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Payor-Provider Partnerships Impact on Supply Chain
Brent Johnson

Payor-provider partnerships are on a record pace over the past few years.  There are dozens of examples.  Some include Aetna and Texas Health Resources, Anthon and Aurora Health, Blue Cross & Blue Shield with Lifespan, Security Health Plan with Mayo, Highmark with Penn State, Pinnacle Health with UPMC, Humana and Anthem with Cleveland Clinic, United Healthcare with The Moffit Cancer Center, Optima Health with Sentara Health System and the list goes on.  And what will the Amazon, JP Morgan and Berkshire Hathaway experiment bring? 

Why are there so many of these partnerships?  Most are targeting value-based care, bundled payment or pay-for-performance models.  They are trying to create a more patient centric experience while changing the cost curve because the fee-for-service model is unstainable, especially with the expansion of Medicare with our aging population.  These partnerships are uncovering new sources of value, care and experience for the patient. 

From a patient’s registration to medical treatment to final payment, the patient experience is in need of improvement.  The process is full of redundant information, denied claims and inconsistent rules.  This alone justifies a collaboration of the payer and the provider. 

But the primary driver of these organizations and partnerships likely is to reduce cost and eliminate waste while continuing to improve on health outcomes. This relies on the strongest skills of each – the payor and the provider.  The payor brings more analytics and a cost sensitivity focus. Their data and business model will drive more efficiency.

What’s the impact of all this on Supply Chain?  That’s a good question.  I see this development bringing more cost pressures to the industry.  There’s good news and bad news to suppliers and to provider supply chain organizations. 

  • For SUPPLIERS, the bad news is that cost pressures are not going away and Suppliers have already given a lot as it relates to reducing the cost of healthcare products
  • For SUPPLIERS, the good news is that many of you have had great savings ideas and proposals but you haven’t found a listening ear.  These changes will open the door for more meaningful and quantifiable risk-share arrangements.
  • For PROVIDERS, the bad news is that you will be under tremendous pressure to deliver more savings and cost reduction.  You have already been stretched to the limits.
  • For PROVIDERS, the good news is that the industry will need you more than ever before. They likely will want to invest more into Supply Chain resources to go after all the non-labor spend to reduce the cost of care. 

If we are headed to an era where supply costs aren’t going to be reimbursed, that introduces the need for new strategies or new emphasis on existing ones.  Standardization of products will become more important.  Utilization of products in the care process will receive much more attention. Personal preference or physician preference likely won’t drive decisions.  Professional services will receive the same cost-containment emphasis as basic med-surg products have in the past. Procure-to-pay costs will be examined for contribution and necessity.  Every touch and inventory of all products are real costs, hence significant attention to logistics and distribution alternatives will abound.  GPO services and fees will be examined for contribution.  Alternative cost models will likely be developed in many of these areas.    

Will the role of the payor eventually grow to the point that they make supply chain decisions?  Will the payor analyze the cost and patient impact of a product, implant or tool and dictate what is bought and from whom?  That’s an eye-opening thought.  We haven’t seen this yet but it’s a possibility. 

When I led the supply chain organization at Intermountain Healthcare from 2005-2015, Intermountain owned their own insurance arm called Select Health.  We worked closely with Select Health, exchanging ideas and information but never talked about specific products.  We did talk about product category strategies occasionally. We had a very healthy relationship with them. 

The loud message of this change in the industry is that the high cost of healthcare is going to continue to receive attention.  Supply chain organizations, talent and strategies are going to be needed more than ever before.  I see this as good news for us, as supply chain professionals.  Keep on your boots and get on your horse. We have more to do! 

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