Philip H. Kamp is CEO of Valence Health of Chicago, IL.
Tell me about yourself and the company.
The company started in 1996 focused on helping providers manage risk. We do three things. We do consulting to help them figure out how to get into the risk game. We provide a bunch of analytic tools to help them succeed under risk. We provide operational support.
That could be anywhere from a risk contract to being their own health plan. We’ve got several clients that are provider-sponsored health plans and we pay claims, member services, medical management, all the functions you would do to run a health plan. It’s the full gamut of providers taking control of how healthcare is delivered. For them to do that, they have to be at financial risk, and we help them through that process.
Do you have to convince them that they need to take that step or are they ready? That’s a pretty big jump from the model we’ve had.
It depends on the client. Some are ready to leap and they know that it’s the right strategy. Others that want to phase it in – a crawl/walk/run kind of process. It depends on the type of client and if they’ve had experiences with what’s going on in their marketplace, relationship with physicians … it’s a whole bunch of different things. Some are ready to jump, some are much slower.
Everybody’s talking about what it takes to take on these risk arrangements. Will there be a point where the discussion will be how to get out of some of the arrangements that have been made?
Obviously back in the 1990s that’s what happened. A bunch of groups got into risk and failed under the risk arrangements. They certainly got out of them.
What will happen now, it’s interesting. I’m hoping that most of them get into risk and stay in risk. I think it’s the only way that we can really manage our healthcare costs. If you continue to pay providers fee for service, you’ve got an incentive to do more stuff while we’re trying to control costs. The incentives just don’t work. But I agree, certainly some will fail and some will get out of it. I’m hoping now with improved technology and understanding how to do this that this time it will work.
If I’m a provider and have never done anything with risk, what steps need to happen between the idea and the execution?
The first step I would normally do would be to do what we would call a feasibility study to understand the market and what type of risk to assume. In certain situations, it would make sense for a provider go all the way to becoming its own health plan in certain aspects of the market, certain products. It may not be commercial — it may be Medicaid or Medicare. There are certain providers that it will make sense for them to pursue one, not all of them. They may pursue risk in different formats. They may become a health plan on Medicaid and do a different type of risk contracting with payers on the commercial side, for example.
To me, that first step is that feasibility study as to what makes sense relative to the market. Understand the gaps for them to succeed under risk and then build a plan as to the strategy around how I’m going to get there, what types of risk, and how do I actually implement it and manage it is going to be key to the process.
The hardest piece to build is typically the provider network. It’s really around the primary care physicians, so you’ve got a lot of hospitals that have focused extensively on the specialist side. When you’re getting into population health, the biggest piece that you need to drive is primary care.
Then the question is, how do you relate primary care physicians to a network? Do you need to buy them? Can you put them on the same EMR? There are other approaches to getting them to tied electronically, where you’re pulling data from different sources and you’re clinically integrating the group. It’s around network build and it’s around the strategy and understanding our gaps and how you fill those gaps.
Are there potential land mines of strained relations either with the physicians that hospitals decide to partner with or those that they don’t?
If you decide you’re going to put together a network to assume risk or build a health plan, the physicians or the health systems that you choose to not do that with — you’re obviously drawing a line in the sand relative to those. If those physicians are providing referrals or support to the organization in some format, you’ve got to address those kinds of things. Certainly there are group situations like that that you need to address.
On the payer side, certainly if your strategy is to contract with payers on a risk basis, it’s a fairly neutral process. You can do it with all the payers. If you decide to become a payer, you’re obviously putting a line in the sand also relative to competing with those payers.
Most of the activity is being driven by hospitals and health systems. When they look at their physicians and decide who they want to partner with, I’m assuming they look at more than just their admitting and referral patterns. How is a physician graded on their desirability as a potential risk partner?
Part of the problem right now is any information relative to a physician that doesn’t necessarily practice at hospital a lot is going to be anecdotal. You’re not going to have real analytics behind how they perform. Typically what you’ll see – and I’m thinking of primary care now – it’s physicians with a strong base in a product lines that matter to you, whether it’s Medicaid, Medicare, or commercial.
Usually what happens, at least on the primary care side, it’s around selecting or bringing as many of those players to the table that you can in your network. Then over time, as you get data, you’re maybe weeding out over time based on performance. At the beginning it’s hard to make selections based on any analytics. It’s usually going to be word of mouth or perceptions relative to who you bring in or you don’t bring in.
Are most of these agreements written so that either party has an option to exit?
Yes, absolutely. Then you get into questions like exclusivity and other kinds of things that become critical the success of whether these organizations are going to work, so that plays into it. But usually there is a term agreement. Usually it’s 90 to 120 days, so it’s fairly short term.
Describe how clinical integration is different from a legal standpoint from non-competitive behavior or price-setting in a given market.
I’m not an attorney, but what the Federal Trade Commission has done with clinical integration, they’ve said is if a group of physicians that are independent physicians come together to focus on the management of care, improve quality, and improve utilization of services, that they can work together as an organization and negotiate contracts together.
What the Federal Trade Commission looks for is several things. One is that you’ve established how care will be delivered – call it protocols. Two is you have data that you can collect and manage how well those protocols are being complied with. Third, you actually are measuring compliance. Fourth, you have processes and procedures in place to address those that are non-compliant.
The concept is that if you do those things, that you will manage care as a village – call it a village of providers – that you will do a better job, because everybody will have information on the patients and you will improve the care of those patients by working as a group. Then the thought is that you can negotiate and contract together.
Usually what you should be doing is focused on the incentive piece of that program, so if you develop a relationship with a payer, it may not be around increased fees, although you certainly can do some of that, but it may be around significant incentives relative to the performance of the network on quality issues that you agree upon.
At least on the IT side, the emphasis is on the tools that vendors say are all you need to move to an ACO-type model. Do you think that providers are thinking through all aspects of whatever relationships they embark upon and not just, “If I get some tools and I get some data, I’ll figure it out as I go along?”
There’s different approaches. One is going to be a company will have a shrink-wrapped software product that they give to you, and then you’ve got to figure out actually how to do it. Another approach is to provide the software, but work with the group on a consulting basis to become clinically integrated. You’re identifying the things you need to measure, making sure you’re pulling that data, you’re analyzing on a fairly frequent basis, and you’ve got the processes and the organization in place to manage the care.
It’s certainly more than just getting the data. There are a lot of other elements of it to actually work. Those four that I described earlier really drive it. You need an organization that’s providing the support relative to collecting, managing the data, providing support, and it may be care management support on how to help physicians make sure compliance is reached for a majority of their patients on some of these things. It’s more than just a software tool.
How many different ways are there for insurance companies to get involved?
An insurance company could be the back office. Most of the functions that we’re talking about are classically done by the insurance companies, so they can certainly be the back office or administrative support for these types of organizations.
The problem with doing that piece, in my opinion, is around their lack of neutrality. If you have an organization of providers that want to do risk contracting with, say, all the health plans in its marketplace, if it has one of those health plans as providing the back office, how do those other health plans – the competing health plans — react to a back office of one of their competitors? For example, if United or Optum is the back office and Blue Cross is a group looking to contract with that provider group that has United or Optum as that back office, how does Blue Cross feel about an Optum getting access to their data?
To me that’s an issue, but it’s certainly happening out there. Payers can also be the impetus for the contracting. They could certainly pursue providers in getting into those risk arrangements and help them get there. To me it’s typically going to be better if that payer works with or identifies a neutral third party to help the providers manage that care.
Payers can either be the back office or they can be an impetus for the providers to get into the risk arrangements. Other ways they can be helpful is if they’re getting into risk, re-insurance can be helpful. There are different aspects that payers can ease providers into risk. You can start with something like a shared savings program, move into a risk sharing that moves further into risk. Allowing providers to do this crawl/walk/run and learn as they go through it can be very helpful.
I assume that no parties would get involved in an arrangement like this if they didn’t think it would be financially beneficial for them to do so, either immediately or eventually through market share. Do you sense that the people involved in the ACOs will end up fighting for a smaller piece of the healthcare dollar pie?
The way the Medicare arrangements are mostly set up right now, the shared savings model, is an issue that you’re bringing up. The idea is there is theoretically a budget, and then to the extent that there is an expense lower than the budget, there’s shared savings. Then you reestablish your budget, and then you’re continuing to pull money out of the system. Eventually there’s no money to pull out of the system. That approach creates a problem, although it theoretically works towards driving down the expenses.
The biggest problem I see in the shared savings model is the amount of dollars that you make doing the fee — it’s still a fee-for-service environment with shared savings – you will never save enough money to make up for doing the actual service. The incentives are really not aligned in my opinion. It’s a start, but it really doesn’t align the incentives for the providers to spend less. If they do less, they get a percentage of the savings, but if they keep doing more, they’re getting 100 percent of the dollars that they’re charging for.
I don’t think it’s sustainable in that regard at this point.
You’ve got to come up with other risk type arrangements that make more sense. The sooner you get into full risk arrangements in which the provider has the opportunity to benefit from the reduction in utilization, the better off you’ll be in that process. Then just allow that budget to establish based on that baseline. I think it can work. The problem is shared savings.
Is there potential to at least redirect some of that administrative cost to something that benefits patients more directly?
Sure, and that’s an interesting question relative to when payers and providers negotiate their deals. The payers are used to getting whatever it is — 12 to 15 percent of the premium, and those aren’t exact numbers — but generally it’s in that sort of range of dollars for administration. If the provider group assumes risk, do they then get some of the dollars being spent on administration for the production of those services? If for example a group takes on full risk and they’re going to do all the medical management work, does the percentage of dollars in the premium that’s utilized for medical management shift from the payer to the provider organization?
But you’re bringing up another good point, which is there are economies of scale associated with large payers in providing these services. As more provider groups decentralize some of those functions, there’s potential for those dollars to actually increase, where it will make sense for some of these provider groups to outsource some of the services to groups that can provide them more economically.
What are your priorities for the company?
The priority for us is around helping providers succeed in the new world. We believe strongly providers should assume risk. We want to help them provide the highest quality, most efficient care possible.
That’s our goal — to reduce healthcare dollars, but reduce it in a way that makes sense so that the incentives are tied to providers as the reason to do it instead of fighting it. Align incentives, provide them the right tools, and switch the paradigm right now of insurers in charge and put providers in charge.
If you look down the road five years, what do you see most being changed?
I spend a lot of time with physicians in hospitals right now. I see them mostly focused on what happens in their four walls. I understand that because that’s what they do. The physicians are focused on what happens when the patient sees me.
What I’d like to see happen is that the medical community – hospitals and physicians – come together to manage the population and focus on that rather than managing that patient who comes into my hospital. Focus on reducing the kinds of utilization that they today are incented for. I’d like to see them change their mindset.