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5 Key Predictions for 2014

Posted by on Jan 6, 2014 in ACOs, Health Insurance Marketplaces, Healthcare Reform, MarketShare Strategy, Narrow networks, Predictions, Pricing | 0 comments

Each year at The Godbey Group we make predictions for the coming year to help our clients and friends anticipate future opportunities and challenges. For 2014 our crystal ball says that both challenges and opportunities for providers will come from the rolling implementation of the Affordable Care Act. We predict:

1. Patient eligibility will become a major challenge.
Providers face a two-pronged challenge of determining patient eligibility in 2014. In states where the expansion of Medicaid was embraced, providers will still be challenged to determine the accurate eligibility of newly enrolled Medicaid recipients. All providers will be challenged to determine the accurate enrollment of patients in the new insurance marketplace products. The accuracy of enrollments rolls provided by the insurance marketplaces to insurance companies has been a disaster so far. This risk then passes to providers, especially physicians, who will be challenged to provide services mandated by the law without adequate proof of coverage.

2. Narrow physician networks will become a major challenge.
Insurance plans chose to limit their financial risk by implementing narrow networks for the new online insurance marketplace products. The consequences and challenges will become apparent in 2014. Narrow physician panels will become an apparent dissatisfier to newly enrolled patients, especially those looking for their current physician. As patient enrollment in the new plans grow it’s predictable that patients will find it difficult to gain access to their selected physician. Ultimately hospitals participating in these narrow networks will find their hopes for increased volume choked off by narrow physician networks. Access to care under the Affordable Care Act will become a growing issue for the media and the public in 2014 and beyond.

3. The 2015 launch date for Accountable Care Organizations will be a challenge and an opportunity.
Hospital administrators say it’s a coin toss as to whether they will participate in ACO’s in 2015. Without a track record or clear path, hospitals are indecisive about the move towards the ACA. On one hand the Center for Medicare & Medicaid Services has already announced reductions in payments to hospitals for 2014 and beyond. And on the other hand the Affordable Care Act holds out the promise of shared savings for successful management of Medicare quality and costs under ACO agreements. So it’s a coin toss, with 48% of CEOs saying they will not participate and 52% saying they will participate in ACO’s.

4. Reimbursement will fall below Medicare levels.
Health care utilization in the first 3–4 quarters of 2014 will see an unprecedented spike as new cardholders are projected to utilize healthcare resources at a rate of 120% of current insured. Utilization/volume will drive cost up, necessitating a overall price reduction in an attempt to balance the equation.

5. 30% of the fully insured will lose their insurance by the fourth quarter of 2014.
With the increase in costly benefits and the elimination of underwriting ability, insurance companies are hedging their bets and escalating insurance premiums to small employers skyhigh and unaffordable. As a result expect 30-50 million people to lose their insurance coverage.

We hope these observations help you think about your prospects in the coming year. To all our colleagues and friends we wish a prosperous and healthy new year.


Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts.</strong>

3 unexpected stories in 2013

Posted by on Dec 30, 2013 in Growth, Health Insurance Marketplaces, Healthcare Reform, Narrow networks | 0 comments

For more than a dozen years The Godbey Group has been proud to help hospitals and healthcare systems contract for the revenue they need to care for patients and improve the health of the communities they serve. During 2013 we observed three unexpected stories in the field of healthcare.

Fewer inpatient admissions
The trend towards fewer hospital inpatient admissions that began with Medicare patients seems to have jumped over into commercially insured populations as well during 2013. Combined with marginally lower Medicare rates, the emphasis on the elimination of unnecessary readmissions has reduced hospital revenue. As a result hospital efforts to cut operating costs are chasing a steadily diminishing line of revenue from Medicare and commercial sources. Given that CMS plans eight more years of Medicare rate reductions this trend may not end anytime soon.

Return of narrow networks
Health plans reintroduced narrow networks to cope with the tidal wave of utilization that might be unleashed by the new health insurance marketplaces. But politicians and providers alike did not expect narrow networks and were caught off guard by the implications. In some markets health plans walked past leading hospitals and even physicians to contract networks. Physicians in particular were startled to be left out of networks. Commercial plans in some states have taken the opportunity to reintroduce narrow networks to their commercially insured clientele, as well.

Troubled rollout of insurance marketplaces on-line
With all the time and money available to CMS it’s startling how the federal government frittered away its opportunity to introduce the new health insurance marketplaces online this year. All the more so because such diverse states as Kentucky and California among others have been so successful in launching their own state-controlled insurance marketplaces. Even the tardy and costly repair work to the sloppy federal sites raises legitimate concerns about the viability of the on-line approach to matching consumers with health plans. These and other fundamental concerns about the purpose and tactics of healthcare reform began to bubble to the top of media and public awareness in the closing days of 2013.

In our next post we will focus on The Godbey Group predictions for 2014. Happy Holidays to all.


Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts.

Why providers should sponsor health plans again

Posted by on Nov 20, 2013 in Healthcare Reform, Managed Care, Population Health Management, Provider-sponsored health plans | 0 comments

In the 1980s and 1990s it was all about integrated healthcare networks and profit taking. But it didn’t work out. Perhaps the theory was correct, but there was far too much front end cost and not enough population health management skill to help the plans turn a sustainable profit. Most provider plans ran out of time and money.

Now we can see the end of fee-for-service and the advent of capitation. This time health plans are for provider survival. It’s time for providers to move from taking profit from utilization to managing behavior. That means it’s time for population health management based on big data.

It’s time for the buyers of healthcare and users of healthcare to work together to take personal responsibility for health. This means moving away from punitive motivation to find benefits and rewards that manage healthy behavior.

With provider sponsored health plans it’s time for providers to move into the retail space. Because when providers sponsor their own health plans their delivery systems become commodities, cost centers not profit centers. When the health plan drives the financial bottom-line retail activity is based on capturing any external cost to the health plan. The health plan is incentivized to eliminate as much of the middleman profit-taking as possible.

So provider-based health plans become the sponsors of self-directed primary care along the lines of the CVS Minute Clinic, for example. And following the information uncovered in good population health management tools, the health plan enters any activity that can help prolong the health of covered lives and eliminate care related expenses. The Kaiser-Permanente health care system is an excellent model of how it can be done across a large population.

My own experience at a major Texas health system and its integrated physician delivery component showed that a healthcare system can launch a successful provider sponsored health plan from scratch. Our plan grew to nearly half a million covered lives in less than five years.

The Baylor and Scott & White transaction shows a different way one health system chose to acquire covered lives by merging with a smaller system that owns a health insurance license.

When Sutter Health recently launched its health plan the CEO said he wished they had started sooner. His advice to other providers: plan on spending at leased $50 million. Good advice as you can never have too much time or money to get your health plan successful.

The important thing to remember is that fee-for-service is yesterday and provider sponsored health plans are the future of healthcare because they are the means to achieve the providers’ mission of improving the health of communities they serve.


Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts.

How population health management makes capitation the natural successor to fee for service

Posted by on Nov 11, 2013 in Healthcare Reform, Managed Care, Population Health Management | 0 comments

Guest blogger Rich Williams is a principal at the Advanced Plan for Health a national provider of population health management tools for employers, hospitals, healthcare systems, and health plans.

After years of academic incubation the concepts of population health management (PHM) have moved to the forefront in the delivery of American healthcare. The aggregation of clinical databases and the digital tools of “big data” have brought PHM to life. Rather than just data, we now have information.

Here’s how it works. PHM providers assemble clinical data from multiple sources to cover the clinical experience of patients in a defined population. This data includes claims, biometrics and other information including Health Risk Assessments. The data is then stratified by clinical and financial risk. This allows the sponsoring organization to identify its exact clinical and financial risk by individual. In the hands of PHM trained case managers and physicians the data is used to create and track interventions that help improve the patients’ health and reduce the risk of medical misadventure over time.

PHM tools are also used by medical directors to oversee and evaluate the clinical effectiveness of physicians in a value-based network that have contracted to care for a defined population. Such data was once the exclusive province of health plans and Medicare. Today employers can access population health management data to help direct and determine the effectiveness of their employee based health plans.

The growing availability and success of PHM tools has brought the concept of capitation back to the forefront in healthcare payment. Where fee-for-service could encourage duplication and even excess treatment, capitation produces the opposite effect. Capitation fell out of favor in the past because it was believed to succeed financially by suppressing care even when treatments were necessary. Combining PHM tools and capitated payments reduces the risk of withholding services as the accountability is swift and transparent. Given the new value-based contracts, the financial incentives among providers are fully aligned with identifying patients at risk in a population and providing them with timely and appropriate treatment.

No other form of healthcare reimbursement has so successfully combined the power of population health management tools with appropriate incentives. While we do see examples today of population health management being used in fee-for-service or bundled contracting circumstances, the true power of the tools becomes apparent when combined with capitated health plans. That’s why some of the brightest minds in health care now see the industry moving towards the combination as the natural successor to fee-for-service.

Reducing the temptation to do more to earn more, providers will do right, whether that involves more or less care. It’s a sea change and a change for the better.


Evolving from fee-for-service to capitation

Posted by on Oct 30, 2013 in ACOs, Healthcare Reform, Population Health Management, Value-based contracts | 0 comments

A number of national health plan executives recently commented that they feel the end of fee-for-service is in sight. On that prediction we agree. But I disagree with their prediction that value-based contracting will replace fee-for-service as the dominant form of reimbursement for healthcare providers.

I disagree because value-based contracting is fundamentally unfair to providers. It creates an asymmetrical relationship in which the health plans hold all the cards and can manipulate the metrics to their own benefit. We can already see the evidence of this in the 250 some commercial ACO’s that have popped up around the country.

And I disagree because there is a better substitute for fee-for-service, namely prepaid health plans with capitation. The healthcare industry has an abundance of experience over many decades, some over 50 years, with how to manage care under prepaid financial circumstances. The big advantage in moving to capitated reimbursement is that it eliminates the financial incentive for over utilization. Properly designed prepaid plans encourage physician cooperation and coordination of care. The structure of financial incentives eliminates the physician incentive to duplicate tests or imaging as a source of personal income.

The structure of fee-for-service, even fee-for-service value-based incentives, is to encourage providers to do more, to bill more, to earn more. If we have learned anything since the creation of Medicare in 1965 it is that fee-for-service encourages more health care spending at the personal, corporate, state, and federal level of our economy. While health care reform is still built on a fee-for-service model, albeit with quality and process measures thrown in to steer providers in certain policy directions, I believe that the only hope of success in reforming healthcare will come from a move to capitation.

Reforming the compensation model for providers is an essential ingredient in the reforms that are articulated as the Triple Aim for the Affordable Care Act. Those Aims are to improve the patient experience, to improve the health of populations, and to reduce the per capita cost of healthcare. Capitation is uniquely designed to address the per capita cost of healthcare. Combined with the new tools of population health management capitation can be successful in improving the health of populations by design.

In our next blog guest Rich Williams from Advanced Plan for Health will explain how populations health management tools have made capitation an even more successful way to address clinical quality and health care costs.


Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts.

Fee-for-service must go

Posted by on Oct 22, 2013 in Health Insurance Marketplaces, Healthcare Reform, Population Health Management, Pricing | 0 comments

After speaking with CEOs and CFOs across the country I am convinced that the strategic direction of most healthcare providers is currently very murky. Yet they would agree that change is occurring all around them with healthcare organizations facing the deepest transformation the industry has ever known. I question why we are not seeing the preparation for change that one would expect in such circumstances.

My hypothesis is that the Affordable Care Act has done nothing to alter the underlying methodology of reimbursement. It’s just business as usual at lower rates. Although a couple of minor trends have emerged, most organizations have taken a “why should I change as long as I receive fee-for-service and can manage my costs” attitude.

A few outlier organizations have taken an aggressive approach by building networks, buying insurance licenses, and competing for dollars. But take it from someone who’s been there, this approach is filled with land mines along the way. Start by examining your financial war chest. Do you have the means to compete with behemoth insurance companies? Then ask if you have the physician structure, governance, and political relationships to be successful?

Still other health care leaders are challenged to make the right choice between affiliations, mergers, acquisitions, or how fast they can get to retirement. Believing that there are not massive and disruptive changes coming to health care reimbursement is a career limiting belief.

The current model in which cost is a function of price times volume times population is simply not sustainable. In healthcare we know that efforts to drive down price simply lead providers to an increase volume which then drives an increase in total cost. Under health care reform we now have two elements driving the expansion of volume–price reductions and the expansion of the population with access to healthcare through the new health insurance marketplaces. Together these two factors will continue to explode the cost side of the equasion.

I believe that reimbursement methodologies must change. Successfull providers will be prepared to manage a population and manage the health behaviors of the consumer, employer, and their employees. Successful organizations are preparing for changing reimbursement by preparing for prepaid financial management of healthcare services.

Until recently I would have said that these changes would take place over the next 3 to 5 years. Now I believe that change is rapidly approaching. We no longer have the luxury of a three to five-year transition. And denial is not a strategic direction.


Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts.


Strategies for the future

Posted by on Sep 20, 2013 in Healthcare Reform, Managed Care, Population Health Management, Pricing, Value-based contracts | 0 comments

Lately I have become keenly aware of an absence of strategic direction and a lack of awareness of current and future changes to healthcare delivery.

I am perplexed by the call to action and direction that I see every day. I have come to the conclusion that while PPACA has fundamentally changed most of healthcare as we know it, reimbursement is still the same old, same old. My forecast is that as long as fee-for-service is the dominant methodology of payment, we will not see a great deal of true strategic change.

I believe that the healthcare industry denial of this reality will ultimately be the downfall of many institutions and providers. Reimbursement methodologies must change because projected volumes and utilization trends will force both cost up and price down.

Is your organization prepared strategically and operationally to lead during this change, or to follow and try to catch up?

I believe that there are four strategic positions that every healthcare organization needs to consider, then operationalize within a significantly short time frame of 18 – 24 months. They are:

The First Strategy is simple – Close the Back Door. Organizations have spent millions of dollars attempting to reduce costs and optimize service. With new reimbursement on the horizon, managing cost will remain critical. The second part of Closing the Back Door is evaluating your revenue sources to ensure that they are at levels that your organization can maintain, and margins that will weather the storms of healthcare reform. Most of the reimbursement shift of the future should be revenue neutral to prepaid services.

The Second Strategy – Population Management. Develop methodologies that put the institution into the business of managing a population. In this new environment, you will be asked to manage the population’s behavior and quality of service to a lower cost. The last thing you want is a member in a bed utilizing high cost resources. Manage the population to healthier, less costly services. A tactic here would be to set up care teams that engage skilled providers for their quality using a vast array of sophisticated data analytics. The delivery system must be prepared.

The Third Strategy – Consumerism. Two segments, Employers and Employee. Employers are beginning to require employees to take control of their own lifestyle decisions, and as such, writing benefit plans to motivate individuals that do not comply with Quality Standards, i.e., smoking, obesity, hypertension, and diabetes, to mention a few. The second part to Consumerism is that the employee, including spouse and dependents, must take an active role in managing their health and lifestyles making healthy decisions, and complying with management of their diseases.

The Fourth Strategy – Reimbursement or the Retail Space. The reimbursement methodology will change and preparations are required for a number of tactics, but overall, you will take on the management of defined populations for a specific prepaid fee. Operationally, you will need a network of Care Teams, ability to establish a solid pre-existing cost for the historical services delivered for the defined population, and the predicted price of future care.

I have outlined a number of strategic choices. As a leader ask yourself where you see healthcare going? What is your organization doing to prepare? And is your organization in denial or is it ready?

Neil Godbey Portrait

Neil Godbey

Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts.

Narrow networks, good and bad

Posted by on Sep 6, 2013 in Health Insurance Marketplaces, Healthcare Reform, Managed Care, Narrow networks, Pricing, Value-based contracts | 0 comments

Over the past six months or so it has become increasingly obvious that private health plans are using the advent of Obamacare to limit their offerings to narrow networks. These networks are cheaper for the health plan and can be sold at competitive rates to employers, making them quite profitable to the plans. Increasingly this narrow network strategy is the preferred method of launching a product on the new Obamacare health insurance marketplaces.

Tellingly, narrow networks systematically eliminate the high profile, high brand aware institutions that have historically demanded the highest rates from health plans. We’ve seen examples over and over again where health plans have offered to sign such institutions but for deep discounts. The leading institutions reject anything other than a token discount. This is a predictable theatrical exchange on both parties parts. Neither one really wants to enter into a relationship of this type.

As a result the employer can offer insured employees a cheaper alternative based on the limited network of options of both physicians and hospitals to choose from. As health-care costs continue to grow, or at least are perceived to, employees welcome lower-cost alternatives even if it means less choice. The challenge of using a narrow network is obvious. Consumers have fewer physicians spread over unfamiliar geography and second-tier hospitals when they really need them.

Narrow networks being sold in the new online marketplaces face even greater capacity pressure as actuaries project utilization rates among the newly insured will be 116% of those previously insured. Finding a doctor close to home or close to work in such narrow networks will become a major challenge in 2014.

Would the narrow network strategy by health plans have happened anyway without the advent of Obamacare? Perhaps, but health care reform has given health plans a real jolt. They faced extinction and then severe limitations that were ultimately written into The Patient Protection and Affordable Care Act. It seems the narrow network is really a reaction to some of those limitations on their ability to pursue the traditional business model of health plans. But these are big, smart, resourceful organizations who have found a new way to survive in the new world of healthcare reform. Narrow networks are simply one of those tools to their survival.

Author Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group had been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts that help sustain those organizations’ mission of improving the healthcare of the communities they serve.

When are higher prices justified?

Posted by on Aug 27, 2013 in Growth, Healthcare Reform, Managed Care, Pricing | 0 comments

With all the media attention to health care reform you get the idea that raising hospital prices is never justified. But until the unique healthcare economy is completely recalibrated, it is one of the consistently fastest growing cost drivers in the American economy. Hospital costs seem to be driven up relentlessly year after year by the unholy three: labor costs, pharmaceutical costs, and the cost of innovative clinical technology. Obamacare addresses these obliquely, if at all.

In my experience, hospitals seek improved healthcare rates from health plans because they need them. They need to fund the continuation of their mission to serve the healthcare needs of their community. Increased rates generally lag increased costs, unless an organization is farsighted and takes preemptive action to anticipate those costs in its managed-care negotiating strategy. This is especially true if an organization is trying to smooth its revenue stream over a multi-year period of time rather than endure ups and downs in bottom line results.

For nonprofit organizations the availability of additional funds results in no pay out of profits to individuals or investors. Instead additional revenue helps sustain clinical programs, fund research and development of new and better treatments, and is it often invested in better clinical technology and facilities. To a public demanding the best of care for themselves and their loved ones, these uses are essential and sound public policy. Otherwise how can the hospital stay abreast of the relentless development and improvement in clinical services that its patients expect?

For better or worse Obamacare will not eliminate the need for improving services to the public. This will cost everyone. Perhaps the best thing that can be said about this new regime is that under the ACA every adult American will have some financial skin in the game. So instead of the current situation of massive cost shifting from those without insurance coverage to those with private health insurance, every American will contribute some amount however small or large to the cost of care. And therefore every American has a stake in rising hospital prices.

Hospitals will need to be prepared to be transparent about their pricing and the obligations they have taken on to provide the public with the best quality care. Hospitals and providers will need to justify their costs and take steps to reduce the per capita cost of care. An engaged public will expect hospitals to both explain and justify their prices, especially any increases.

Author Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group had been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts that help sustain those organizations’ mission of improving the healthcare of the communities they serve.

It’s an amazing comeback.

Posted by on Aug 9, 2013 in ACOs, Health Insurance Marketplaces, Healthcare Reform, Value-based contracts | 0 comments

After facing extinction in the run-up to the passage of the Patient Protection And Affordable Care Act, otherwise known as Obamacare, America’s health plans have made an enormous come back with record profits on the horizon. How soon we forget that during the Democratic-controlled Congress the nation’s health plans were on the skids as legislation was put forward to create a national health plan. At first the legislation eliminated private health plans but negotiations led to a compromise that allowed a blend of private and public plans. Finally, in the grand compromise Democrats traded away the public health plan to get support from private health plans and big Pharma.

Today, health plans are flourishing despite the new law’s impact on their traditional way of doing business. Among other things Obamacare caped the percent of premium that plans can spend on administrative cost and profit, it eliminated pre-existing conditions and other forms of rate setting, and even eliminated maximum lifetime expenditure caps. All of which should have neutered the plans’ profits. Yet they are announcing stunning profit forecasts. How?

In the face of all the healthcare reform health plans have a three pronged strategy. First, demand lower rates from healthcare providers, especially hospitals. Two, announce galactic rate increases for small employer insured groups while setting for astronomic increases. Third, sell population health management-like services to hospitals to help them manage the risk of new value-based contracts with Medicare and Commercial ACOs–thus increasing legally allowed profits for the health plans.

All entirely legal, but unanticipated side-effects of the Affordable Care Act–Obamacare. It’s too early to know what the impact of these side-effects will have on the overall success or failure of healthcare reform. But it’s not too early to put a marker down that we can look back upon in 2020 when the authorization for the Obamacare law expires and is up for Congressional re-consideration.

Mark your calendar.

Author Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group had been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts that help sustain those organization’s mission of improving the healthcare of the communities they serve.