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By Monica E. Oss

When I started in the field, there was an adage that drove strategy—all health care is local. Hospitals were the hub of local health care, serving as the focal point for an informal network of local outpatient services. Health care wasn’t “brandable” like Century 21 real estate offices, or “franchiseable” like McDonald’s restaurants, or managed by “national chains” like Marriott Hotels. What a difference a couple decades make. We’re seeing all of this in the health and human service space—branding, franchise-like models, and national chains are increasingly common.

These market developments have tended to be an issue only in the private pay sector and some selected employer-sponsored insurance plans. But I was reminded of how much that has changed while reading about recent contracts between national health insurance plans and national service delivery provider organizations. For example, national ambulatory surgery center (ASC) system SurgCenter Development recently entered into a national contract to “add more than 100 SurgCenter locations to Humana’s national provider network” to provide total joint replacement (knees, hips, shoulders) for Humana’s medicare Advantage and commercial beneficiaries (see Humana, SurgCenter Development Announce National Agreement Expanding Availability of Outpatient Joint Replacement at Surgery Centers). This development came on the heels of the announcement by Humana that they were expanding their “bundled rate” program for joint replacement—moving to a form of case rates (see Humana Expands Value-Based Care Options For Medicare Advantage).

This isn’t the only shift in specialty care market access. Walmart  has contracted with dozens of hospital systems, labeling them as Centers of Excellence—everything from joint replacement with University Hospitals Cleveland Medical Center, to spinal surgery with Geisinger, to heart surgery with Cleveland Clinic. Walmart develops bundled payment arrangements to cover the costs of these procedures and their associated care and then pays for employees anywhere in the country to travel to the Center of Excellence for care. If the employee chooses to have their surgery at a local hospital, they face copayments and other out-of-pock costs—if they travel to the Center of Excellence, their procedure is covered completely (see How Employers Are Fixing Health Care and Walmart Adds 12th Center Of Excellence To Knee, Hip Surgery Network).

Another example—Optum and medication assisted treatment (MAT) provider organization CleanSlate developed a monthly bundled rate that includes a single payment for all services associated with MAT—to be provided at 10 CleanSlate locations (see Developing A Value-Based Partnership: The Optum Case Study and Hidden Behavioral Health Opportunities In Value-Based Reimbursement). CleanSlate also contracted with Humana to provide in-network outpatient opioid addiction treatment services for Humana Medicare Advantage and employer plan members in eight states—services will be provided at 30 CleanSlate outpatient addiction treatment centers (see Humana Partners With CleanSlate Centers To Provide Outpatient Addiction Treatment Services In 8 States).

The emergence of these national specialty provider organization “chains”—along with the growth of virtual specialty care provider organizations and medical tourism to specialty services destination hubs—will slowly but surely change the plans for a sustainability model for local provider organizations. This was summarized succinctly by my colleague, Jamie Stewart, OPEN MINDS Advisory Board member and CEO of Grafton: “The future of health care is sub-specialty because all regular practice will be pushed down to the least common denominator provider. It’s the only way to make our health care market work fiscally long-term.”

This market shift will have a few key effects. First, there is the power of national branding and advertising. What organization will become the “top of mind” brand in each specialty is a key question for health plan contracts and for consumer referrals.

Then, there is the financial viability question. For any type of specialty care, there are metrics around consumer volume and rates that are key to financial viability. National specialty chains, virtual specialty care, and specialty destination hubs erode the market share of local specialty provider organizations. The financial question is, how much contract/referral diversion can local specialists tolerate and remain financially viable?

If you’re on the management team of a specialty provider organization that is “local”, another question is how to prepare for a market with national competition. There are a few key points. First, there is payer relationship management. Understand your current payers (health plans, ACOs, government agencies, employer health plans, etc.)—and develop a proactive relationship that is focused on meeting their changing needs. Second, there is competitive market positioning. Know the service offerings and price points of both your local competition and your national competition—and how your service offerings stack up. Identify your “unique selling proposition” to payers and consumers and build your service line enhancements and your communications plan around that competitive advantage. Third, think about how to build “top of mind” market awareness and referrals among the customer groups that matter to your financial viability—your payers, referral sources, and target consumer demographics.

I know that I will have three or four OPEN MINDS Circle readers contact me tomorrow saying that this is a “commercial” model and that it’s not really about Medicaid, or Medicare, or non-profit safety net specialty provider organizations… and I will disagree. We’re seeing innovators in specialty care—both for-profit and non-profit—bring to market new specialty service offerings that are set for national (or at least regional) replication. These new service offerings tend to be payer agnostic and adaptable for Medicare, Medicaid, military, commercial, and private pay populations. The other comment that will likely come my way is that the marketing investment I described is one that requires financial resources that traditional non-profit specialty provider organizations don’t have. This is where “scale” matters and preparing for growth and scale (whether via organic growth, merger, acquisition, partnership, or some other collaboration) is essential for future sustainability.

For more on the issues of market position, growth, and scale, check out these recent OPEN MINDS resources:

  1. How Private Equity Investors Are Reshaping Non-Profit Strategy
  2. Economies Of Scale 101
  3. VBR @ Scale—Changes Required
  4. Innovation Success Formula = Strategy + Marketing + Scale
  5. Is $400 Million The Number?
  6. You Think You Have The Right Partner, But …
  7. Thinking Of MA&A? What Should You Be Thinking About?
  8. Be Broad? Be Niche? How?
  9. Invaders At The Gate
  10. Is Your Organization Fit For Growth?

For more on this important conversation, mark your calendar now for The OPEN MINDS Mergers, Acquisitions, & Affiliations Summit: Best Practices For Non-Profit Health & Human Service Organizations – A Centerstone & OPEN MINDS Collaboration, on August 12, 2019 in Long Beach, California.

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