Payviders: Navigating Implications and Seizing Opportunities for Health Systems

Key takeaways:

• Two key market forces – accelerating consumerism and the convergence of the payer and provider business models – are reshaping competition for many traditional health systems.
• With control of the consumer relationship at the core, health systems’ consumer loyalty will be challenged over time as other industry players own more parts of the care delivery system.
• To remain competitive, health systems will need to design a consumer-centric care delivery model that’s technology-enabled and focused on access to care, convenience and patient-defined outcomes. To best do this unencumbered by reimbursement, health systems should seek prudent opportunities for total cost of care accountability.

The U.S. healthcare ecosystem is reorganizing in remarkable ways. You’ve seen the headlines: the retail giants have made big and decisive bets in the industry.¹ At the same time, through our interactions in the field, PINC AI™ – the technology and services brand of Premier – has seen the continued emergence of the payvider, a healthcare services entity that owns both health plan and care delivery assets.

What’s behind these market dynamics that’s reshaping competitive strategy, and what’s the impact on traditional health systems? Let’s take a deeper look.

Retail Giants Enter the Healthcare Marketplace

Healthcare is a large and growing market despite efforts to control its expansion. National health spending is expected to grow by 5.1 percent annually through 2030 and is forecasted to remain about 20 percent of gross domestic product in that same timeframe.²

Retail giants (e.g., Amazon, Walgreens and CVS Health) looking for new sources of growth are on a primary care shopping spree.³ But translating primary care assets into favorable financial returns has been elusive for many organizations. Case in point: some of the recent market acquisitions, such as Oak Street Health and One Medical, had yet to turn a profit at the time of acquisition.^4,5 This suggests that there’s something else going on.

Our perspective is that these new market entrants are trying to compress the value chain (the set of business activities involved in creating and delivering a product or service) to integrate formerly disparate capabilities, enabling them to get closer to the consumer.

In other words, the retail giants are disintermediating health systems – the traditional owners of the consumer relationship – in the value chain. What’s more, the retailers want to compete on what they know best: the consumer experience. Thus, they are slowly but determinably changing the basis of competition in the industry. And if they execute well, they have the potential to create a better consumer experience and better outcomes.

Payviders Continue to Emerge

Why are we seeing the emergence of the payvider? It’s a realization by many incumbents that business models need to change. While payers have been the primary drivers of the payvider evolution, providers have pushed the convergence, too. On the payer side, many health plans realized that the role of the fiscal intermediary was being eroded. In addition, payers have held one of the lowest net promoter scores (NPS) across all industries with an average in the mid-20s.⁶ NPS measure a consumer’s likelihood to recommend a product or service.

Our interactions in the field have revealed how many health plans and providers have chosen to transform their business models. Many large health plans have elected to diversify their revenue streams by controlling more of the care delivery system. On the provider side, health systems have sought to control more of the premium dollar to unlock additional margin and, most importantly, secure covered lives.

Is the payvider model new? Not exactly. There are health systems that have embraced these strategies for years. The new dynamics are that payviders are becoming more geographically diverse, covering more ground and lives, and thus spreading their competitive wings across more of the nation while using digital approaches to care to further increase convenience and coverage.

We anticipate this phenomenon will reach more populations and become an attractive alternative for consumers who are seeking a better overall experience than they can receive from legacy facility-based health systems.

Our perspective on the impact of the payviders is that they’re stimulating legacy health systems to embrace consumerism and compete on access, which is further facilitated by successful value-based care contracts. But the payviders are also collapsing the value chain by uniting traditionally discrete industry segments, which can provide them with a considerable competitive edge if they execute well. (Think of the value fully integrated payer’s data and provider’s data can have on patient care.)

Why These Market Dynamics Matter

The single greatest advantage health systems have held over traditional payers and any new market entrants has been the consumer relationship. In most communities, the health system’s brand is strong, and allegiance remains high. But we expect this structural advantage might be weakened over time as industry players, both new and old, own more of the delivery system.

Consider that Oak Street Health has a reported NPS of 90 and that Amazon has one estimated to be more than 70.^7,8 What’s at risk? We see that traditional health system consumer loyalty (and thus market share) has the potential to be eroded by payviders and new competitors.

Due to these market forces, health systems will need to deploy a consumer-centric care delivery model. Here are three points for health systems to consider:

• Adopt a retail mindset. This means learning how to compete on access, convenience and the consumer experience, and rethinking how to attract and retain consumers. It also means creating a diverse portfolio of access channels and striving to create a frictionless consumer journey. While many systems have ventured into urgent care, ambulatory surgery centers (ASCs), and similar areas, far more needs to be done to enhance basic access needs, such as omni-channel access methods (e.g., call centers and online scheduling).
• Drive “tech-enablement” as much as you can. Digital tools can make health information more accessible, change the way consumers and providers interact, and strengthen relationships. Consider all modes of virtual care delivery – from digitizing your organization’s front doors to remote patient monitoring.
• Circle the wagons around your primary care base. Many new market entrants may be looking to employ or align with primary care providers. A health system’s primary care base can still be one of the most important connection points with consumers, especially older populations. Consider moving your primary care providers out of outdated fee-for-service models and into modern compensation and incentive models that reward for consumer-oriented activities, improved outcomes and cost control.

Additionally, health systems will need strategies to control more of the premium dollar. While this approach depends on several local market and organizational factors, health systems that see this as an integral part of their strategy can implement one (or more) of the initiatives outlined below (while not new to the industry, these can be an appropriate competitive response to disruptors and new market entrants):

• Continue to invest in and expand value-based care contracts that enable risk assumption (but only when an organization is truly ready to succeed and it makes economic sense).
• Consider Direct-to-Employer options that further the health system’s brand.
• Partner with a payer in an expansive way (e.g., Banner Health and Aetna⁹).
• Collaborate with a payer in a more targeted approach (e.g., in a specific line of business such as Medicare Advantage) through a joint venture plan or a private label plan.
• Create a provider-sponsored insurance plan that extends the health system’s brand.
• Contract with a local plan (or set of plans) on a defined path to increased risk assumption.

Across all industries, markets evolve and organizations must adapt with them. Healthcare is in the middle of a grand reorganization. Our industry will transform slowly, and then suddenly once a tipping point is reached. Healthcare leaders: embracing the consumer is good strategy regardless of where that transformation takes us.

For more on this topic:

• Learn why PINC AI™ was awarded the 2023 Best in KLAS designation for Value-Based Care Consulting.
• See how PINC AI’s Strategy and Growth Advisory practice can help your organization build a consumer-oriented care delivery model, craft a strategy to control more of the premium dollar or develop closer relationships with employers.

Sources cited:

1 Becker’s Hospital Review. How CVS, Amazon and Walgreens are Pushing Into Primary Care, Home Health. (2022, Nov. 8). https://www.beckershospitalreview.com/disruptors/how-cvs-amazon-and-walgreens-are-pushing-into-primary-care-home-health.html

2 Centers for Medicare & Medicaid Services. CMS Office of the Actuary Releases 2021-2030 Projections of National Health Expenditures. (2022, May 28). https://www.cms.gov/newsroom/press-releases/cms-office-actuary-releases-2021-2030-projections-national-health-expenditures

3 Becker’s Hospital Review. How CVS, Amazon and Walgreens are Pushing Into Primary Care, Home Health. (2022, Nov. 8). https://www.beckershospitalreview.com/disruptors/how-cvs-amazon-and-walgreens-are-pushing-into-primary-care-home-health.html

4 Oak Street Health. Full Year 2022 Results. (2023, Feb. 28). https://investors.oakstreethealth.com/news/news-details/2023/Oak-Street-Health-Reports-Full-Year-2022-Results/default.aspx

5 Yahoo Finance. One Medical Announces Results for Fourth Quarter and Full Year 2022. (2023, Feb. 21). https://www.yahoo.com/now/one-medical-announces-results-fourth-225300669.html

6 Newsweek. Mitigating the Costs of Customer Churn in Healthcare. (2022, May 2). https://www.newsweek.com/mitigating-costs-customer-churn-healthcare-1702286

7 CVS Health. Creating the Premier Medicare Value-Based Care Platform. (2023, Feb. 8). https://s2.q4cdn.com/447711729/files/doc_presentations/2023/02/Oak-St.-Health-Investor-Presentation.pdf

8 Customer Gauge. Highest NPS Scores: Best NPS Scores from Top Companies in 2022. https://customergauge.com/benchmarks/blog/top-highest-nps-scores

9 Becker’s Payer Issues. 5 Years Later: Chief Medical Officer Shares Results of Banner|Aetna Joint Venture. (2022, June 1). https://www.beckerspayer.com/payer/6-years-later-chief-medical-officer-shares-results-of-banner-health-aetna-partnership.html

The insights you need to stay ahead in healthcare: Subscribe to Premier’s Power Rankings newsletter and get our experts’ original content delivered to your inbox once a month.