The curious absence of payers in public HIEs

Last week, the National eHealth Collaborative published a study of sustainability strategies for 11 leading health information exchanges (actually 12 including the VA). I’ll call these public HIEs to distinguish them from private HIEs – proprietary exchanges among a select group of providers such as an integrated delivery system.

Remarkably, payer funding has a relatively small role across the sample: Only 3 report payer funding as an essential part of their current revenue model: Availity (a joint venture among major Blues and Humana), the Rochester RHIO and the Quality Health Network. The rest deploy some mix of provider fees and, much less so, grants. See table below:

Notably these are considered the most successful – many HIEs depend heavily on Federal funding which is hardly a permanent (or, these days, a particularly reliable) sponsor.
Payers have reason to be cautious about heavily funding HIEs: Sure, studies show that payers will tend to benefit more from HIEs than providers under the dominant FFS reimbursement model (see the results of a business case study for the Rhode Island HIE I led while still at BCG). But these savings are likely to accumulate to payers fairly evenly and market dynamics (especially with a fixed MLR floor) will see them competed away, yielding no strategic advantage. Under these circumstances, anxieties about free rider risk can be enough to paralyze payers to inaction (who commits to paying first? How will costs be fairly allocated? etc.)

Even so, the strategic logic for supporting public HIEs by payers is compelling.

Consider two scenarios:

Scenario #1: Private HIE blocs with deep clinical capabilities connected by a light-weight public HIE

Public HIEs remain lightly funded, have only basic data flows and few compelling services for providers or consumers. Meanwhile, new reimbursement mechanisms increase the minimum efficient scale of health care delivery (IT, interoperability, population management investments, optimized workflows are costly to put in place but readily scalable once in place) and help drive consolidation. The resulting provider landscape is “hard-wired” into private HIEs with rich data flows and embedded care management capabilities.


  • Leading medical management services vendors focus on the big provider markets, pay little attention to the needs of smaller scale or virtual group practices
  • Provider landscape stagnates because it is hard for new provider constellations to form (big start-up costs, limited “plug and play” medical management using the HIE) and compete effectively
  • Negotiating leverage of providers over payers reinforced and providers capture a big share of the “shared savings”
  • Scenario #2: Well-funded public HIEs with compelling embedded medical management capabilities Public HIEs have solid sustainable models and are able to build a compelling value propositions to providers (costless access, meaningful use support as well as embedding a fully array of medical management applications to help providers win in new reimbursement models) and consumers (access, review, support). Provider consolidation occurs but not to the same degree (because the investment requirements don’t demand it) and, more importantly, new provider constellations are able to form and nibble around the edges of larger groups by leveraging the ASP business model of public HIEs. Outcomes:

    • The public HIE is a viable channel to sell medical management services and the leading vendors create offers which can allow smaller and virtual group practices to compete effectively
    • Delivery system structure remains fluid and able to “reinvent” itself as new approaches or care models are developed – no “hard-wired” private HIE barriers to innovation
    • Public HIEs are able to offer greater transparency across providers on best practices, accelerating system learning

    Which world would you rather live in if you were a payer? Unfortunately, it looks like we may well be slipping into Scenario #1 or worse (see this study on the progress among HIEs to date on meaningful use). Despite the stakes, payers seem curious neutral. They aren’t funding much per the NeHC report. A Wellpoint executive said recently “it will be interesting to watch how statewide HIE versus ACO business models develop,” as if Wellpoint had no stake in the outcome) Perhaps the big payers are calculating that they can pick and align with winners (e.g. Aetna and Carilion or any one of the courtships going on between a leading provider contemplating ACOs and leading payers trying to sell them services). Or they may determine that providing IT capabilities into the private HIE arena (e.g. Aetna-Medicity, United-Optum-Axolotl) will provide them with some differentiation or advantage under Scenario #1. However, one only has to look at the Pittsburgh market to know that nurturing a leading provider can do to even very strong payer. Far better for payers to nurture the public HIEs so they have the capabilities to support providers succeed in the new reimbursement models (see the start of an ACO capabilities agenda for HIEs here) and push the landscape towards Scenario #2. There are plenty of barriers to Scenario #2 (and in some markets it may be too late), but sustainable business model does not have to be one of them.Some potential pathways for payers to consider:

    • Take a page from the Availity book: Form joint ventures with other payers or use other mechanisms to broadly commit to a strategic agenda regarding growing HIEs before addressing the specifics of each HIE or market. This will help reduce the perceived risk that any one player will defect on paying up and free ride off the investments of others.
    • Pre-commit to paying providers for utilizing the data through fee-pass-through models. Of course, payers would rather pay for outcomes (fewer duplicative tests) that process (checking to be sure there isn’t a good enough test result already) but paying for process as a first step is a classic strategy in P4P. Side benefit here is that public HIEs have stronger argument to get physicians to sign up and the beginnings of a sustainable business model.
    • Develop some shared upside agreements with HIEs. HIEs are working closely with physicians and in good positions to detect opportunities to use data for advantage. Give them and the providers a joint share of the resulting savings.
    • Initiative dialogs between groups of payers offering medical management and leading HIEs on what sorts of standards could be developed to maximize the power of the medical management capability while minimizing the risk of “lock in” with one vendor (thereby allowing the medical management providers to compete on capability and drive innovation, not compete on the basis of strategic lock-out).
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