Partnering for Patients and Profit: Hospital Developed and Owned Networks
As the medical tourism industry matures, hospital partnerships will become increasingly important for a number of reasons, ranging from simplified contracting to improved customer service for payers and patients.
Over the past 20 years, US healthcare providers learned lessons, both positive and negative, through the formation and dissolution of networks; that is, the affiliation of providers into one unified organization in the pursuit of specific, common goals.
Readers should observe that, if executed correctly, a strategic partnership of free standing hospitals to create a healthcare provider network will differentiate and ultimately increase profits for all of the hospitals belonging to the network.
Payers and Networks
In this article, payers are defined as self-funded groups and insurance companies. While they differ in various ways, their primary commonality for this discussion is that they are seeking high-quality, low-cost healthcare for their members and they accomplish this through the rental or development of provider networks.
Payer networks combine individual providers, groups of providers, and multi-hospital systems into a package that the insurance company can market and the self-insured groups can access for care.
Self-funded groups typically rent a network from another company, although in some cases they may develop their own network, and work with a vendor to provide administrative services, such as processing claims and distributing money to providers for services received.
The companies providing the administrative services may be third party administrators (TPAs) or insurance companies.
In either of these cases, the TPAs and insurance companies have a fiduciary responsibility to the self-funded group to ensure that money is distributed accurately according to the contracts with the providers, the benefit plan, and services received.
However, it is important to remember that the money they are distributing belongs to the self-funded group’s plan and the self-funded groups, in general, are extremely sensitive to price and access; they want to keep members satisfied with their medical services, while using the company’s resources as expeditiously as possible.
While self-funded groups may rent networks, insurance companies sell a number of products and services ranging from claim and benefit administration to medical management, but their primary “product” is their network of hospitals and physicians. In large part, the network and its characteristics are the determinants of an insurance company’s success.
If the network lacks a key facility or group of facilities, is perceived as being comprised of low-quality providers, is missing a price advantage, or has access gaps in a geographic area, the groups purchasing insurance or renting the network through the insurance company will seek services elsewhere.
For example, if a key provider terminates its contract with an insurance company, the groups that purchase insurance products or administrative services through that company may not renew their contracts.
In either case, a network is extremely important in the insurance industry. The quality of hospitals comprising a network, their cost structure, and local perceptions are important determinants as to whether or not the provider is included in a network.
Hospitals are likely to be “key facilities” in a network if they have some sort of leverage, for example, if a hospital is the only one in a rural town and the employees of the local company need their services.
Or, if a hospital belongs to a multi-hospital system that provides a significant amount of care to a population and the hospital is included as part of a system-wide contract with the payer, then the hospital receives some protection against contract termination. In that terminating the contract would terminate the relationship with the entire multi-hospital system. In that situation, there is safety in numbers.
Differences Between US and International Facilities
One may immediately observe the differences between a facility in the US providing a significant amount of medical services to the insurance company’s members and an international facility providing medical tourism services, at this point, for a handful of members.
At the current time, from an insurer’s perspective, while some international hospitals are important, none of them are key facilities in the same sense that a domestic hospital is a key facility; the volume of medical tourism patients is too low to have a material financial impact.
Any international hospital could leave an insurer’s network, for any reason, with little or no impact on the insurer or the hospital members. As the industry matures, however, and the number of medical tourists increases, the goal of the international facility is to become a key provider for payers. This may occur based on the volumes of patients treated, but more likely will be due to strategic partnerships with other hospitals.
Thus, key provider status may be accomplished by an individual facility, but most likely will be realized by multi-hospital groups and hospitals that, even though they are competitors in some respects, can work in concert toward non-competitive common goals with other hospitals.
As a leader of an international healthcare facility or international patient department, one must take action to ensure that his or her facility or department becomes a “key provider” for the US payers and one way to do this is through partnerships.
Partnering for Patients and Profit
Although a number of facilities are owned by multi-hospital systems, most international healthcare facilities are independent, freestanding facilities. Individual facilities can band together with other individual facilities, or perhaps even with multi-hospital systems, to create powerful, provider-owned, strategic partnerships through an independent organization that has specific goals, such as, managing the medical tourism contracts with external parties, including payers and medical travel facilitators.
This provider owned organization must be innovative and flexible in its problem solving while representing and defending its constituent hospitals and physicians.
The discussion of networks can be confusing. For clarification, provider owned networks will be distinguished from payer networks. Specifically, payer networks include, as stated above, individual providers, groups of providers, and multi-hospital systems.
A provider owned network may be part of a payer network; in fact, that is typically the primary objective. However, the difference is that in a provider owned network, the providers organize themselves and unite for common goals instead of being organized by a third party.
With the partnership of several facilities, a separate and focused organization, jointly directed by the individual hospitals, can be created to manage some common functions, such as, creating and coordinating a medical tourism strategic plan with the input of the facilities, streamlining marketing efforts, realizing economies of scale, hiring experienced and qualified staff, and contracting simultaneously on behalf of all of the member facilities under a single signature.
First, the facilities must partner with each other. In this situation, one organization will take the lead and invite other organizations into discussions about a potential partnership. Some important variables for determining whether or not to invite another organization into discussions may include: International accreditation status or the potential of a facility to obtain international accreditation, geographic location, medical service mix, and current medical tourism success.
In the discussions between and among hospitals, common goals must be identified and could include: accessing the individual or the payer markets, reducing marketing-related expenditures, and utilizing contractors with US payer experience.
Second, the facilities partnering, must ensure they are equals in the new organization. Fairness can be maintained through directorships. For example, each hospital could have a director, such as the president of the hospital or the director of the international patient department, on the board of the independent organization; each director receives one vote for each issue brought before the board by the management of the jointly formed company.
Third, the activities must be strategically aligned. While each facility will have a strategic plan, each hospital must cooperate through their director to create a strategic plan for the new organization.
For example, will the newly formed organization manage only medical tourism contracting with payers and facilitators, or, will it act as a buyer’s group to obtain quantity discounts on medical supplies etc.? The directors must ensure that the new organization’s goals and strategies mesh with each hospital’s goals, especially as they relate to shared functions.
Next, it is important for the partner providers to own the network. Together, the facilities can cooperate to manage price structure, quality of care, size of the network, and geographic distribution to ensure negotiating power. Where a third party manages relationships with each hospital, the effective coordination of activities of the hospitals is absent.
Finally, networks of any size will take some time to plan, assemble, and operate. In medical tourism, the situation could be more complicated by the laws of different countries, the newness of the industry for most facilities, and a desire to remain independent.
If a provider network is formed, it will require an investment of time and energy in the short run, but will prove to be much more effective in the long run.
Funding the Organization
A variety of methods could be used to fund the network, but it is important that the partner providers share equally. Initially, the network could be funded through a cash investment by the facilities in the network; the more facilities in the network, the less the initial capital expenditure per facility.
However, the facilities invited to participate must be based, not on reducing the initial cash investment per facility, but on strategically strengthening the network and, for medical tourism, making it more appealing to US payers. The start up capital required depends on the final design of the organization and the resources that it would require and the real value is recognized once the organization is operational.
The owner facilities, after the initial start up capital, should not need to continue funding the new company. In fact, organizations like this should be considered revenue centers. In one example of a provider owned network organization, the profit margin was approximately 50% and this organization not only increased business for the hospitals and their physicians, but also paid a dividend to the facilities! With the right management and incentives, it will support itself.
The new organization can obtain revenue through various sources. One way that the new organization could make money is through charging various access fees to payers. Charging access fees to payers, at this early stage, is not a reality, but as the demand for medical tourism increases and the hospital network proves itself in the market, this is a probability.
In addition, a small percent of revenue going to each facility as the result of the efforts of the organization could be credited to the new company. For instance, the rates for care for each facility should be incrementally higher because of the single signature contracting and also because of the strategic importance to payers of the combined hospital network.
That is, with the right mix of providers and the correct organizational structure, a premium could be obtained from payers. A portion of the total claim (e.g., 3%) could be retained by the organization for each claim that is paid.
Advantages for External Stakeholders
The hospitals are not the only beneficiaries; this model offers advantages to a variety of stakeholders as well. One benefit is that this model offers a single point of contact for payers and medical travel facilitators wanting to initially contract or re-contract with a group of hospitals. Through a single negotiation and contract, payers and facilitators gain access to all of the hospitals and physicians in the network.
This simplified and unified process saves the payers, facilitators, and hospitals time, effort, and resources. With one or two contractors experienced at negotiating contracts with or for insurers, the hospitals can obtain protection from the pitfalls of contracting in the US (e.g., timely payment) and the payers can negotiate with people who know and understand the payer contracting process.
A second benefit to payers is that quality data could be readily available for each facility and each doctor in the network from a single source. For example, the new organization could obtain from each facility and then provide to relevant parties information such as, international accreditation status for each hospital along with quality measures, volumes of specific procedures, and credentialing information about each provider. It would be proactive for the organization to periodically obtain or update quality data for the network providers.
While payers with certain types of accreditation find delegated credentialing to be too onerous to manage for their accreditation, with the right policies, procedures, management, and commitment, delegated credentialing might be an option.
While it is labor intensive to prepare for a delegated credentialing audit and subsequent re-audits every two or three years, once the audit is passed, it can simplify the process for both the network and the payer.
As medical tourism evolves, the ability of facilities to strategically unite and cooperate with multiple facilities to form a provider owned and controlled network within the medical tourism industry will separate those who flourish from those who subsist. Ultimately, this is a balancing act.
The needs of the payers and the needs of the provider must be balanced for a win-win situation; the prices and terms must be managed so that payers can sell or rent network and the facilities can ensure the network operates profitably.
Providers in various markets, whether local or international, must cooperate to achieve something greater than each hospital could achieve individually.
Dr. Chad Holloway is founder and president of Global Health Solutions LLC, an international healthcare consulting company providing marketing, contracting, and strategic planning services related to medical tourism for healthcare providers and consumers. Formerly, he was with WellPoint Inc., the largest US health insurance company in terms of membership, and BJC HealthCare, a large, integrated hospital system in St. Louis, Missouri. He has multiple academic credentials including a master’s degree in healthcare administration from Washington University in St Louis and a Ph.D. from the University of Miami. He can be reached at 001-618-444-1552 or at email@example.com.