Payer Contracting Best Practices for Virtual Care Companies

Notes from a recent discussion between virtual care and payer executives

Payer contracting is an arduous and complex process whereby a healthcare provider establishes a relationship with a payer (aka health plan, aka health insurance company). This process exists because payers do not provide healthcare services directly. Instead, they subcontract with physicians and other advanced practice providers (APPs) to deliver the services covered by their plans, and in doing so, establish a provider network.

For terminology’s sake, in-network providers are those that are contracted with the plan, whereas out-of-network providers are not. Most providers contract with many different payers and as a result face variation in reimbursement schedules, different rates between payers for the same or similar services, dynamic requirements for reimbursement, and contract language that is payer-specific and generally confusing.

Payers also have contractual relationships with their “direct customers” – specifically patients, as well as employers, who provide health insurance as a benefit for employees. In this piece we’ll be talking about the former: contracting between payers and providers. As new practice models have emerged, such as the Friendly PC Model for telehealth companies, virtual care companies are now navigating the same processes that brick and mortar providers and hospitals do.

In an attempt to demystify payer contracting, I recently co-hosted a virtual session titled “Payer Contracting Best Practices for Virtual Care Companies” alongside virtual care and health plan executives. Twenty CXOs of virtual care companies attended ranging from the pre-seed to growth stages representing >$500m of capital raised and serving tens of thousands of patients nationally spanning oncology, obesity medicine, ophthalmology, LGBTQ+ health, and cardiology services to name a few.

Below is a summary of key learnings from the conversation.

Step 1. Preparing for Payer Contracting

Before even thinking about pitching your solution to a payer, you need to identify whether the services your company provides address high-cost areas identifiable by claims. This exercise will take your business in one of two directions:

1. Good news: The services your company provides address high-cost areas with unmet need that are identifiable by claims. The payer is likely already aware of the importance of investing in your category, which means there is a high probability that your solution aligns with the payer’s list of strategic priorities. You’ll need to better understand the payer’s current provider networks and approach to care in your domain, but the problem likely is already top of mind for the payer (e.g., they may even have RFPs out for what your company does).

2. Less good, but not bad news: The services your company provides address high cost areas with with unmet that are not easily identifiable by claims. If this is the case, it’s going to take a bit more work to demonstrate why there is an unmet clinical need and secure ranking on the payer’s list of strategic priorities.

Regardless of whether your company finds itself in situation #1 or #2, below are some ways to validate the need for your solution before contracting with a payer:

1. Build Community: Identify and establish ways to connect with your target population directly via online approaches (check out companies like NOCD, focused on NOCD, and FOLX Health, serving the LGBTQ population, that have built community via apps and social media). You’ll need to offer something to patients that provides value such as content, connection to other patients living with the same condition or disease, or access to services (e.g., cash pay virtual care services, clinical trial matching, etc.).

2. Conduct Actuarial Studies: Work with an actuary to quantify the impact of your care model on outcomes for your target patient population. Here’s a big unlock: you can actually do this with existing commercial claims data, meaning you don’t need a randomized control trial based on your own data. Sample actuaries that can help with this work: Milliman, Santa Barbara Actuary, etc.

3. Highlight Integrations in Care: Identify and articulate where your solution plugs into the existing care models in either outpatient or inpatient settings. Many clinical indications do not lend themselves to entirely virtual-first care; after all, the physical exam remains an integral part of medicine and will continue to be for the foreseeable future. In oncology, for example, health plans already have oncologists in-network. As a virtual-first oncology service, how do you integrate with this existing infrastructure without fragmenting care? This example differs from medical specialties where there are more stark labor shortages, such as behavioral health, where plugging in as a full-stack provider may help bolster a plan’s existing but potentially deficient provider network.

Step 2. Getting in the Door at a Payer

Before knocking on the payer’s door, you need to know what you’re getting into. Payer executives receive >10 emails/day from point solutions. Network management is a resource-intensive activity for plans, so there needs to be a really good reason to consider adding your solution.

It’s not advised to cold email executives at plans, but rather, find a warm introduction from a trusted source: executives from other companies working with the plan, venture capital firms, or employers - more on this later. Most plans have strategic investment teams, so consider connecting with these groups first if you don’t have an executive relationship at the plan. These groups can provide context and feedback on the payer’s priorities to set you up for success once you do speak with a decision-maker at the plan.

Even in our virtual-first world, don’t sleep on the conference circuit for health plan executives. Conferences (e.g., HIMSS, HLTH, etc.) are a great place to build genuine, authentic relationships with health plan leaders. But, it’s not enough to snag a booth and expect payers to come to you. Consider attending talks hosted by payers and try to meet the speaker for 5 minutes after the session to express your interest in their topic and introduce yourself. This is a tactical example of how you build high-quality relationships in the health plan world, and not just sell!

Step 3. Nailing the Payer Pitch

Now you’ve landed time with a payer executive to tell them more about your solution. Here’s how you nail it:

• Demonstrate Effectiveness: When talking with payers, whatever you do, don’t bury the lead on the effectiveness of your solution. Let your data tell the story, and not the other way around. I previously mentioned conducting an actuarial analysis on general commercial data (i.e., not generated by your solution) as a proxy for calculating the return-on-investment for your solution. But how do you gather this data for your particular service? There’s an obvious chicken-and-egg problem with needing to generate data on the outcomes of your clinical model in advance of being able to secure a payer contract. It starts with knowing the difference between effectiveness and efficacy. Effectiveness refers to a result acquired in an average clinical or a real world environment. Efficacy refers to a result acquired under ideal or controlled conditions. A straightforward way to generate data on effectiveness is to launch as a cash pay, direct-to-consumer service to validate both the need (via demand) and early outcomes for your solution. One of the most powerful things to show a payer is that patients are paying out-of-pocket for your services.

• Establish a Multi-State Presence: Even if you’re pitching to a regional plan, you must cater to national employers. If you’re only live in 1-2 states, it’s unlikely you’ll get the attention of a plan, even if it’s a regional payer. At a minimum, you need a believable roadmap for near-term multi-state/national expansion, which will be critical if you want to expand beyond small state-based ~200k member health plans for example.

• Leverage the Employer Channel: Many companies try to contract with payers via employers. Getting introductions from employers is certainly a viable way to get on a health plan's radar. It can also be a major distraction, so figure out whether there’s actually a durable and interesting employer business for your solution before putting all your eggs in this basket. And remember, like payers, employers are also experiencing point solution fatigue. Still, most plan funding is sponsored by employers and most employers are increasingly turning to self-funding (as small as 250 employees), which means that every time a company brings a point solution to a health plan, that health plan has to turn around and sell that solution back to their employer clients. Establishing evangelism on both sides (employer and payer) can only help you.

• Make it Easy: Don’t go to a plan with your solution and tell them you’ll engage 5% of their membership if only they could market your platform every month. Instead, consider leveraging the direct-to-consumer model to aggregate your own members, ask your members whether they have health insurance, and if so, what plan. Armed with this information, go back to the plan and share that you already care for ~XXX of their members who are paying out-of-pocket for your service and ask to launch a small pilot with the members you’re already engaging. This strategy makes it easy for the payer and easy for you to collect additional outcomes data for the members of the plan, increasing the likelihood of landing the contract. So how many members is enough for the plan to care? Likely ~250-300 for a regional plan and ~1,000 for a national, but it depends on how much the plan spends per year on the patients you serve. Importantly, with a sample size as small as ~200 patients, you can begin to build an effectiveness narrative that most payers will respect.

• Maintain Proprietary Member Acquisition Sources: Owning patient acquisition will set you free. You can do this via the direct-to-consumer model previously discussed or via referral relationships with providers.

Step 4. Cutting the Deal

• Use Provider Contracts: Contract as a provider, not a program. This framework is easy for health plans to understand and is a well-trodden path. This will require that you’ve established a medical professional corporation (PC), and for virtual care companies, the Friendly PC model mentioned previously.

• Negotiate Rates Early: The best advice for rate negotiatoin is simple: play the game upfront. Don't just accept the Medicare rates. Instead, strive for CMS+75% - CMS+150% at a minimum. It's acceptable to have "starter agreements” with certain health plans, but be strategic about the regions in which you accept lower rates. No matter what, you will renegotiate these rates at a later date. So play the game upfront and figure out what areas of the country are willing to pay the most for your services. Typically, companies see higher rates on the East Coast, in the Mississippi River Valley, and West Coast, with lower rates in between. Value-oriented contracting can be exciting and economically favorable, but you need to build towards it via strong data and confidence around effectiveness (again, n=200 patients is a good starting place for this narrative).

• Get Leverage and Re-negotiate: As your company contracts with multiple payers in a given region, you secure leverage with plans. What percent of a market do you need to have enough leverage to renegotiate effectively? Surprisingly, it often requires contracting for ~90% of commercial density in a given region. Choose markets where you can secure this density with a modest number of plans.

Step 5. Executing, Expanding, Excelling

Now with a contract in hand for a pilot, you need to demonstrate: (1) clinical outcomes, (2) patient satisfaction, and (3) operational capabilites (e.g., billing, credentialing, etc.). Then, you can expand beyond the pilot population. Keep it simple:

• Leverage your Clients: For the regional and national providers, if you're successful in one geography, a plan will likely introduce you to other contacts at the plan. Of course, closed mouths don’t get fed, and so you need to develop an authentic and trusted relationship with the plan to establish cross-plan evangelism before asking for introductions to other regions.

• Work with External Credentialing Partners to Get Started and Build towards Delegation: Most companies start with external credentialing vendors like CertifyOS and Medallion, and many build the infrastructure internally over time (this requires an EMR tied to a credentialing an billing platform). If your solution leverages both MDs and APPs and would otherwise be considered “half-baked” without each provider type, make sure you contract and credential for both provider types. The holy grail of credentialing is delegated credentialing, whereby the provider assumes all of the risk of credentialing including evaluating provider qualifications on behalf of the health plan (aka, the delegating entity). Engaging in delegated credentialing can accelerate the credentialing process dramatically (60-90 days down from 6-9 months) and typically requires certification such as National Committee for Quality Assurance (NCQA, preferred by health plans) or Utilization Review Accreditation Commission (URAC). Note that health plans view delegated credetialing as a risk, and so engaging via this model requires a trusted working relationship. Verifiable is one of many platforms that can help providers facilitate delegated credentialing, and here’s a great overview of delegated credentialing in general.

• Maintain Robust Reporting on Clinical and Financial Outcomes: How do we know if we’re doing well? Ongoing monitoring of your outcomes and cost savings requires robust data and analytics capabilities internal to your team with support from external vendors like the actuaries previously mentioned, as well as peer-reviewed literature. Payers will consider a variety of metrics depending on the service your company provides and the population you serve including but not limited to: emergency room utilization, medication adherence, wait times for providers, pharmacy spend, polypharmacy reduction, etc.

If you’ve gotten this far, hopefully you’ve learned something new about payer contracting. As a quick plug, I’ll be hosting another virtual session on Demonstrating Clinical Outcomes as an Early Stage Care Delivery Company on May 2, 2022 between 4-5pm ET featuring Dr. Will Shrank, Chief Medical Officer at Humana and Suhas Gondi, health policy researcher at Harvard Medical School and Harvard Business School and incoming Internal Medicine Resident at Brigham & Women’s.

Sign up here to reserve a spot.

Special thanks to Joe Connolly, CEO of Visana Health, for his contributions to this piece.