As the care-delivery landscape in the United States evolves in a COVID-19 era, both incumbents and new entrants are reimagining models of care. Technology and medical advancements are transforming the way care is delivered and experienced, and changes in regulations and incentives across the industry are redefining how the healthcare system works and interacts. As a result, care delivery is undergoing several transformations: from sick care to preventative whole-person care, from intermittent to continuous care, from facility-based settings to omnichannel offerings, and from standardized to personalized solutions.
Technology giants, for instance, are entering the healthcare sector by leveraging their core strengths in consumer engagement and insights, data and advanced analytics, and innovative distribution models. New entrants, including risk-taking primary-care providers and specialist groups, as well as technology-enabled healthcare-service organizations, are expanding their presence and influence. Health systems are investing to expand their reach outside the hospital, with an increasing focus on the home (for example, hospital-at-home models or home-based infusions) and lower-acuity care settings (for example, ambulatory surgery and primary-care clinics).
Healthcare payers, too, have an opportunity and an incentive to play an active role in reimagining the future of care delivery. Unlike many other players, payers have end-to-end visibility into individual care needs and utilization patterns across providers and settings. This perspective can inform choices around optimal care models, unlock value through improved health outcomes, and lower total cost of care for members and customers. In addition, as traditional payer functions (for example, claims processing) become more commoditized, payers can reimagine business models around helping individuals stay healthy and receive the right care, in the right setting, at the right time. While traditional levers (for example, utilization management or provider networking and contracting) can support these goals, a more direct role in care delivery can allow payers to unlock better health outcomes, experience, and affordability for members.
Care delivery is an increasingly important part of payers’ enterprise and M&A strategy
Payer-led activity in care delivery has continued over the past five years. M&A, strategic partnerships, and affiliations between payers, providers, and technology companies have continued as payers seek to expand their role in reimaging care models. As our prior research indicated, these models reorient traditional operations focused on financing healthcare around an integrated model that prioritizes health, efficiency, and customer experience.
In these models, payers take a substantially more active role in the health and healthcare of their members through one of three approaches: provider enablement via a management-services organization (MSO) or other services organization, a platform-based ecosystem convener, or direct ownership of care-delivery assets. These models redefine the payer’s role in member health but require a fundamental reorientation of the payer business model to integrate fully into end-to-end member health journeys. A growing body of evidence suggests that payers that pursue innovative managed-care models are delivering financial value (Exhibit 1), even when controlling for scale and business mix.
Payers can consider three critical questions as they redefine their role in the care-delivery ecosystem:
- What critical value drivers can be unlocked by pursuing innovative managed-care models?
- What approaches can payers deploy to pursue innovative managed-care models?
- How can payers determine which populations and care models to focus on?
Question 1: What critical value drivers can be unlocked by pursuing innovative managed-care models?
By expanding their role in care delivery, payers can unlock meaningful value for the health plan, members, and customers. While the specific opportunities vary by market and strategy pursued, some value levers are applicable across most approaches.
Improved member experience
Leading innovators across industries are setting consumer expectations of healthcare, and focus is shifting toward personalization, digital enablement, omnichannel access, and continuous and seamless service. Payers and providers are increasingly being assessed (and rewarded) on the experience they deliver to members. For example, creating a distinctive patient and member experience is continuing to increase in importance for Medicare Advantage plans. With the latest US Centers for Medicare & Medicaid Services (CMS) changes, measures related to customer experience will account for approximately 57 percent of overall Star Rating in 2023 (for Part C and D combined) compared with approximately 32 percent weight for these measures in 2020.1
Through deeper involvement and integration with providers, payers pursuing innovative managed-care models can more directly influence members’ experiences in accessing and receiving care (as compared with traditional approaches). Our research indicates that payers pursuing innovative managed-care models have higher overall Star Ratings and outperform their peers on all Consumer Assessment of Healthcare Providers and Systems (CAHPS) measures (Exhibit 2, part 1), an indicator of member experience.
Improved health outcomes
Evidence is emerging that innovative managed-care models also support higher levels of screenings, tests, and vaccines, all of which are correlated indicators of health and wellness. Evidence additionally suggests that these models can help members manage chronic conditions.
Our research indicates that payers pursuing innovative managed-care models outperform their peers on most Stars outcome and experience measures, including HOS (Health Outcome Survey), HEDIS (Health Effectiveness Data and Information Set), and CAHPS measures. Examples of measures with the most significant outperformance include “medication reconciliation postdischarge,” “diabetes care—eye exam,” and “colorectal cancer screening.” In addition, payers pursuing innovative managed-care models demonstrate higher performance on multiple medication-adherence measures and on broader measures such as “improving and maintaining physical health,” “getting needed care,” and “care coordination” (Exhibit 2, part 2).
Deep integration with providers allows payers to offer and quickly scale high-value care models to eligible members, with less dependency on the provider market landscape or competitive dynamics. When payers make direct investments in care delivery, they also have an opportunity to codesign care models together with provider partners, bringing in insights on member adoption, care needs, and preferences to be addressed.
Lower total cost of care
By advancing innovation in care delivery, payers can unlock total cost of care savings over time, beyond what is often feasible through traditional levers (for example, utilization and care management). Payers can achieve this while maintaining (or, in many cases, improving) quality and access for members.
Though empirical evidence is still early, initial indicators suggest that in the near term, these models may increase costs for some types of care as members receive more comprehensive care (for example, more options for behavioral-healthcare services for members). Over the longer term, however, integrated and comprehensive care models are expected to translate to lower total medical costs. Our research has indicated a potential for $185 billion in savings through investments in whole-person care. Payers pursuing these models could be able to ensure that members receive the appropriate level of care in the highest-value setting, which would promote member health and well-being to avoid future illnesses and compilations.
Diversification for long-term success and sustainability of new revenue streams
As the traditional health-insurance market becomes increasingly consolidated and, at the same time, disrupted by new entrants, payers are looking toward diversification to support long-term success and sustainability. For many payers, the care-delivery market is an attractive adjacency for diversification. The potential for value creation is meaningful, whether it is achieved through ownership of care-delivery assets that enable access to revenue and margin from high-growth nonacute assets, or through commercialization of provider enablement services that deliver a per member per month (PMPM) fee and/or shared savings.
The future of healthcare: Value creation through next-generation business models
Question 2: What approaches can payers deploy to pursue innovative managed-care models?
As previously mentioned, payers are pursuing innovative managed-care models through three approaches: provider enablement via an MSO or other services organization, a platform-based ecosystem convener, or direct ownership of care-delivery assets.
Provider enabler
An increasing focus on cost, quality, and experience, coupled with a continued shift toward value-based care, has increased the need for providers to develop capabilities in areas such as financial risk management, care management, clinical integration, and patient engagement. In this model, payers offer MSOs and other enablement services to support provider partners in delivering higher-value care and a better experience to members. Payers can build upon existing data and tools (for example, member stratification, care-management programs, EHR connections, claims data across providers, and types of care) and existing provider relationships to quickly integrate with provider workflows and unlock value. This model concurrently can unlock a new revenue stream.
Ecosystem convener
The rapid acceleration of digital and technology-enabled tools and offerings, which the COVID-19 pandemic has further heightened, is creating the opportunity for companies across industries to develop customer-centric “ecosystems” in new and exciting ways. Payers can play the role of an ecosystem convener that brings together multiple services, tools, and healthcare players. In this model, payers have a broader role in care management by convening (but not necessarily owning) point solutions across the healthcare ecosystem and personalizing member care journeys to enable access to integrated, convenient, and higher-value care and services. Value can be unlocked through lower medical costs (given greater ability to direct members, providers, and caregivers to deliver the right care in the right setting at the right time), differentiated member experience (for example, through digital-first offerings), improved competitive positioning, and member acquisition.
Direct care provider
Direct participation in care delivery offers the opportunity to diversify revenue streams and access high-growth and high-margin segments, more directly influence the scaling of new care models, and improve coordination across the care continuum to lower medical costs. Payers that participate in direct care delivery are well positioned to better align and coordinate member benefits with innovative care models to deliver care when, where, and how it is needed. In addition, an in-depth understanding of the local provider landscape and an ability to guide how members access care allow payers to deliver care in a targeted way, focusing on specific areas, populations, or care models with high potential value. Still, a range of variants can be considered even within this strategy, including investment in physician organizations and ownership of acute and nonacute assets, including home health, ambulatory surgery centers, urgent-care centers, or stand-alone infusion centers.
To pursue and succeed in an innovative managed-care model, payers may consider a range of interdependent factors. Market share and scale across lines of business, strategic priorities, risk appetite, financial position, and local provider landscape are all important considerations. The ability to pursue these strategies at scale also depends on a payer’s starting position. Until recently, only a few types of payers had a direct role in care delivery—specifically, integrated delivery networks and large nationals. While these players can more effectively combine many of the approaches mentioned above (given their scale), smaller regional health plans are more likely to capture value and develop competitive advantages if they have a more focused strategy, with a clearly defined posture in care delivery. Partnerships with like-minded plans or adjacent healthcare players may also unlock greater value.
Question 3: How can payers determine which populations and care models to focus on?
Approach to opportunity identification and care-model design: An illustrative example
To identify priority populations and care models, payers should first understand the relative opportunity by source of value (for example, site of care or preventable complications) and identify clinical service lines and types of care with the highest potential value. The analysis below includes an illustrative example that compares potential priority areas for payer-led care delivery in two states (exhibit). Given that this example is developed using Medicare fee-for-service (FFS) data, all members have the same benefit design, and potential opportunity is driven by members’ health needs and preferences as well as by local provider landscape. Payers are more likely to succeed in care-delivery efforts if they identify specific areas where the deployment of innovative care models is directly linked to the underlying sources of value, which may vary by market and line of business.
In addition to identifying specific care models, payers that pursue innovative managed-care models also can consider what optimal organizational structure best delivers their care-delivery offerings. Consolidating all care-delivery assets and capabilities within a separate entity has several benefits, including opportunities to optimize administrative functions, ability to offer payer-agnostic services to providers, potentially higher attractiveness for top talent (for example, clinical and digital), and opportunities to establish an effective operating model focused on innovation and business building.
In addition to defining the overarching strategic posture, payers often identify population- or condition-specific priority areas for their programmatic efforts in care delivery (see sidebar, “Approach to opportunity identification and care-model design: An illustrative example”). For example, payers may develop care models for specific levels of need, such as people with multiple chronic conditions and complex needs, homebound individuals, and end-of-life care. Alternatively, payers may focus on care models for specific conditions, such as oncology, cardiovascular, musculoskeletal, women’s health, or neurology. Another model could be centered around specific types of engagement and delivery, such as virtual-first care or home-based care. Given a step-change in telehealth usage during the COVID-19 pandemic, payers are taking steps to sustain consumer and clinical adoption of virtual health.
Driving forward innovation
Payers have long been important stakeholders in care-delivery ecosystems but have only recently begun to shift from traditional (and more passive) roles as medical-cost managers and network contractors to active participants in actually delivering and enabling care. Payers are helping to innovate how, where, and when care is delivered and experienced by members.
As with any bold move, defining and activating a care-delivery strategy is a complex and multifaceted effort. Payers should consider the implications of directly competing with local providers (rather than focusing on partnerships and provider support services), focus on the willingness and ability to make acquisitions (rather than focusing on internal build and development), consider the importance of strategic control of assets (as opposed to capital-light approaches), and focus on engagement with providers (rather than direct-to-member solutions). At the same time, payers are competing with a growing number of new entrants and private equity and venture capital investments in care-delivery spaces.
Regardless of the approach pursued, a payer’s care-delivery strategy must be aligned with the broader enterprise strategy to maximize the value and impact that can be achieved. Simply integrating acquired assets alone is not sufficient; successful payors reorient their business model to one that combines traditional payer and traditional provider assets to better align incentives and deliver higher-value, more accessible care.
As we note in our article, “Leap to the future of healthcare: Reinvent through business building,” reinventing business models has never been more important in the healthcare industry. Across sectors, companies that succeed in business building show strong commitment by senior management and focus on value-creation ideas that drive meaningful improvements, test-and-learn agility, a bias toward “open architecture” capabilities, sufficient organizational distance from the core business, and dynamic performance management across time horizons. Following a similar rigorous approach to business building will likely help payers that play an active role in care delivery achieve meaningful improvements in health and healthcare for their members and broader communities.
