Follow the Insurance Money: Will the Real Payer Please Stand Up?

At a recent national meeting, a professional acquaintance stirred up the expert panel by asking if health insurance companies were the real payer or just a processor.  It is easy to forget that  Medicare managed care companies are always using other peoples’ money.  Their source of funding comes from the government with contributions from citizens, as in Medicare or the taxpayer in Medicaid.  Furthermore, any ERISA-based coverage is supported by private employers.  While it is true that the individual coverage process is managed by the insurance industry, the premium dollar is paid by private individuals. 

Insurance companies are responsible for carefully managing the process by following the master plan documents, mitigating the risk of excess loss by keeping financial reserves or by selling some of that risk to others.  Additionally, companies maintain rooms of highly-trained actuaries to understand where the expenses come from and where the money goes.  It is also true that the insurance companies have the administrative responsibility of enrolling the beneficiaries, answering the multitude of customer questions, and tracking the provider networks.  Processing claims submitted by health care providers is a central business process for insurance companies.  While all of this is important business, it is done with other peoples’ money.  Even the federal government’s involvement in health care is with our money.

Raising this question is not to depreciate the value added by insurance companies for their administrative functions but rather to remind all of us, including insurance companies, that we are the customer and that it is our money that is being spent.  The insurance concept is important to understand, now that downside financial risk, the ultimate management of our money, is being pushed toward the provider level.  This creates a new relationship with our primary care physicians.

The recently CMS-introduced direct-contracting model may move the money even closer to the real payer.  This idea is aimed at “reducing expenditures and preserving or enhancing the quality of care for beneficiaries in Medicare fee-for-service (FFS).”[i]  This Medicare Advantage-like model for FFS reinforces the idea that the government wants to get out of the health care risk business.  Furthermore, this model forces community-based ACOs to become the local source for efficient, high-quality health care for the local population.

The direct-contracting payment methodology represents an important shift in direction.  In fact, “CMS is requiring Capitation Payment Mechanisms in Direct Contracting to provide direct- contracting entities (DCEs) with an opportunity to administer the flow of funds while they manage total cost of care. By giving DCEs the funds to pay for services and increased flexibilities, DCEs will have greater leverage to enter into downstream payment arrangements that can incent providers to work together and coordinate care for a defined set of aligned beneficiaries, with the potential to generate better outcomes and lower costs.”[ii]

Originally the patient paid the doctor directly for care.  Now it seems as though the current CMS payment methodology is practically turning the financial part of health care around by 360 degrees.  By moving the clinical and financial responsibilities closer together, the transaction becomes almost like it used to be.  Doctors are then incentivized to provide the most efficient, high-quality care to the folks sitting in front of them.

The importance of a solid, intuitive, and functional data system rises to a higher level in the new payment system.  This is a position of data analytical leadership that Salient’s Interactive Miner firmly holds.  Community-based accountable care organizations taking a financial risk for their populations require a data system that will guide them through key performance indicators while giving them deeper insights into creative methods of care improvement along with financial success.  After all, it is the patient’s money that is to be used at a new level of responsibility.  Now when the real payer is asked to stand up, we should not be surprised to see ourselves standing.  I am standing, are you? 


[ii] ibid.

Craigan Gray

About the Author

Craigan Gray, MD, MBA, JD

Dr. Craigan Gray, Salient Healthcare’s Chief Medical Officer, brings rich experience from private practice, hospital leadership, and governmental health-benefit programs. Prior to joining Salient, Dr. Gray was director of North Carolina’s $12 billion Medicaid program. His time as VPMA at Bon Secours Our Lady of Bellefonte Hospital in Kentucky was distinguished by moving the facility into the top-quality performance tier for Health Grades and CMS health quality indicators. Dr. Gray is a Stanford University trained Obstetrician/Gynecologist. In addition to an MD degree, Dr. Gray holds an MBA degree and a JD degree. He is a Certified Physician Executive and is published in various medical journals.

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