Tag Archives: Risk Sharing Contracts

Signify Premium Insight: Optum Health a Master of its own Destiny in Fully Accountable Care

In a recent earnings call with investors, UnitedHealth CEO Andrew Witty revealed that its healthcare services unit, Optum Health, plans to treat four million people in fully accountable care models this year. 

While this is nearly double the 2.2M people Optum Health treated in fully accountable care in 2022, it is a realistic ambition. With a large (and expanding) network of primary care practices, specialists and diagnostic chronic care outpatient centres in the US, Optum Health is a success in its own right. The fact that its ambitions are supported by UnitedHealth (the number one US medical insurance company) and Optum Insights (a top risk stratification population health management (PHM) tech vendor) within the United Health family presents a formidable ecosystem. This will drive more Optum Health customers towards fully accountable, value-based care (VBC) in 2023. 

The Signify View  

The unique interconnections between provider (Optum Health), tech vendor (Optum Insights) and insurer (UnitedHealth) is a ‘dream ticket’ to true VBC for Optum Health’s primary care customers. This continues to put the company at a significant advantage over other providers, who must rely on either acquiring the technology and payer services to deliver fully accountable care, or establish strategic partnerships.  

As fellow primary care providers scramble to acquire the technology – spending large sums in the process – to propel themselves further into VBC, Optum Health will retain its competitive advantages for now. The company’s goal to serve four million people in fully accountable care in 2023 is sound. 

Revenue Boost 

Serving more people, more comprehensively is UnitedHealth’s underlying growth mantra in 2023 and one which also underpins Optum Health’s revenue performance. It reported double digit year-on-year revenue growth in Q4 2022 of $47.9B ($182.8B for the full year). Furthermore, in 2022 Optum Health says it increased revenue per patient by 29%, attributing this partly to the ‘expansion of VBC arrangements’. 

It is little surprise, then, that Optum Heath feels it can support its customers in bringing another 1.8M more people into fully accountable care this year. The majority of these people will already be on UnitedHealth’s insurance plans (both government-backed Medicare Advantage and commercial plans), a large, neat, ready-made patient pool for Optum Health’s customers. Optum Health says fully accountable care for these people will be provided in both clinics and at home, CEO Wyatt Decker telling investors on the earnings call that the company sees ‘significant opportunity’ in harnessing home health to drive its VBC ambitions. Optum Insights’ PHM technology will be central to supporting this.  

Note of Caution 

While Optum Health’s optimism around its 2023 plans is justified, it will be mindful of the stuttering journey from pure fee-for-service contracts to fully accountable care in the US since 2015. A November 2022 report by alternative payment models think tank, the Health Care Payment Learning & Action Network (HCPLAN), sheds light on this journey. It shows that nearly 60% of all reimbursement remains part of a traditional fee-for-service model. There was modest growth from 2015 (when 77% of reimbursement was in fee-for-service contracts) until 2019, but has stubbornly flat-lined since (see chart below). 

Risk and Less Reward 

While Covid was partly responsible for this plateauing, there has been another force at play.  

Prior to 2018/2019, providers tied into VBC contracts were paid a lump sum to care for their populations. They were incentivised for providing care ‘under budget’, sharing any savings they made with the payer or government. If the provider came in ‘over budget’, it could simply recoup the excess from the payer or government. In these ‘one-sided’ risk deals, there was effectively no risk to the provider. In 2018, nearly two-thirds of providers were on these ‘one-sided’ risk contracts. 

The risk profile of fully accountable care contracts began to change in 2018/2019, largely driven by changes in CMS rules, forcing the transition to two-sided models at a much accelerated rate. Many deals now require healthcare providers to assume ‘two-sided’ risk. They are still incentivised to reduce the costs of healthcare provision as per the upside risk-only contract. But if they come in ‘over budget’, they must absorb a significant amount of this cost themselves. Around 50% of providers are now on a two-sided risk contract but, for many, the removal of the ‘comfort blanket’ of ‘one-sided’ risk has been challenging, and has slowed the transition to fully accountable care over the last three to four years. The graph below shows the increasing share of two-sided risk providers are now taking on. 

At the same time, the overall direction of travel is towards fully accountable care and reducing the costs of providing healthcare. The value of the global VBC IT market is expected to reach $11.3B in 2025 (with the US accounting for 80% of this), from $6.8B in 2021. This will support the speeding up of the transition to VBC, as more providers see the potential upside from VBC outweighing the financial burden they might now take on in two-sided risk contracts. 

Competitive Threats 

Optum Health is, of course, not the only provider navigating this environment, and there are plenty who see the wider potential of VBC despite having to take on more risk. In our headline predictions for digital health in 2023 (see Insight here), we state that Walgreens, CVS and Amazon are examples of new entrants to this market. We predict that they will become household names in primary care provision this year, swallowing smaller health systems and independent practices and scaling rapidly as a result. 

Even more significantly in the context of the VBC journey, the large US retail pharmacy chains are now also acquiring risk stratification, analytics and workflow tools to support PHM. These provider-technology relationships (much like the Optum Health-Optum Insights relationship) are vital to VBC, and will accelerate the transition in 2023. 

We also predict that Big Tech will move into the digital health mainstream on the back of VBC. Amazon’s HealthLake data aggregation tool has the potential to disrupt in 2023, and the company will pursue more acquisitions during the year to flesh out its portfolio. Similarly, VBC will be the springboard for Google’s digital health strategy. 

Master of Destiny 

The upshot is that many healthcare providers are now jostling for position, assembling the components needed to deliver fully accountable care. Optum Health was a pioneer in this, and in UnitedHealth and Optum Insights has a complete, unrivalled package other providers will struggle to match for the foreseeable future. 

Where most providers are feeling their way into 2023 with acquisitions and new partnerships, Optum Health’s relationships with UnitedHealth and Optum Insights are mature and strong. In a world where providers are taking on additional risk in their VBC contracts, there is more pressure than ever to manage populations and costs. New market entrants must put their faith in new relationships to navigate this new normal. 

Big retail and big tech are knocking on the door, but this should present few real headaches for Optum Health for now. If any company can substantially move the dial from fee-for-service to fully accountable care after a three-year lull, it is Optum Health, a master of its own destiny. 

Signify Premium Insight: Keeping Faith in Mission Command

This Insight is part of your subscription to Signify Premium Insights – Medical ImagingThis content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here.

This Premium Insight is the second in a two-part series assessing the impact and strategy of command centre solutions for the medical imaging sector.

The first part of this series, Establishing a Commanding Position, (available here) emphasised the strategic opportunity that command centre solutions presented large international medical imaging vendors for increasingly embedding themselves in hospitals’ imaging departments. Focusing solely on this opportunity for vendors however misses some of the key improvements to care that such tools can also offer.

One such opportunity is the provision of virtual acquisition support; this is one aspect of Philips’ Radiology Operations Command Center and the central focus of Siemens Healthineers’ offering,  Virtual Cockpit. These solutions enable a senior physician or radiographer who isn’t in the same hospital as a patient or the modality, to guide the imaging procedure remotely. There are numerous situations under which such capability could be valuable. The provision of out of hours care, for example. If a patient requires complex emergency imaging in the middle of night, medical imaging could be conducted with junior staff on-site under the supervision of a senior specialist from another site, enabling scans to be taken more quickly than would have otherwise been possible. Similarly, remote acquisition support is also valuable for hospitals, especially in emerging markets, which are struggling as a result of the shortage of medical imaging staff. Enabling experienced staff to guide medical imaging procedures at other sites, even when there is a lack of senior personnel at those sites can help alleviate this pressure. Some discussions with these vendors have also pointed to taking this technology one-step further, with central “hubs” of vendor-managed experienced technicians providing imaging acquisition support.

Joined-Up Thinking

While such capability is beneficial to providers, it will also help vendors make more hardware sales. After all, in some emerging markets, vendors’ opportunities to increase hardware sales, particularly of advanced modalities, are limited thanks to the shortage of professionals that can use them. Virtual acquisition support somewhat mitigates this issue, giving providers the ability to usefully purchase new systems. As such, virtual acquisition tools will invigorate hardware sales in emerging markets.

Beyond this effect, however, hospitals’ adoption of such tools will also have more nuanced impacts. The tools will, as detailed in part one of this series, continue to establish a vendor as a service provider rather than merely being a technology vendor. The changes in these relationships, along with the possibilities offered by the adoption of command centre solutions will lead to developments in the make-up of contracts that vendors and providers enter into.

Chief among these changes will be a gradual uptake of risk-sharing (or benefit or upside-sharing for those particularly PR-conscious vendors) contracts. The detailed analytics of a hospital’s imaging department made possible by the adoption of command centre solutions means that key performance metrics can be better assessed, and imaging departments’ performances can be better quantified. This will enable risk-sharing contracts, under which providers can contractually guarantee the advantages vendors promise.

Learning to Share

The transition to these contracts will not be immediate, with both practical and cultural issues to be solved. Vendors, for instance, will need to be sure that the benefits or challenges a provider is experiencing are because of their intervention. This will be made easier as vendors supply ever-greater portions of a provider’s medical imaging capability. One vendor, after all, would not wish to be penalised because of reliability or other performance related issues of modalities purchased from a competitor. Such nuances will require a degree of consultation and negotiation to be satisfactorily addressed, but over time, as command centres are able to better quantify utilisation and efficiency, they will be.

Other issues are less quantifiable. Providers will no doubt pleased at the prospect at paying significantly less for an imaging service which doesn’t live up to expectations. However, convincing those same providers to pay more to vendors from savings made from use of new technology and operational service support, will be less easy. Given these challenges, vendors should not, at least in the near term, consider such deals big revenue making opportunities.

Instead, they will frequently represent a more protectionist impulse, enabling vendors to become further entrenched at providers and in a better position longer term to upsell additional tools and services. Alternatively, a more aggressive use of such an approach, particularly with a vendor neutral command centre solution, would see a vendor looking to displace an incumbent by offering contractual guarantees that it can offer savings. Not only would this help the challenging vendor get a foot in the door at a provider and promote its services and equipment from within, but more significantly it would give it insight into a rival’s operations and performance. Such data would stand it in good stead to displace its competitor the next time the provider is due to renew its imaging deals.

Making Predictions

There are many different forms these efficiency gains and operational opportunities could be implemented, among the most eagerly expected is the use of predictive analytics.

At present command centre solutions are primarily tasked with collecting, collating and presenting data. This allows professionals, both within a department and external consultants offered as part of managed service deals, clear operational oversight of a hospital’s imaging department. In doing so these professionals can assess hardware utilisation and identify opportunities to improve a department’s efficiency.

Over time vendors plan to increasingly utilise command centres to not only quantify past data and present current metrics, but also identify patterns in the data to be able to make predictions about future use. In doing so, such tools could offer providers suggestions to improve the efficiency of their departments. These could relate to hardware, highlighting opportunities for providers to share equipment among departments, ensuring that a system in one department doesn’t sit idle while another system is at capacity elsewhere. Another potential use case is better managing staffing levels, to ensure that the right professionals, with the right skills, are available and active at the right times.

Adoption will be tempered by scepticism that predictive analytics offers the value it promises. However, this will change. Vendors will use historic data to show where their tools could have been advantageous in the past and providers will become more open to trying innovative approaches as staffing shortages become more acute. Additionally, predictive analytics will also no doubt be a recommendation made by consultants that have been embedded as part of professional services agreements.

Making Plans for the Future

Ultimately, many of these capabilities and trends, whether virtual acquisition support, better analytics support or the increasing integration of vendors within providers’ departments, were already burgeoning, however, command centres neatly bring them together. These solutions are therefore unlikely themselves to be a significant commercial driver. However, the dealmaking opportunities and upsell potential they facilitate can be significant as large medical imaging vendors look to their next stages of growth. They represent the opportunity for a rethinking of contracting, the chance to tap into service budgets and a way of increasing hardware sales in stubborn markets. Moreover, the “ripple effect” of these deals on the competition will become more apparent, pressurising imaging modality vendors with no advanced operational analytics or command centre capabilities. When considering the recent bullish market entry of United Imaging and growing traction in Imaging IT of enterprise imaging specialists such as Sectra and Visage, command centres offer a chance for major healthcare tech vendors to fight back.

GE Healthcare, Siemens Healthineers and Philips did not achieve their global leadership positions by resting on their laurels, and as competitors gain ground they have got to once again strike out, differentiating themselves from their challengers. Considered as such, command centres represent a mission statement as much as a technology.

About Signify Premium Insights

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here