Blue Cross North Carolina, ACOs, Aledade, Bright Health, Comparing Value Chains
An insurance company makes an offer that independent practices can't refuse
So, this popped up last week in the ol’ Twitter feed:
You should read the whole thread, but let me summarize so we’re all on the same page.
Primary care practices are hurting financially as people delay treatment during the pandemic.
Blue Cross NC intends to help the practices in its network by covering their COVID-related losses, making payments like it’s still 2019 (if only!), through a program called Accelerate to Value.
The catch is that the practices who accept these payments must join an ACO*. They’ll also be nudged toward taking capitated** payments in a couple years.
I recently covered the current dynamic between payers and their primary care providers, arguing that while cash-rich payers have an interest in keeping their networks of doctors (i.e. their suppliers) afloat and un-consolidated, they also have an opportunity to extract some value in the process:
Instead of giving the money away freely via reimbursements, why not use the cash to take an equity position? Blue Shield of California has done this already. For health systems, primary care referrals are a key source of profitable patients…Insurance companies now have a chance to take control over those referrals.
BCNC hasn’t bought equity—they’ve bought something much more interesting.
Paying to pay for value
BCNC is offering a generous set of payments, so what do they get for their money?
Cash keeps independent providers financially secure, so they’re less likely to sell to a big hospital system, which would increase supplier concentration and weaken insurers. Aid recipients are in fact required to remain independent throughout the program. (Note that this benefit accrues to BCNC’s competitors as well, especially free riders who pay nothing.)
Blue Cross ensures that the practices in their network remain open in the near term, servicing members who still need care. Providers must pledge to stay open, embrace telemedicine, and coordinate care during the pandemic.
Most important, BCNC accelerates an already aggressive strategy to move its operation toward value-based payments
Let’s expand on that last point, because BCNC has been seriously committed to value. In early 2019, they launched a value-based payment program called Blue Premier, which already includes 8 of the largest health systems in the state. All providers involved must accept two-sided contracts, accepting the risk of losing money for delivering inefficient care.
In the rest of the country, value-based care (VBC) has caught on much more slowly, partly because providers face up-front costs and new risks that they have little incentive to accept. In order to get providers on board quickly in NC, BCNC must sell to them, commit resources, and presumably make financial concessions.
It takes real courage to commit to this strategy because BCNC has a lot to lose. It already controls the majority of its market, VBC is unproven at this scale, and a bet in the wrong direction could be damaging.
Moreover, the outcome of the strategy holds big implications for VBC in the rest of the country. A well-executed, successful program will quickly attract followers in other markets. A flop could deter potential followers, further entrenching fee for service. Stakes are high.
Value-based care needs primary care
While Blue Premier has successfully won the large health systems in North Carolina, those systems are not enough to enable the full shift to VBC. Around half of the primary care market in NC is held by independently owned practices, and such practices play an especially important role in the ACO model:
PCPs are most often are the first point of contact with the patient, so they’re most able to make early or preventative interventions
PCPs deliver care across many different patient needs, so they’re positioned to coordinate care across siloed specialists
PCPs manage chronic diseases most efficiently, which is important because un-managed chronic diseases lead to poor health and expensive hospitalizations
There’s evidence that smaller, physician-led ACOs reduce cost more than large hospital-led ACOs, at least in the Medicare market
So BCNC needs to engage a lot of PCPs, but it’s especially tough to entice an independent primary care practice into the value-based scheme. They have smaller patient populations, so risk-bearing is a real issue. They lag behind the health systems in EHR implementations that enable coordination and reporting. They’re independent and all need to be sold on the matter individually.
I’m picturing tall stacks of memoranda on BCNC letterhead, brimming with incentives and pilot programs to bring these PCPs into the fold…and all of a sudden COVID hits. Now BCNC has an immediate way to get their independent primary care doctors to try VBC. Expensive, but worth the price because it’s far simpler and faster than any option available 6 months ago (or 6 months hence).
ACOs are complicated; Aledade partnership
It remains to be seen how many practices join BCNC’s program, given how many strings are attached. Even with the generous payments on offer, there are serious hurdles to joining an ACO. For one example, ACOs each have governance structures that define how savings are distributed to each participating provider; a small practice joining an ACO, with no option to back out, might get forced into poor terms.
There needs to be an on-ramp that actually enables these doctors to be successful and happy in the new scheme. Aledade theoretically fills that need.
I think of Aledade as a software-driven service that helps doctors form ACOs, and operate more effectively in them. In their words:
Aledade offers primary care providers access to cutting-edge data analytics, user-friendly guided workflows, unparalleled regulatory expertise, strong payer relationships, and local, hands-on support from attentive experts. Our goal is to make it simple for your primary care practice or community health center to participate in value-based care while improving outcomes for patients and supporting a cost-effective, high-value healthcare system for your community.
(Much more detail on Aledade’s business in this explanatory NYT article)
While Aledade is focused on ACOs, I suspect much of their value actually comes from applying process improvements and management skills that many small practices lack, regardless of their ACO participation. Applying workflows, checklists, and data insights will improve nearly any organization that was missing those things; all the more so because Aledade has a lot of experience testing them out across many practices. But Aledade’s services happen to be much more valuable to ACO participants than fee-for-service-based practices:
An ACO represents a big enough change from the practice’s fee-for-service operations that the practice becomes more open to making managerial and process changes (or it joins an ACO because it’s open to making changes).
The complexity of an ACO means that poor processes cause much more financial pain to an ACO participant than to a FFS operation.
Fee-for-service fails to punish poorly operated practices, or reward the well-operated ones. ACOs (in theory) create the incentive to operate more effectively, which creates demand for a business like Aledade. In turn, Aledade’s existence enables ACOs to grow more quickly and move forward—there’s a positive feedback cycle.
ACO success depends heavily on good execution, which makes Aledade critical to BCNC’s strategy.
Revisiting Bright Health; value chain comparison
I wrote in January about Bright Health, a startup insurer in the Medicare Advantage market. Bright, like BCNC, pursues a value-based strategy, but their respective value chains look quite different.
Bright partners with a single health system in a given market (a narrow-network strategy), then acquires Medicare Advantage members by offering low premiums and other perks. Those patients represent important volume for the health systems.
How does Bright gain the leverage it needs to ink a deal with a prestigious health system that will attract members, and enough members to attract the health system? It has to offer additional value to both health systems and consumers, which it does by integrating analytics, care coordination, and assistance with workflows—many of the same services that Aledade offers to ACOs!
BCNC doesn’t need to offer such services—they can outsource them to Aledade because they offer other services. First, they bundle medical services for patients. Unlike Bright Health, they cultivate wide networks; patients buy from BCNC to access those wide networks, which gets them a lot of choice across the full spectrum of care.
Second, BCNC bears financial/insurance risk, at least in the FFS value chain. During the transition to VBC, though, financial risk is gradually moved to the providers. That sounds like a win for BCNC, since risk is usually something bad, but it actually weakens them, because they cede control over that part of the value chain to their suppliers (providers).
How do insurance companies add value with VBC?
When a firm gives up control over a step in its value chain, it loses power in the market, even if it does so for the right reasons (like reducing financial risk). The financial benefit becomes a strategic loss. To illustrate, here are two unlikely and speculative scenarios that BCNC could face after pursuing their value-based strategy:
Large providers offer insurance plans. A sufficiently large health system could conceivably meet the full range of medical needs of an insured population. If that provider is also willing to take on financial risk, and to go to the market with an insurance product, it can benefit immensely by removing BCNC as an intermediary. Think cheaper plans, no prior authorizations, seamless patient experience, etc. It’s a big reach to get to this equilibrium, since competing insurance plans would remove this provider from their networks. But I also believe it’s a stable equilibrium, and examples like Kaiser Permanente and Geisinger, though rare, show that it’s possible.
Aledade offers insurance. Aledade could find themselves in a similar position to Bright Health, with the valuable addition of many ACO relationships. They could bundle access to those ACOs’ service to offer patients a compelling insurance product, simply by integrating the next service in the value chain. Not especially likely any time soon—Aledade is still chasing profitability in its core business—but illustrative.
The point is not that either scenario is very likely. Rather that, for all of its commendable vision and leadership, BCNC sacrifices risk bearing that added value to its core insurance business, without replacing the risk bearing with another value add. As a result, their products become more of a commodity, and, other players get an opportunity to offer higher value-added services. As it transforms into a value-based payer, BCNC must also ensure that it keeps its business differentiated and relevant.
Bonus
Since we’re discussing BCNC, check out this excellent and beautifully packaged analysis on spending patterns in North Carolina, published this week. Do yourself a favor and spend some time scrolling through it.
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Further reading: Sesame and Price Transparency, One Medical’s S-1
(*) An ACO—simplifying a lot—is basically a network of primary care practices, that can also include specialists and hospitals. Importantly, ACOs are paid according to a value-based scheme, meaning that they earn more when they keep costs down, and when patient outcomes are good. After perusing many confusing explainer articles of how ACOs work, I can finally recommend this deck, which is dry, but detailed and digestible.
(**) Capitation means the provider is paid a fixed amount in return for providing care to a given population of patients over a given time period. Providers who reduce costs can pocket the savings, while providers that are inefficient can lose money.