. Massive difference in cost for absolutely no difference in quality, arguably many times better. Now, virtual medicine is just another tool, another choice, another place of service, and that’s how it will be integrated. The more we move to value-based care where the delivery system has risk, the more efficient they’ll want to become, the more the uptake will be in virtual care and telemedicine.
I think value-based care can help. There are a lot of problems, there are a lot of structural issues—I’m going to just start by saying that. But I will say that, in fee for service, a physician who knows a generic drug is absolutely perfect for the problem being faced will order a brand if the patient saw it on TV and says, “I want that brand name.” They will write the script for the brand because they don’t want to upset the patient. When you’re at risk because those dollars are coming out of your financial pool, physicians won’t write that script so easily. So that’s kind of a fundamental.
But I would also say that we as a country have a bigger problem that can be solved with public policy, because for all of our government programs, the government doesn’t negotiate price. I know because, when I ran Medco, we had business in Canada, we had business in Europe, we had business here. America really subsidizes the research and development of drugs across the world because we just pay in a very different way and our government doesn’t promulgate policies where they too are levering their scale to get reasonable price. That affects everything downstream.
I think a combination of value-based care’s growth and the awareness of both the consumer through high-deductible plans and the provider through being at risk for a pool of dollars around specific clinical pathways or diagnoses together make a very big difference. And I think the government has to rethink some of its policies.
For example, when I was a PBM, I was a big believer in transparency. I wanted to negotiate flat discounts off of average wholesale price [AWP]. Just pure discounts, no rebates, just discounts. And I’ll be paid for my services in other ways. It’s against the law. I can’t negotiate discounts off of AWP; I’m not allowed to. The only way I can get savings for my customers is through this word called rebates. And everyone says, “Oh, that middleman is not transparent.” But the truth is you could have looked at my financials and seen that, on my $70 billion in revenue, I had pre-tax margins of like 2%. If I charged a PMPM admin fee, it would have had to be in the same zone. And everyone would have said, “Hey, there’s full transparency here.” The law didn’t allow me to do it in a way that would have made people happier. So it’s a complex area and it’s problematic, but there are solutions that are pretty obvious to me. The one thing that’s happening today is value-based care that will fix things. The other leg of that stool has got to be regulation.