5 Market Factors Influencing Population Health Contracts

Market dynamics influence quite a few things when it comes to population health, including how quickly providers and purchasers develop contracts, how much financial risk providers are willing or able to take on, and what types of contracts are available, according to a blog post from The Advisory Board.

Through conversations with hospitals and health systems in various stages of population health contracting, post author Sarah Gabriel and her colleagues identified five market factors that providers "must consider" when planning for population health contract negotiations.

1. Levels of provider consolidation, alignment and competition in the market. Providers who are "first-movers" in their market will have major advantages, including potential boosts in volume, improved cost and operational performance and closer relationships with health plans. In light of this, markets with high levels of competition between providers may move quickly toward population health contracts, as providers will want to claim these first-mover advantages as their own.

A high level of consolidation between physician groups, ancillaries and their alignment with health systems may signal a market ready to move quickly. Conversely, low levels of consolidation can cue a slower transition, as organizations will have a harder time coordinating across care settings.

2. Purchaser market power. Health plans and self-insured employers negotiate population health contracts with providers, but each approaches these negotiations differently based on their local market power. If the health plan market is fragmented, the plan may pursue contracts to differentiate itself from other potential health plan partners.

If the market is dominated by one or two health plans, that could play out in a couple different ways. The market may not experience must transformation at all if there is little need for dominant health plans to offer population health options to have a competitive advantage. Or, the health plans could determine that population health contracts are beneficial, and they may use market leverage to push provider participation into arrangements.
 
3. The market's general attitude and past experiences with risk. Providers and payers who can point to negative experiences with population health in the past are more hesitant to participate in these contract negotiations — they recall the "significant financial disruptions and patient satisfaction," according to the blog post. Many are skeptical about whether these arrangements will be different. But markets that had largely positive experiences with population health may move more quickly. In California, for instance, some health systems and medical groups have participated in capitated contracts for the past 20 years.

4. Historical relationships between stakeholders. Population health contracts demand strong partnerships and collaboration between providers and payers, so markets with "historically contentious relationships" between these stakeholders will likely take more time to transition toward population health, according to the blog post.

5. The local regulatory landscape. Finally, some state laws influence the development of population health arrangements and the terms allowed in contracts. Some laws can complicate the alignment between health systems and physician groups, for instance. "We've also heard some mention in various markets about laws that govern how much financial risk self-insured employers are allowed to shift to providers," wrote Ms. Gabriel.

More Articles on Population Health:
5 Enablers for Population Health Management
5 Myths Surrounding the Business of Population Health Management
What Organizations do Hospitals Partner With for Population Health?

 

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