Amid the COVID-19 pandemic, health systems and physician practices are facing an unexpected side effect: increased activity from disruptors, eager to snap up independent practices and other entities and digitally upgrade the experience for patients. As a result, health systems are taking a closer look at their provider alignment options.
Disruptors are no strangers to the healthcare market. The healthcare industry experienced robust M&A activity by private equity firms in 2019, with total deal values climbing to $78.9 billion, the highest value on record, according to Bain Capital. Bain Capital itself announced a “significant investment” in a provider, Broadstep Behavioral Health, in May.
As the country begins its COVID-19 recovery, private equity and venture capital firms will only continue their acquisition activity. The pandemic has highlighted areas of deficiency in the healthcare environment that are ripe for disruption, such as ambulatory surgical centers (ASCs) and telemedicine, which will continue to draw the interest of venture capitalists as the model becomes more mainstream.
Not to be left out, health plans are expected to continue their foray into the delivery side of healthcare, as well. Molina Health Inc. recently announced that it will acquire Magellan Complete Care, a management services organization serving providers in six states. Likewise, payers are aiming to make strategic deals that go beyond growth and focus on value, innovation and customer experience—including acquiring and employing physicians directly.
To remain relevant in an environment ripe with tech-savvy competitors and private equity and venture capital backing, health systems and physicians are at a turning point.
As disruptors actively acquire delivery networks, they are rapidly developing and adopting tools and technologies that are changing how consumers engage with and purchase healthcare services. To ensure market alignment, and relevance and unanimity with patient expectations, health systems need to proactively identify areas of need or interest in their local physician networks – or partner with a disruptor that can.
Our experts make note that hospitals and health systems are often viewed as a trusted community resource more so than health plans and other emerging entities, which presents opportunity to solidify physician alignment and partnerships during a time of great need. The traditional spectrum of provider alignment options remains consistent with those available pre-COVID-19, though the motivation and utility of these options may be positioned differently to directly address physician concerns during these turbulent times.
A thorough assessment of local physician needs will help health systems identify areas of provider interest and determine their best path forward.
Local Physician Need: A revenue injection
Alignment Models to Address Need: Co-management, Hospital Quality & Efficiency Programs (HQEPs)
As financial pressures mount for independent physician practices, particularly among specialists, co-management and HQEP models provide the opportunity for physicians to receive incentive payments based upon their contributions to improvements at the individual service line and/or facility-wide levels. These models have proven to produce win-win outcomes for all parties due to the ROI to the health system and the addition of a new revenue stream for participating providers.
Local Physician Need: Relief from day-to-day business management and pressures
Alignment Models to Address Need: Employment, acquisition, managed services organization and ambulatory surgery center ownership transfers
Based on our conversations with members, a large number of physicians have expressed a desire to focus on care delivery and remove themselves from the business end of medicine as a result of the COVID-19 crisis. Health systems with access to capital have the ability to provide various options to physicians to address this desire through direct employment, acquisition of business assets, physician practice management and transfer of ownership in physician-owned ambulatory surgery centers.
Local Physician Need: Stable business partners
Alignment Models to Address Need: Joint venture ambulatory surgery centers, institute models
On the other side of the coin, some physicians view the current environment as an opportunity to invest in and stabilize their future. In this scenario, health systems should explore the development of joint venture surgery centers and/or institute models to drive excellence through service lines in a dyad leadership structure. Both of these options present significant upside from a market share capture standpoint.
Local Physician Need: Information technology (IT) support
Alignment Models to Address Need: IT subsidies, telehealth adoption and onboarding
The COVID-19 pandemic has resulted in an unprecedented adoption rate around virtual medicine. Most health systems have invested rapidly in these areas and accrued a high degree of expertise, which physicians view as a valuable asset as they continue to transition portions of their practices to digital platforms. Health systems in environments where physicians express interest in this space should explore options related to increasing connectivity through IT subsidies and expanding common telehealth platforms, while providing implementation support to providers along the way.
Local Physician Need: Support in the transition to value-based care
Alignment Models to Address Need: CIN/ACO formation or participation
The pandemic is driving public and private payers to accelerate value-based care efforts to continue shifting risk to providers. Many health systems have endeavored to prepare for this shift in recent years, and many physicians have embraced this concept. As this trend continues to grow, physicians who have historically not participated, or engaged at arm’s length, will look for partners to assist in this transition through sharing of best practices, contract negotiations, analytics and care delivery support. Health systems should utilize (or, if not already established, explore the formation of) clinically integrated networks (CINs) and accountable care organizations (ACOs) as the partnership vehicle to engage and work closely with physicians to succeed in value-based arrangements with payers.
As health systems evaluate options to more closely align with independent physicians, they should consider speed to implementation, protection against future disruptions and the relative agility of the models being pursued.
Given the stark economic conditions and the emergence of disruptive market forces vying for physician practices, there are several steps health systems can take as they evaluate alignment options with independent physicians:
- Step up communications and outreach
As the dust settles from the pandemic and states begin to ease social distancing restrictions, providers should proactively initiate conversations with independent physicians within the health system CIN/ACO and beyond. An understanding of the market as well as independent physicians’ challenges, concerns and views of the future will provide valuable insights on alignment options and how best to serve as a sustainable partner.
- Identify essential, high-value providers
COVID-19 effectively eliminated overutilization and forced the acceleration of care delivery to lower acuity settings. While health systems are gradually ramping up necessary elective procedures, experts do not anticipate that fee-for-service volumes or revenue from high-acuity settings will return to previous levels.
To ensure predictable revenue, health systems will increasingly seek reliable and consistent streams of revenue offered by value-based, risk-based and capitated arrangements. Financial performance under global risk-based arrangements is predicated on network physicians with attribution who follow clinical appropriateness standards and are committed to efficiency, quality and patient experience, but in some instances, COVID-19 may have threatened the financial solvency of essential, high-value physicians. It will be important for providers to understand which practices are at risk. They may be highly sought after by payers, private ventures and other disruptors.
- Determine partnership options to solidify relationships
The needs of each physician practice will vary depending on the challenges it faced during COVID-19. Premier has surveyed independent physicians over the past eight years on the value proposition of participating with health system-funded CINs/ACOs. In the past, the top drivers for network participation have been the opportunity to lead through board positions, the chance to influence clinical standards and business decisions, and infrastructure support for information technology.
While shared decision-making authority remains a priority, physician practices will increasingly seek sources of revenue and financial stability post-pandemic. Providers should take the opportunity to develop a plan with partnership options and educational content that outlines the value proposition for targeted independent physician practices. Some practices that were fiercely independent will now be interested in employment. Other practices will seek new partnership arrangements that offer economic stability without employment. For health systems and networks with a significant value-based contract portfolio, there has been a greater focus on integrating specialists committed to clinical appropriateness through private arrangements that disruptors cannot offer such as HQEPs.
Through these uncertain times, the threat of new entrants into healthcare markets traditionally dominated by health systems looms large.
Healthcare disruptors – often with access to capital – are eager to expand their presence or enter new markets. The changing market dynamics, accelerated by COVID-19, have providers in need of a model that aligns specialists and hospitals to improve patient outcomes and revenue through team-based, coordinated, high-value specialty care. To help providers navigate these important strategies, Premier is launching an Integrated Specialty Care Network, developed in partnership with Mike Schweitzer.
Contact us to learn more about our Integrated Specialty Care Network.