Partner or Go-it-Alone? Considerations for Working With a Value-Based Care Enablement Company
Health care is dynamic, and external market forces are increasingly volatile. Health systems are beginning to see margins stabilize, but long-term financial strength continues to be top of mind for health care leaders throughout the nation.
One way systems can look to diversify financial performance is through enhancing their value-based care (VBC) strategy, but how to best do that may take on many forms. One of those forms may be through a strategic partnership with a VBC enablement company. These companies drive enhanced VBC performance through advanced data and analytics, focused high-risk care management, coordinated team-based care delivery and, often, access to capital to support the transition to downside risk. While these enablement companies have historically been backed by venture capital or private equity firms, payers are beginning to enter this space (eg, CVS Aetna’s partnership with Catholic Health for ACO REACH), highlighting that VBC enablement companies come in many shapes and sizes with no two being exactly alike.
What was once seen as an adversarial market entrant is becoming an opportunity for collaboration. While these partnerships are starting to take place in pockets (eg, agilon and Maine Health, Privia and OhioHealth), a collaborative approach to engaging with an enablement company may not be the right solution for all. Each system should take the time to fully understand the impacts and implications of what a partnership may entail. When advancing your VBC strategy, understanding the advantages and disadvantages of any potential partnership is paramount to determining a partnership or go-it-alone approach.
Advantages to a VBC enablement company partnership
- Potential to expedite system participation in two-sided risk VBC payment models: In many cases, enablement companies are willing to take on portions, or all, of the provider organization’s downside risk in two-sided risk contracts. Additionally, enablement companies have access to capital, advanced analytics and personnel to enhance success in VBC arrangements. With the financial constraints most health care systems are facing today, engaging a partner to absorb a material amount of operational expense and downside risk may allow your organization to advance VBC initiatives further and faster than going-it-alone.
- Increases ability to scale primary care services: Employment of primary care providers (PCPs) by enablement companies can streamline recruitment efforts and drive enhanced results in VBC agreements. It also offers PCPs an alternative productivity model that emphasizes smaller patient panel sizes with longer visit times—a model that tends to be preferred by most PCPs. Partnering to grow an aligned primary care network in your market presents a new opportunity to increase aligned lives and expand your service area without adding additional FTEs.
- Allows proactive approaches to market disruption: Engaging with an enablement company allows a provider organization to be proactive with market disruption rather than being downstream and reactionary. Enablement companies historically have been timelier with the execution of market strategies, and partnership can offer a collaborative approach to strengthen your organization’s competitive position within that market strategy.
- Provides additional revenue sources: Enhanced VBC revenue opportunities (eg, two-sided risk, partial capitation) through partnership may allow health systems and provider organizations to stabilize and enhance long-term financial positions. Most systems are still dealing with the implications of the pandemic, and returning to positive margins offers flexibility to continue to fulfill organizational mission, support capital investments and enhance equitable access to care.
Disadvantages to a VBC enablement company partnership
- Loss of autonomy: With all partnerships, there is always an element of autonomy that is being forfeited. To what length will the involvement of an outside entity impact your organizational strategy related to clinical practices and operational processes? Enablers tend to focus cost-saving efforts on the same low-hanging fruit (clinical inefficiencies and low-value care) that health systems know exist. Are you positioned to intensify efforts to reduce volumes related to avoidable admissions? High-cost imaging? ED utilization? How do these efforts impact your bottom line and your relationship with the enabler?
Additionally, will the partnership impose new administrative burdens? What expectations will there be on access and capacity that may impact other populations in your market? These questions are increasingly important to consider when factoring in the length of most of the enablement partnership contract terms (some upwards of 20 years).
Another consideration is that partnering with an enablement company will require forfeiting some level of incentives earned through VBC performance. This may seem like a necessary trade-off in the early stages of the relationship, especially to enhance the transition to two-sided risk arrangements, but over time these “administrative fees” may seem excessive as your system enhances efficiencies and becomes more experienced with your VBC strategy. - Lack of cultural fit: Strategic partnerships require alignment on a core mission and initiatives. Most health systems and provider organizations have long-standing relationships within the communities they serve that enablement companies may not. Will their “grow at all costs” mentality align with the mission of your health system? What is the impact to your health system and community if the enablement company decides to exit your market due to lack of profitability?
- Transition of ownership: As the market has shown (eg, Oak Street Health and CVS, OneMedical and Amazon), enablement companies are potential targets for large scale acquisitions from new health care entrants who are heavily resourced. A transition in ownership can cause disruption and uncertainty with long-term alignment.
- Limited scope: In some instances, enablement companies may only be interested in a focused partnership on certain payer populations (eg, Medicare Advantage). Limited scope of any partnership increases the potential for redundancies and duplicate efforts across payer populations, specifically for health systems focused on the health and well-being of the entire community they serve.
Key questions to consider when assessing the potential for a collaborative relationship
- Does your current financial position allow you to effectively move to a more value-oriented strategy? Are you positioned to use your value-based strategy to align with independent physicians?
- Are there market forces that are pushing your organization to move faster into VBC arrangements? If so, what does the timeline for change look like?
- What organizational gaps does your system currently have that need to be addressed to support long-term stability? Are you positioned to support gaps with existing capabilities or are investments needed?
- What risks is your organization exposed to by not exploring strategic partnerships? What risks need to be considered by engaging in a strategic partnership with a VBC enablement company?
- How would a potential partnership impact your short- and long-term financial performance?
- What does the distribution of VBC financial performance incentives look like?
- Is the enablement company able to show a timeline toward profitability?
- What does contract management look like—who owns what pieces of it?
As your organization assesses strategic partnerships with a VBC enablement company, Sg2 encourages you to think about strategies and solutions that position your organization for long-term success. We invite you to reach out to our Value-Based Care Strategy Consulting experts for help with your strategic review of a VBC enablement company partnership, and if it offers your organization a strategic edge in the market.
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