Why Should Employers and Other Health Care Purchasers Care About Market Dynamics?
While national payment and delivery reform efforts are afoot, a one size-fits-all solution is not likely to succeed across markets. The structure and characteristics of the local market and health care stakeholders (providers, payers, and purchasers) can significantly impact the success of payment and delivery reforms. Prior to implementing reform efforts, stakeholders should understand how the characteristics of their market may impact the options for reform.
It is imperative to tailor payment and delivery reforms to local markets by analyzing the relative influence, capabilities and culture of the various stakeholders, within the context of the state and local regulatory environment, to determine the barriers to, and facilitators for, particular reforms. The most dominant stakeholders may be able to shape the market, using negotiating leverage to insist on or reject substantive changes to contractual terms and conditions, dictating whether certain reforms can take place. Healthy competition may mean stakeholders are more open to innovation. Things to look for, when assessing a local market include:
- A large, dominant provider system is likely to have the ability to resist payment changes that it perceives as unfavorable. If health care purchasers and health plans have little leverage, it will be challenging for them to request that providers assume financial risk. As an alternative, purchasers and health plans can look to consumer-oriented strategies, such as benefit designs, that direct consumers to the highest value providers in the market, or other payment methods acceptable to the provider that can be a primer for risk-based payment, such as pay-for-performance or shared savings arrangements.
- In a market with a relatively equal balance of power among stakeholders, purchasers may have the ability to push for more advanced reforms. Providers might be large enough to assume financial risk, health plans might be equipped to administer new models. However, implementers should be wary that a push for health care providers to take on significant financial risk could lead them to resist or consolidate, with potentially deleterious effects for purchasers and consumers.
Case Study: San Diego
In San Diego, there currently seems to be a healthy balance of power among local stakeholders. It is an evolved market with several large and competing integrated delivery systems. These large provider systems have experience beyond fee-for-service with risk-based payment arrangements, such as shared risk and capitation, and sophisticated health information technology infrastructures. The major health plans have experience with advanced payment and delivery reforms either in the market or nationally. There are some strong health care purchasers in the market and both the provider systems and health plans are eager to experiment and partner with them. All stakeholders have some experience with more advanced payment and delivery methods and therefore are not adamant about maintaining the status quo. In addition, no stakeholder has significant leverage over another so experimentation with more advanced reforms could be fitting for all parties.
Want to learn more? Check out these additional resources
- Health Affairs Blog: The Payment Reform Landscape- Tailoring Payment Reforms to Local Market Dynamics