At the Helm

Win market share not once—but twice


Where does health system growth come from?

Until recently, the answer has been "physicians." Physicians have represented the most important decision point in how health care services get selected. Therefore, the dominant health system growth strategy could be summarized as, "Get the physicians, and the patients will follow."

But new channels and decision points are complicating that process. Tomorrow’s health systems will actually need to win market share twice—first, to get included in insurance networks, and then again to be selected as providers for individual episodes of care.

A retail market for health insurance

To understand why, we first have to understand how insurance markets are changing. One of the main themes I’m discussing with member CEOs at this year’s CEO Special Sessions is the emergence of a retail market for health insurance.

Between what has turned out to be a fairly successful launch of the Affordable Care Act’s health insurance exchanges and the rapid growth of private exchanges, it’s clear that decisions about health coverage are increasingly in the hands of individual consumers. Figure in continued uptake of the Medicare Advantage program and market-based Medicaid innovations in places like Arkansas, and we are on track to have as many as 90 million Americans directly purchasing their health insurance on some form of exchange platform within five years’ time.

Early data suggests that consumers on the health insurance exchanges gravitate toward less expensive insurance options. If consumers continue to favor the less expensive plans—and there’s no reason to think they won’t—the exchange-based insurance market will be dominated by low-premium products.

At the same time, employers that don’t shift their workforces onto health insurance exchange exchanges are likely to turn toward actively-managed, self-funded health coverage arrangements, and therefore will be intensely concerned with per-beneficiary expense.

Why does any of this matter to health system strategy? Because low-cost coverage tends to have two crucial characteristics: narrow provider networks and high deductibles.

Securing a spot in narrow networks

When it’s no longer a foregone conclusion that most providers will be included in most networks, figuring out how to get chosen to participate in insurance networks becomes a critically important challenge for health system strategy.

Meeting that challenge—selling health system services at a wholesale level—will mean appealing to a wide range of decision-makers. Tomorrow’s "network assemblers" include commercial insurers and self-funded employers, but also custom network aggregators and even companies like Walmart. These network assemblers won’t hesitate to exclude providers that don’t meet the bar for quality, scope of service, or, most obviously, cost.

Moreover, health systems will need to meet the network assemblers’ cost expectations in two ways. Systems will need to offer a low "rate," which means that they will need to be able to accept lower-than-usual pricing from the network assembler. But they’re also going to need to offer a low "trend," because in the retail insurance market, premiums may actually get competed down, and therefore payers and providers alike will need to accept even less money for their services over time.

The imperative to deliver a lower "rate" and guarantee a declining "trend" translate directly into two of the most important strategies for health systems over the next five years: dramatic cost reduction (to reduce the unit cost of care) and population health management (to reduce the total cost of care).

Still, for health systems, securing a place in a narrow network—and ensuring that the network is competitive year over year—is hard enough, but that’s only the first step. Health systems also need to be selected by consumers to provide actual episodes of care.

Getting chosen by price-sensitive patients

Consumers who migrate to high-deductible health insurance plans bear more greater financial exposure to the out-of-pocket cost of care than insured individuals ever have in the past; these days, $5,000 individual deductibles are no longer uncommon. With deductibles this high, consumers essentially become self-insured for most health care services, almost everything short of hospitalization.

These price-sensitive patients are more likely to delay or avoid care than patients have been in the past, and they’re certainly going to shop around. Ironically, they may not even be that loyal to the providers in their health insurance network, since going out of network doesn’t necessarily look all that bad when insurance isn’t paying anyway.

So it’s safe to expect that cost will be the single most important factor when consumers select providers for specific health care services. And cost will become all the more important as health care prices continue to become more publicly available and easy to understand.

For the time being, there’s still wide variability in the market price for health services, but across the next few years, pricing is likely to collapse for many elective and discretionary services. As a result, health systems will have to rethink pricing strategies for clinic care, diagnostics, ambulatory surgeries, and a range of other services.

Looking beyond price

You’ll notice that at both the wholesale and episodic level, I’ve focused a lot on price in all its forms: rates for specific services, total cost trends, premiums, and so on. This is not to say that other factors won’t matter as well.

Great clinical quality, service excellence, accessibility, convenience, brand, and other features will continue to be important dimensions of performance at both points of sale—and we’ll examine some of these other advantages and how providers are pursuing them in future blog posts. But you’ll need to match these attributes with competitive prices to deliver an entire value proposition.

And remember, you’ll have to do it twice.

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