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Health Plans and the Three Levers of Innovation for Affordable Care

Unlocking Affordable Care

Number 2 in a Series of 6

By Sam Muppalla – Vice President, McKesson Health Solutions, Network Performance Management (NPM)

Last week, for the ME-P, I wrote about the increasing Pressure to Deliver Affordable, High-Quality Care.

In the face of those pressures, many health plans have begun to explore innovative approaches to product, care model, and reimbursement designs. What are they doing?

In this second installment of our series about unlocking affordable care, I’d like to take look at how some of the pilots in these areas show promise.

Product Innovation

One path health plans are using to achieve affordable care is through the deployment of value-based insurance designs (VBID). At the heart of this approach is the utilization of member incentives to reduce barriers to high value Rx and services. Conversely, it also incorporates disincentives for low value services or Rx. Typical member incentives include premium reduction, co-pay/coinsurance waiver/reduction, and health reimbursement accounts (HRA). Co-pay increase or cost sharing are typical disincentives. Member steerage to high value providers is another typical goal of VBID. The design of the supporting networks is critical to the success of VBID products. The network design has to ensure that the composition, the quality and the value of the participating providers can fulfill the benefit design and match steerage goals of the member incentives. Furthermore, the network level provider reimbursement guidelines should be complimentary to the member incentives.

For example, member incentive for a preventive exam during a Primary Care Physician (PCP) office visit could be matched by a Pay for Performance (P4P) provider incentive (on top of regular capitation) to perform the examination. Without the incentive, the Per Member Per Month (PMPM) capitation might be a disincentive for the PCP to perform the preventative exam.

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Figure 1: Network steerage is a critical component of product innovation.

Care Model Innovation

Innovative care models provide another approach to the delivery of affordable, high-quality health services. Population management-based care model designs, such as Patient Centered Medical Home (PCMH) and Accountable Care Organization (ACO) designs, are an important advancement towards affordable care. These designs deploy a care team-based approach rather than a traditional siloed services approach to ensure a continuity of care.

The PCMH care model results in continuity of care via a physician who leads the medical team that coordinates all aspects of preventive, acute and chronic needs of patients using the best available evidence and appropriate technology. The emphasis for PCMH is about collaboration to manage a population’s health.

Another example of a care model with a team-based approach is the ACO care model. In this care model, the emphasis is on accountability for providing the required healthcare services for a defined population. Health plans are rolling out ACO pilots across the nation.

For example, the Pension System (of the California Public Employees’ Retirement System) formed a partnership with the Blue Shield of California Health Maintenance Organization, Catholic Healthcare West, and Hill Physicians Medical Group with the goal of improving quality of care while reducing costs. Some of the early findings are showing positive results:

  • 17 percent reduction in patient re-admissions since the pilot began
  • Length of stay reduced by one half day
  • Almost a 14 percent drop in the total days patients spend in a facility
  • 50 percent reduction in the number of patients who stay in a hospital 20 or more days

These results show that it is possible to utilize care models to improve the quality of outcomes while reducing the cost of healthcare.

It is worth noting that health plans are not limited to adopting one care design innovation over another. Greater benefits can accrue to both consumer and provider by combining approaches—leveraging both collaborative and accountable care designs.

Adoption of population management is forcing a change from paying for individual providers’ services to paying for health management of a population across a team of providers. Supporting this requires the reimbursement systems to understand the structure of the care team, role of the various providers within the care team and the relationships between the providers in the care team.

In other words, it will need to understand the provider network structure to calculate the reimbursement. Another complexity is that providers participating in PCMH or ACO care models may also be directly contracted with the health plan. Selecting which payment arrangement to use in these scenarios will require an understanding of providers’ relationships with the plan.

Reimbursement Innovation

Along with innovations in product and care model designs, health plans are also innovating in the area of provider reimbursement. These innovation efforts primarily focus on enabling incentives for quality and performance, while controlling the rate of medical cost growth. These objectives reflect the need to move away from a healthcare system that bases provider reimbursement on volume to one that bases provider reimbursement on the value of the outcome. Within this approach, a variety of different models are evolving (see Figure 2). 

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Figure 2: Mixing and matching payment models.

Evolving in parallel with individual models is an understanding that the ability to mix and match different reimbursement designs will deliver greater value than the utilization of just one design. Health plans are mixing and matching different reimbursement methodologies to optimize provider performance. This implies that a provider is likely to have multiple valid payment arrangements at any given time. Picking the appropriate payment arrangement will require the reimbursement engine to understand the role of the provider in the network and the full context of all of the provider’s relationships.


Next week, I’ll be discussing why the alignment between products, care models, provider reimbursement, and network design is so important when it comes to scaling these innovative approaches.

If you can’t wait that long for that discussion, you can read the entire Unlocking Affordable Care by Aligning Products white paper now; it’s available on our website.


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5 Responses

  1. HHS calls for more innovations to follow-up care

    Sam – awesome series.

    Now, did you know that the US Department of Health & Human Services, citing a need to ease transitions for patients discharged from the hospital, announced the launch of the second part of the Office of the National Coordinator for Health IT’s Investing in Innovation (i2) Initiative.


    Can you believe it – the government wants us to “innovate?”

    Dr. Greenberg


  2. Dr. Greenberg,

    Yes, I think they really do, and all other healthcare stakeholders, as well.

    Ann Miller RN MHA


  3. Retail Stores and the Shift to a Consumer-Centric Health Marketplace

    The number of consumers in the individual health insurance market is expected to double by 2019. Many of the new consumers will be health insurance novices facing a daunting array of decisions.

    In light of these changes, innovative insurers are increasingly viewing retail stores as a consumer-friendly way to facilitate purchasing and encourage proactive health care choices.

    What other innovations will this all bring, Sam?



  4. Where Have All The Venture Capital Dollars Gone?

    Venture capital investments may be increasing in many sectors, but not in life sciences.


    Defined as biotechs and medical devices, venture investing fell 9 percent in dollars and 6 percent in the number of deals in the second quarter of the year with $1.4 billion funneled into 174 transactions, compared with the first quarter of 2012, according to PricewaterhouseCoopers and the National Venture Capital Association.



  5. How to destroy health IT innovation

    Given the vitriol periodically heaped upon many of the electronic medical record systems commonly deployed and mandated by the government, this enthusiasm for computers and telecommunications may come as a bit of a surprise to some …


    Ann Miller RN MHA


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