Can Providers Become Payers? It Can Work If Health Systems Keep These Points in Mind

Richard Fu is chief growth officer for Flume Health.

The long-standing walls that once clearly separated the roles between health providers and payers are crumbling as innovation and current market conditions give way to what many are now calling the "payvider" model.

Although "payvider" doesn't exactly roll off the tongue particularly well, the trending term — a combination of the words payer and provider — captures the momentum with which large health systems are increasingly establishing their own health plans and payers are acquiring or moving into care delivery.

The concept of a payvider isn't new; Kaiser Permanente, for instance, has championed the model with great success for decades. In recent years, however, giant corporations such as Amazon, CVS, Walgreens, and Walmart have aimed to disrupt health care and large payers, such as Aetna and Humana, are moving into the primary care space. As a result, health systems are now eyeing the payvider model with renewed rigor as a way to stay competitive while offering improved quality, convenience and lower-cost care to members.

The payvider model has gained so much steam lately as a way to diversify financial risk while transitioning toward value-based care that nearly 6 out of 10 health systems expressed an intent to start their own health plans, according to a survey in 2021. Accelerating the payvider movement is the emergence of new technologies that help smooth the transition by simplifying the connection of data repositories, health records, and administrative and care delivery workflows.

Major considerations for health systems

Health providers considering launching their own health plans will be positioned for greater success if they can resolve a series of infrastructure, technology, and process questions upfront. Getting into the payer business while also operating a complex health system is fraught with many barriers, expected and unexpected, but those that seriously think through the following points will be better off traversing the challenging — yet rewarding — journey to becoming a payvider.

Calculate your risk

First and foremost, each health system needs to weigh the competitive and market dynamics to ensure the payvider model makes economic and business sense. Having your own health plan is best suited for health systems that want to double down on value-based care — either because they are philosophically dedicated to value-based care or because it will give them a competitive advantage.

Once a health system has decided to go the payer route, the next step is to choose the risk profiles. There is a strong case for health systems to launch Medicare Advantage plans, given the growing market size and margin potential; however, there’s a lot to get right, from managing a population with greater medical attention to ensuring top-notch customer service. I suggest health systems consider the commercial, self-funded market as an entry point, serving employers that have a high concentration of employees in the local area.

Tech workflows and infrastructure

Don't underestimate just how much work goes into the payer side of the business. One reason we don't see every single health system starting a health plan is that it's a daunting task. Payers require a different type of mindset, workforce and technology than a health system. Before diving head first into the payer business, I recommend developing a deeper understanding of the taxonomy of all the necessary jobs that are needed for operating a health plan.

Technology has historically been a huge barrier to entry into the payer space. There's data interoperability, communication with members, claims, billing, administrative, and many other workflows that need the right technology to operate smoothly. Thinking about processing claims and connecting electronic health records has stopped many health systems in their tracks. Today, various digital health companies offer easy-to-use technology platforms that provide health systems with payer capabilities at a lower cost than building tech in-house or hiring a legacy third-party vendor.

Tailoring plans to patient/member needs

The advantages of having a health plan really begin to take shape once health systems connect their patient care pathways and their population health strategies to the benefit design in ways that actually drive better utilization, better behavior, and better care. This is where the rubber meets the road: Payviders can create plans that complement their medical care systems and meet the needs of their patient populations. By having control of the entire pipeline, not only can they personalize the flow of care delivery and benefits to meet their unique memberships, payviders now have access to so much more data that can be harnessed to improve in ways that weren't visible before.

I can imagine, for example, in competitive markets like Austin, Texas, that a health system could attract new members by creating health plans geared towards young families that morph as the family grows, including all the reproductive, postnatal, and primary care needs.

The future of health care will continue to head toward a value-based model. To be successful and profitable, health systems will need access to more and more data and be able to align care delivery with the health plan benefit designs. The payvider model is a natural progression that will allow health systems to mature and remain flexible in the decades to come.

Richard Fu is chief growth officer at Flume Health.