About the Author: Ian Chiang is a principal at Flare Capital Partners, a healthcare technology and services-focused VC firm. Prior to joining Flare, he was the SVP of product and innovation and a founding member of CareAllies, Cigna’s family of multi-payer provider services, population health management, value-based care enablement and home-based care businesses. Previously, he was a digital health entrepreneur and a former management consultant at McKinsey & Company.
Value-based care (VBC) enabled by fee-for-value (FFV) payment model has gained significant traction and is increasingly embraced by payers and providers over the past decade (about one-third of healthcare payments in 2017 is tied to value-based care according to US Department of Human and Health Services). However, growth has been slower than many expected. There are many reasons for slower uptake, and one of the reasons is that moving from FFS to FFV is just plain “hard” and “disruptive” for healthcare providers.
Provider organizations have to overcome many cultural, operating model and clinical model challenges when making this transition (see my previous article for a high-level overview of today’s challenges). To accelerate the adoption of VBC, the industry must make it “easier” and remove potential points of friction. For an industry that is known for complexity, it is imperative for proponents of VBC — be it the government setting policy, a private health plan pushing for FFV contracts, a health system eager to take on FFV contracts or a vendor looking to enable VBC — to follow the “10X” rule. In this case, that means reducing the complexity via technologies and services, and making the transition from FFS to FFV 10 times easier than what it has been.
In this article, I will:
- Illustrate the complexity of VBC enablement and highlight key capabilities a high-performing healthcare provider organization would need to succeed under VBC;
- Discuss the emergence of VBC enablement platform companies that are aiming to deliver a 10X better experience to help primary care providers transition to VBC; and
- Provide a framework to help entrepreneurs determine if a healthcare provider organization is best suited to partner with “point solution” providers or a “solution platform” provider.
An overview of value-based care enablement and management capabilities
Under VBC, a healthcare provider organization — be it an independent provider group or a large healthcare delivery system — will need to implement new technologies and resources to manage whole-person, evidence-based care, and to take on patient-level financial risks. Many of these technologies and resources were once owned and operated by payers. The task of assembling a wide array of non-clinical VBC enablement and management capabilities is a daunting task for any healthcare provider organizations.
The following framework (see Figure 1, click to enhance) should serve to illustrate categories of capabilities needed by healthcare provider organizations to succeed under FFV contracts.
Category 1: Technology infrastructure and population health management technologies (not exhaustive)
- Enterprise data warehouse and data aggregation solutions
- Data integration and exchange (including interoperability) solutions
- Risk stratification algorithm and population health analytics solutions
- Data analytics and reporting/presentation capabilities — both automated and self-service
- Care management and care coordination solutions
- Member/patient engagement solutions
- Business intelligence and analytics capabilities — for operational performance and value-based contract management
- Contract-level analytics capabilities — for total cost of care analytics
Category 2: Value-added administrative, network management, and practice transformation services (not exhaustive)
- Network construction, management, and operations services
- Network strategy and optimization
- High-performing specialist contracting and credentialing
- High-performing specialist recruiting (i.e., for multi-specialty IPAs and health systems)
- Post-acute care network management
- Community-based Social determinants of health (SDOH) network management
- Health plan value-based contract Negotiation, Management and Advisory
- Population health management and value-based contract management education
- Transformational services and training. E.g.,
- Operations workflow redesign and enablement
- Technology implementation, enablement and adoption
- Financial and business transformation
- Practice Management services. E.g.,
- Claims processing
- Revenue cycle management (RCM)
- Scheduling and appointment management
- Workflow (administrative) automation and digital assistance
- Group purchasing services
- Patient acquisition and multi-channel marketing services and management
- Technology RFP and asset management
- Incentive design
- Analytics enablement/analytics-as-a-service
- Member/patient services
- Call center operations
- Health plan navigation and benefits education
Category 3: Population health, care management, patient engagement, and benefits administration services (not exhaustive)
- Population health analytics-as-a-service
- Clinician training and education services
- Team-based care enablement
- Evidence-based protocol education and adoption
- Appropriate clinical documentation and education
- Upskilling lower and mid-level clinicians
- FFV/VBC value optimization services
- Gaps in care/care gap closure
- Stars management
- Performance and cost initiatives design and enablement
- Delegated care management services
- Case management
- Care coordination
- Medical care coordination
- Behavioral health care coordination
- SDOH care coordination
- Gap closure services and resource augmentation
- Member-oriented programs
- Provider-oriented programs
- Collaborative care enablement
- Transition-of-care (TOC)
- Care management and disease management (in-office, at home or virtual)
- Chronic conditions management
- Complex care management
- Behavioral health
- Various disease-specific management programs (e.g., diabetes, COPD)
- Medication therapy management, adherence, and reconciliation (in-office, at home or virtual)
- Utilization management
- Referral management and support
- Other home-based care and care delivery services (as care extension)
- Annual wellness visits
- Chronic condition management (via telehealth and remote monitoring)
- Palliative care
- On-demand urgent care
- Companionship/loneliness alleviation
While payers — both commercial health plans and CMS — could provide more tools to help healthcare provider organizations accelerate their transition from FFS to FFV, it is unrealistic to expect healthcare provider organizations to use a payer-specific tool for every payer they contract with. The need for multi-payer solutions presents unique opportunities for innovators to develop new technologies, services, solution packages and business models to address their needs.
The emergence of VBC enablement platform companies and one-stop-shop model
To succeed in VBC, healthcare provider organizations need to either develop these capabilities internally or to partner with external vendors. What makes it even more complex is that most healthcare provider organizations that have embarked on the value-based journey have a litany of FFV risk arrangements with multiple payers that would require technology and services at different levels of sophistication (see Figure 2, click to enhance).
While some large provider organizations (e.g., integrated delivery networks and large health systems) have built VBC enablement capabilities internally, many still require partnership with best-in-class point solution vendors or management services organization (MSO) to augment their internal capabilities and achieve desired financial results (e.g., Stanford Health Care partners with Lumeris, Health First and Privia partnership). When it comes to smaller provider organizations — Medical groups, Independent physician associations (IPAs) — and large provider organizations without in-depth VBC domain knowledge, the value proposition of a “one-stop shop” MSO model becomes even more appealing.
With the rise of VBC, we have seen the emergence of next-generation MSOs or VBC enablement “platform” companies that aim to provide the “one-stop shop” experience (i.e., a “10X easier” experience) to healthcare provider organizations in recent years. Here are examples of recently formed VBC enablement platform companies:
- Agilon Health: Formed in 2016 by Clayton, Dubilier & Rice via a combination of Primary Provider Management Co. (PPMC) and Cyber-Pro Systems (Cyber-Pro)
- Aledade: Founded in 2014 as an operator of ACOs. Raised north of $130 million since its inception
- Privia Health: Established in 2007, Privia was acquired by The Goldman Sachs Group, Pamplona Capital Management, Cardinal Partners, Brighton Health Partners and Morgan Noble Healthcare through a $400 million LBO on September 16, 2014
- VillageMD: Started in 2013, VillageMD has raised more than $215 million throughout its lifetime. The latest funding round was a $100 million Series B financing round which will provide capital for expansion and technology enhancement
Health Plan Backed:
- CareAllies: Launched in 2016 by Cigna, CareAllies was formed via a combination of MSO and home-based care delivery assets Cigna acquired
- Optum: Diversified health services and solution providers wholly owned by UnitedHealth Group. Optum continued to acquire medical groups (e.g., acquired DaVita Medical Group in 2019) with FFV management services capabilities, VBC technology and advisory services providers (e.g., Advisory Board Company in 2017), and controlling interest of MSOs (e.g., WellMed’s MSO in Texas)
Health System Backed:
- Castell: Launched in summer of 2019, Castell Health is Intermountain Healthcare’s new comprehensive health platform company that helps organizations accelerate the transition from volume to value-based care
Are solution platforms the ultimate winners? How to tell if a provider organization is best suited for solution platform versus point solution?
Many digital health entrepreneurs, aspiring entrepreneurs and investors in the VBC space have asked me to prognosticate the winning model in VBC enablement. In a very unsatisfactory way, my answer has always been “both!” At least in the next few decades.
It is important to remind ourselves that the US healthcare market is a $3.6 trillion dollar market with an estimated $760 billion to $935 billion dollars of waste. There is room for many successful and sustainable point solutions and solution platforms to co-exist. The US healthcare market is also a very localized and decentralized one. The needs of a healthcare provider organization in New York could be very different from the needs of another organization in Texas. Even within a market, the needs of a large health system with years of experience in VBC would be radically different from an IPA new to VBC.
For aspiring entrepreneurs and entrepreneurs fighting the good fight, it is important to segment your existing and prospective healthcare provider customers appropriately and to understand whether or not they are best suited for a solution platform partner or best-in-class point solution partners to help them achieve their VBC goals. Since time is the most valuable commodity in the startup land and healthcare is known to be a “slow beast,” it is imperative for entrepreneurs to understand prospective client’s true needs before going too deep.
There are many ways to segment healthcare provider organizations. Here is a suggested (and simplified) framework when it comes to prospecting an organization’s readiness for best-in-class point solution partners versus a solution platform partner.
Dimension 1: Commitment to value-based care
- What percentage of its patients and revenue are under FFV contracts? What is the total revenue amount tied to FFV contracts?
- Is moving toward VBC and taking on additional FFV contracts a long-term strategic imperative? Or is it just testing the water?
While there is not a rule of thumb and the market is dynamic, healthcare providers that are new to value-based care or have yet to commit to accelerating its FFV contracting with payers are unlikely going to adopt a solution platform and sign a long-term agreement with solution platform providers. Many would test the water with point solutions and take on FFV risk for a small segment of the population. On the other end of the continuum, healthcare providers that are committed to VBC (e.g., IDNs, innovative primary care providers that take on full-capitation risks) are likely building their platform or internal MSO capabilities, which they would augment with best-in-class point solutions.
Dimension 2: Sophistication, maturity and resource available
- Has the healthcare provider had extensive experience and achieved positive financial results in managing VBC lives?
- Does the healthcare provider have an internal population health management team? If so, is it adequately staffed with both technical (e.g., IT, data and analytics) and operations/clinical resources?
Healthcare providers with extensive experience in VBC, robust population health management operating model, and an adequately staffed team are more likely to adopt and to implement best-in-class point solutions on their own. On the other hand, healthcare providers new to VBC are more likely looking for someone to guide them through the journey and providing management services along the way. In addition, if the healthcare providers are not staffed (or internally funded) appropriately or having challenges recruiting key talents — such as data and analytics — they are more likely going to look for a solution platform provider who could take over certain functions or a point solution providers that wrap around their technologies with services.
Dimension 3: financial standing
- How well is the healthcare provider organization doing financially? Both from a P&L and a free cash flow standpoint.
- Is it willing to take on more risk in the near-term (i.e., accelerate its path to the top right corner illustrated in Figure 1)?
- Is the healthcare provider organization willing to trade near-term revenue opportunity (FFS lives) for long-term financial upside (FFV lives)?
One of the biggest challenges facing healthcare providers, especially independent medical providers, is cash flow. Numerous surveys (example) throughout the years have highlighted cash flow and reimbursement for patient treatment as some of the top concerns for physicians. It is not uncommon to hear independent physicians and medical groups talk about challenges to meet payroll and other expenses on a monthly basis. Asking them to take on value-based contracts, which often require additional investments upfront and delayed payments, could present significant challenges. Many of the solution platform companies provide financial glide paths to help providers ease their way into taking on new FFV contracts (for example, some companies offer a “no-cost” option to the providers and only get paid if provider customers hit shared savings payments).