Blog Post

How Do You Succeed in a Value-Based World? Find a Strategic Partner

Blog March 1 Succeed In Vb World Strategic Partner Web

While payers have been experimenting with value-based contracting arrangements over the past 10 years, with initiatives such as the Medicare Shared Savings Program, capitated arrangements, and quality incentives, the vast majority of providers are still reimbursed through traditional fee-for-service contracts. The 2016 passage of MACRA significantly altered this landscape, as all providers accepting Medicare patients are now in the value-based contracting game, whether they like it or not.

Many independent medical groups are facing the reality that the financial investment and new capabilities required to succeed in a value-based environment require resources beyond what their organizations can currently handle. Groups that have not historically retained earnings, but rather distributed all net revenue to shareholders, may find that the capital reserves required to protect against downside risk would affect physician compensation more than they can manage. Other groups may find that the care management staffing and expertise necessary to manage patient cost and utilization is too expensive to develop.

As a result, more and more medical groups are exploring new partnerships and affiliations that could provide the economic support and/or population health expertise to help further their strategic goals and succeed under value-based contracts. However, many of these groups are hesitant to partner with local hospitals or health systems that have employed physicians, as they are concerned with losing their independence and autonomy.

New entrants to the medical group game, most notably Optum and DaVita HealthCare Partners (but also including other insurers), offer independent medical groups an alternative as they consider a strategic partner. Although many in the healthcare industry are questioning Optum and DaVita’s tactic of acquiring medical groups, given that they have never owned or operated such groups in the past, this ambulatory strategy has the potential to generate significant returns under value-based care.

Autonomy After Acquisition

Hospitals and health systems typically integrate new acquisitions into existing governance and management structures. Organizations such as Optum and DaVita approach these transactions differently. Given that their focus is on helping a medical group capitalize on its ability to succeed under value-based arrangements, Optum and DaVita are more likely to offer greater levels of autonomy and operational freedom to newly acquired groups, provided they continue performing at expected operational and financial levels. They can then offer medical groups access to capital to expand infrastructure and fund growth strategies as well as provide new expertise.

The time is right for medical groups to evaluate their ability to successfully operate in the new value-based world that healthcare is moving toward. Fee-for-service rates are not increasing as quickly as expenses, and value-based contracting opportunities offer the best way to increase reimbursement again. For those groups that believe they lack the financial resources or expertise to survive without a partner, but do not want to be subsumed by a local health system, serious consideration should be given to exploring a partnership with one of the new entrants to the world of medical group acquisition.