Industry Transformation: An Investment Banking Perspective on PHM and VBC - Cover

Industry Transformation: An Investment Banking Perspective on PHM and VBC

It’s no secret that the healthcare industry has started the transition to a value-based care (VBC) with the potential to deliver better outcomes at lower costs. Players across the industry, including providers, payers, and large employers, have started developing and implementing strategies to succeed in the new VBC world.  Whether it’s collaboration with population health management (PHM) vendor partners or the creation of innovative partnerships, the industry is exploring new solutions to transform how healthcare is delivered, managed, and consumed.

Given these big market shifts and the opportunities they present, I spoke with Jason Grais, Managing Director at TripleTree, to gain some additional perspective ahead of DHIS19 and to hear how one healthcare investment bank is thinking about the opportunities ahead.

Jared: What are some barriers you see to moving from traditional fee-for-service to VBC?

Jason: Consumer skepticism and provider motivations are barriers. It is hard to get consumers to listen and to get doctors to change how they do things. Payers and providers have a very complicated contract-negotiation process, and some value-based programs are convoluted and confusing. It is a lot easier to have a list of thousands of CPT codes or ICD-10 codes and set payment amounts for those codes. 

It gets even more challenging when payers and providers have multiple models in multiple patient pools. There is a value-based contract here and a fee-for-service contract there, and at the end of the day, there is one relationship between the payer and the provider that can be very complicated. The two models need to come together in a way that makes sense.

Another challenge is that the government has their own models, and it would be a lot easier for the provider organizations to just have one process and one payment model and not have perverse incentives to use one way for one population and another way for another population.

Finally, there still exists the real challenge of payers and providers having technical obstacles and being unwilling to share data with each other.

Jared: How do you think about VBC companies that serve the payer market versus VBC companies that serve the provider market?

Jason: There is activity across both sides. Companies serving both payers and providers are needed to drive innovation. One big difference for companies working with payers is customer volume and scale. Because there are so few payers, especially when compared to the number of providers, those value-based care companies tend to scale a bit quicker because they are often working with fewer and larger customers.

Whereas, in the provider community, companies tend to grow by having a lot more customers because they are selling to hospitals or provider groups, and a $5 million contract doesn’t happen overnight. The payer and provider sides are both very unique, and we are still seeing few companies that have been successful across both markets, which makes a company unique.

Jared: What steps can providers take to succeed in PHM when they’re just starting out?

Jason: To be successful in PHM, providers need organizational buy-in and a culture that sets them up for success. The leaders at the top need to say that PHM is important. If a hospital system is focused on hip replacements for the highest price possible, then they are not likely focused on ensuring that those hip replacements are of the best quality.

You also need the right capabilities, but this is not a technology-only story. You need the right technology, the right access to data, and the people to react to that data. That combination often comes in the form of an investment in nursing staff, whether through partnering with an outsourcing vendor or using internal resources. The staff needs to look at, interpret, and act on the data. And many hospitals that are just starting with their PHM initiatives don’t currently have those resources.

Jared: In what specific ways are employers innovating in the healthcare space?

Jason: We’re observing a proliferation of new approaches to employer-sponsored healthcare. In many ways, these approaches are consistent with the industry focus on value; employers want to offer the right health benefits at a fair price to keep their employees healthy. For example, Walmart has discussed their focus on giving their associates access to providers with a proven ability to impact quality of care and outcomes.  These “centers of excellence” are a core component of their future employee-benefit strategy. Other organizations like Haven (the collaboration between JP Morgan Chase, Amazon, and Berkshire Hathaway) are looking at innovative solutions and approaches that leverage their presence and scale in the market.

We are also seeing groups band together at the small-employer level. For example, our firm is currently working with a company that takes employers with 50–500 employees and helps them combine their risk pools so that they can be self-funded instead of part of a fully insured plan. The company is building an ecosystem of cost-containment solutions that the employer groups wouldn’t be able to access on their own. Think about the opportunity to bring hundreds of thousands of lives together and the potential for large employer conglomerations to start negotiating value-based contracts directly with provider groups.  In fact, some already have. In exchange for that, the provider groups can get what they want—patient flow.

Jared: What can be done to move the needle as people shift to VBC?

Jason: Provider organizations need better systems to help them understand the quality and variability of their care. With better systems in place, they can improve the referral process and ultimately educate their own doctors on why one doctor is better than another. Educating the consumer with that information is the next step. My doctor might golf with a surgeon, but that doesn’t mean that that surgeon is the right option for me. The data should be available and accessible.

Jared: What makes some value-based care companies attractive to investors?

Jason: In any market, sustained growth—and certainly profitable growth—is number one. Attractive companies get real traction by addressing the needs of value-based care and can prove that they have a viable solution that customers are excited about. Companies delivering a clear ROI that can be validated by third parties are unique because hundreds of companies help with VBC but cannot demonstrate a clear ROI.

Showing that clear ROI is probably easier to do on the payer side than on the provider side. Payers are evaluating both administrative and clinical cost savings and looking at companies they can plug in to their VBC programs. For example, there is a clear ROI on companies helping route patients to low-cost, high-quality providers and reducing leakage from these high-quality groups—as opposed to just letting patients go to doctors that cost more in both their initial procedures and over time because the care quality is lower.

     Photo cred: Shutterstock, Panchenko Vladimir