|Network Products and Services
The culmination of the network development process is the point at which the network brings to market the product and service lines which provide a tangible benefit to the network membership. Every network must develop a "book of business" based on its mission, principles, and economic objectives. The book of business of the network is characterized by the products it offers in the marketplace and the services it provides to its' membership. Network products tend to be externally focused (to payers and purchasers), while network services tend to be internally focused (to network members and their colleagues).
The Network Product Strategy
At a minimum, network products should yield additional patient volumes to members, and should enhance revenue stability by establishing preferential contracting relationships. Beyond these core objectives, network products should establish a competitive advantage in clinical quality and operating efficiency. Network services should support the network mission of creating economies of scale and "best of breed" practice support services. Again, at a minimum network services should contribute to operating and economic efficiency of the underlying membership. These services can range from comprehensive practice management, to medical management, to back office operations, to group services, as dictated by market demand. Regardless of the product/service mix the network must create a delivery structure that is both efficient and marketable.
The network must develop a product strategy that is responsive to market drivers. What do purchasers want - is it competitive pricing, superior quality, patient access, or a blend of economic and clinical criteria? The answers to these questions should become apparent following completion of the market research component of the network business planning process. Once these market drivers have been identified, the network must customize its' product line to satisfy these market drivers - and to do so efficiently. The network must stratify its' product brand identifiers, and assign a priority to each, in observance of the cost structure, value proposition, and profit potential of alternative product lines. The network may wish to attract payer interest by competing within the current context of contracting arrangements, by differentiating itself on the basis of quality, access, and cost efficiency. Alternately, the network may wish to create a market for itself by offering a product tailored to an emerging market opportunity. For example, the network may wish to develop a Medicare risk product in a largely fee for service market (if Medicare risk is present or imminent), if the risk product has an acceptable profit margin, allows the network to capitalize on its' quality brand identifier, and represents a fresh, untapped market to be exploited.
Ultimately, the market determines the correct mix of network products, and market demand will shift over time. In an immature managed care market, the network will primarily act as a contracting agent, since this is a marketable product suited to a fee for service contracting environment. In more advanced managed care markets, the network assumes a larger role in managing the economic and clinical aspects of care delivery, in addition to acting as a contracting organization.
The Network Customer
In conducting an examination of the market for network services, the consumer perspective should be appreciated. The challenge is not only to create the means to deliver network products, but to deliver products that people will buy. For most networks, the primary commercial customer base is the payer market. Payers themselves must sell their products to the ultimate health care consumer, on the strength of some combination of competitive pricing, patient access, and clinical quality. Unfortunately, these criteria are often met at the expense of the provider. Payers have ratcheted down reimbursements and laid off risk to achieve competitive price points, and "cherry picked" or established exclusive contracting relationships to establish a presence in desirable localities, maintain quality, and control utilization. It is not necessary to approve of payer practices, but it is important to understand the motivation and goals of the payer management. This knowledge can be factored into product development, and the network may be able to create a "win-win" product relationship through alternate means. For instance, if the market is driven by cost, the network may be able to offer the payer a discounted fee schedule for a wide band network, or a risk based product that will be managed by the network at an aggressive capitation rate. In markets driven by quality, the network may be able to offer a sophisticated medical management program that delivers measurable quality, in terms of outcomes, patient satisfaction, and resource management. Both commercial payers and the Federal government have demonstrated a clear inclination to transfer risk to providers, and are willing to allow providers to assume utilization management and contract management responsibilities that translate into higher levels of reimbursement. It is the responsibility of the network to identify these opportunities and create the internal capabilities to not only capture greater levels of reimbursement, but to manage costs in such a way that the net effect of cost savings has the same effect as increased revenue. Put simply, the network should manage its products from both side of the revenue/expense equation.
In more advanced markets, the network may be able to offer products directly to health care consumers, as represented by self insured plans (employers) and consumer purchasing coalitions. "Direct" contracting will catch fire as a marketing posture when the government completes its' oversight recommendations for PSOs (Provider Service Organizations), which are essentially provider owned and operated health care financing and delivery organizations ( they assume both the insurance and clinical delivery functions). When PSOs are granted legitimacy by the Federal government, they will be able to market directly to commercial, Medicare, and Medicaid populations, and the entire landscape of health care delivery may experience a radical shift of market power from payer to provider.
In addition to the influence exercised by market drivers, network products are defined further by the clinical composition of the network itself. The provider panel determines the breadth of products the network can deliver (ex. primary, multispecialty, single specialty, physician/hospital) in addition to the market stage of managed care contracting (ex. case rates, carve outs, global risk). But in addition to these common attributes, the network may develop additional product lines on behalf of its' membership, and for the larger provider community. Medical management is increasingly cited as a core product of medical networks, because it is the vehicle to establish and maintain clinical quality, across the entire spectrum of network clinical activities. Information services are also recognized as "mission critical" capabilities that allow providers to manage the economic and clinical aspects of care. These product lines not only serve the network membership, but can be marketed to a larger, potentially national audience.
Provider Panel - the network can lease its' provider panel to payers and purchasers as a packaged product providing clinical services which may be defined by specialty or scope of services (ex. acute and ambulatory care, cardiology carve out).
Pricing Structure - the network can tailor pricing arrangements to capture market share by providing a unique product (such as a case rate or bundled pricing) or by accepting risk (capitation).
Medical Management - the network can establish measurable clinical quality and utilization management processes (which can be marketed to payers and purchasers) and package medical management programs, tools, and techniques (for resale to other organizations).
Information - the network can use information to manage the risk and reporting requirements of managed care contracting, create internal performance management capabilities, and develop sophisticated clinical data capture and analysis tools (which can be resold to other organizations). (1)
In addition to the network product line, there is an entirely separate dimension of potential revenue sources available to the network, based on provider support functionalities. First, there is an underlying assumption that the network can deliver some magnitude of economies of scale, by virtues of its' size and collective market clout. This market power should translate, in theory at least, into preferential vendor relationships, for such purchases as supplies and insurance. More importantly, this market power can be translated into cost efficient practice support services such as claims processing, practice marketing, recruitment and human resource management, practice reengineering, consolidated back office functions (ex. scheduling, eligibility verification, referral management, accounting). Finally, the network can offer network management services which can be offered on an ala carte basis, as dictated by the market. Representative services include:
Practice Management Services
Contracting - payer relationship development, risk and non-risk contract negotiation and contract management, treasury management, claims administration, risk management.
Practice Operations - recruitment and human resources, practice reengineering, operations assessments, financial administration, facilities management, information systems support, policies and procedures, payroll services, staff training and education.
Group Purchasing Services - medical and office supplies, insurance coverages, transcription, equipment.
Network Services - network development, provider credentialling, practice marketing, accounting, consulting and legal services, ancillary services.
The framework for delivery of these services ranges from comprehensive practice management, in which the provider contracts with the network to assume responsibility for all non patient care functionalities of practice operations, to an array of packaged services specific to practice support needs (such as contracting or human resources administration), to stand alone, ala carte type pricing arrangements.
Finally, the network must offer some basic package of services, for which there is an annual subscription fee, to gain entry to the network. This package may include access to contracts, practice marketing, and some value added components. The purpose of this is to attract physician membership, and to do so without exceeding a threshold of resistance for those practitioners who do not want to tap into bundled network services.
Risk management services are typical practice support functionalities. However, the network should match services to opportunities that occur on both sides of the revenue and expense equation. For instance, the network should be able to offer revenue enhancing services such as practice marketing and managed care contracting, while simultaneously offering cost cutting services such as practice reengineering, group purchasing, "back office" services, medical management, et.al., as indicated by local market dynamics.
Product Market Segments
In developing network products, planners must examine the revenue quality and growth potential of individual market segments. The network must tailor products to the individual market segments it wishes to target, such as commercial, Medicare, Medicaid, occupational health, or other populations. Each population exhibits distinct health characteristics, and will consume health care resources in a distinct manner.
Opportunities exist to exploit these consumption characteristics, regardless of the framework of local contracting. For instance, Medicare and Medicaid populations are heavy consumers of specialty services such as Ophthalmology and Cardiology, and carve out products can be developed specific to these populations. Primary care services are in constant demand for all populations, and a primary care network featuring a broad geographic band can market itself on access alone.
In addition to the market for health care defined by populations, there is a further segmentation by product type. Specifically, there are risk and non risk market segments, which overlap payer classes, and which represent a separate layer of market product development. For instance, within a single geographic market there may exist multiple contracting relationships governing a single class of patients (commercial, Medicare, Medicaid). These relationships might include discounted fee, capitation, carve outs, per diems, and case rates. The network should be able to compete for any population under any contractual arrangement within its' clinical scope of services, assuming that the network can deliver its' product capably, and within an acceptable margin of profit.
Medicare and Medicaid Products
In many communities, the Medicare and Medicaid patient populations occupy a growing percentage of the total provider reimbursement stream. HCFA and a growing number of states have made clear their intention to transfer risk to providers, and this represents a net transfer of patients from one product category to another. Networks can capitalize on this transition by creating, in advance of market transition, the requisite risk management tools and techniques that can be rolled out to risk bearing providers within the network when the new contracts commence. Medicare product options include TEFRA risk contracts (capitated reimbursement), HCPP contracts (experienced based capitation - Part B only), Cost Contracts (capitation), and Medicare supplement. Contracting for risk with HCFA historically has required an HMO license, but this requirement will assumedly be modified to include PSOs. Alternately, networks can contract through HMOs for Medicare risk.
State such as New York, Minnesota, have aggressively transferred their Medicaid populations into HMO plans, often on at at-risk basis. The State of Maryland has introduced a pilot project which allows Medicaid to be operated as a large scale network model HMO plan, to contract directly with provider networks on a selective basis, and within a prepaid reimbursement scheme.
Cost pressures and the aging of the U.S. population will certainly promote the expansion of risk based Medicare and Medicaid programs nationwide.
It is the challenge of the network planners and managers to develop and launch product and service lines that are responsive to market demand and emerging opportunities. Since "meeting the market" demand for network resources is highly conditional, and subject to continual adjustment, the network must be prepared, as a permanent feature of product development, to respond to market drivers by refining, adding, subtracting, and streamlining its' product and service lines.
1. Straley, Peter, "Developing PHO Products, Roles, and Operating Principles", Developing a Successful Physician-Hospital Organization, American Hospital Publishing, American Hospital Association, 1995, pp.22-23.
Richard Krohn is a member and contributor of HealthBond. View his expert page on HealthBond.
Richard Krohn is President of HealthSense. Krohn is a widely-published managed care expert as well as a dynamic speaker providing in-depth, practical and timely information on topics such as managed care contracting, strategic positioning for provider organizations, building new provider alliances, reengineering practice operations, developing market driven products, and creating equitable physician compensation plans.
November 9, 2000