May 27, 2016 - Healthcare Finance News
Susan Morse, Associate Editor

The ins and outs of provider-sponsored health plans

Since 2014, the number of provider-run plans has more than doubled, from 107 two years ago to 270 currently in operation today.

The federal government is already pushing providers towards more risk, so it's not surprising that many are going all in by sponsoring a health plan.

"Every system of scale, in terms of size and scope of operations, will likely sponsor one or more health insurance plans over the next five years," said Paul Keckley, an independent consultant, formerly with Navigant. "That will be the natural evolution from bundles and shared savings evolving to full risk agreements."

Provider ownership in health plans has been increasing steadily, from 94 in 2010, to 106 in 2014, according to a recent McKinsey & Company report. Most of the enrollment growth has occurred in the Medicaid, Medicare Advantage, and individual markets.

Also, a recent report by PwC Health Research Institute found that since 2014, the number of provider-run plans has more than doubled, from 107 two years ago to 270 currently in operation today.

"Most CEOs and CFOs think of it as this huge risk, but it's less risk than what they have currently," said Philip Kamp, chief strategy officer at Valence Health. "Having that data is huge in managing the dollars where care is being delivered."

The PwC report said expectations are that half of health systems will be applying or will consider applying for an insurance license.

As profit margins continue to be squeezed, providers are looking for new ways to manage costs and generate income. But, according to Kamp,  a former hospital and health plan CFO, the ones have been most successful have jumped right in.

"It's hard to phase in," he said.

Providers first must determine whether to up the ante by managing a population; if they want to take on financial risk; and how the market, including other payers, will react to having another commercial health plan in the region, according to Kamp.

Financial challenges include some mixed results early on, according to the McKinsey report, with profits not expected from the insurance market for several years. Forty of the 89 provider led health plans analyzed by McKinsey had negative margins for three years.

The PwC report also said to expect significant capital investments upfront, losses early on, profits that are years away, and added pressure on existing relationships with insurers.

Kamp said providers must determine whether to build the health plan themselves or in partnership with a payer.

"We have a checklist of about 80 items and nine functional areas," he said of Valence. "There's a lot more functions to running a health plan than a managed shared savings plan."

To have a claims platform, a system needs at least 250,000 members.

"Less than that, you're better off outsourcing," Kamp said.

The three primary models for provider sponsored health plans vary by level of integration with the health system. The least integrated is a network model in which the health system remains the primary focus. A bare bones plan is built to market the system and drive patients to it, according to PwC.

At the other end of the spectrum, a health plan in an integrated model is highly intertwined with the provider system. In this model, the system and plan work together to manage use of services, lowering the cost of care. Risk is shared, providing clear incentives to keep costs down while maintaining quality, the PwC report said.

The profit center model lands in between these two extremes. In this model, the health plan stands independently of the health system.

The fastest and least capital-intensive way to get to market is to partner with an insurer. In such partnerships, risk is spread between both organizations. This arrangement minimizes the downside, but the health system also sees less upside because the healthcare dollar is still shared.

Technology is also a necessary challenge to overcome as provider-sponsored health plans offer hospitals access to claims data, that along with clinical data, form the backbone to building a successful population health system. The data is needed to identify high-risk patients and areas of high utilization.

About nine years ago, Alliant Health Plans, which is owned by hospitals, absorbed a technology company, and put its emphasis on the personal health record as it rebuilt from the ground up, according to Mark Mixer, CEO of Alliant Health Plans.

"It's crazy, we're caught in technical environment, so contrary to the traditional insurance rules of the past," Mixer said. "That's why most carriers have issues. They have legacy systems."

To be clinically integrated, the health system must have the ability to absorb a tremendous amount of data, before the information can be shared.

"I think that has to be a serious consideration," he said. "I think there has to be somewhat of a primer given to non-health plan individuals, that it's not simply a financial asset, it has to be viewed as a strategic aspect."

The Affordable Care Act marketplace has added a layer of complexity.

Between 2010 and 2014, the largest enrollment growth in provider-sponsored plans has occurred in the individual market as hospitals introduced public exchange plans as a way to drive volume, according to the McKinsey report.

An estimated half of Alliant's 30,000 members have marketplace plans, Mixer said.

"We went from having 800 business accounts to having 17,000 individual accounts," Mixer said of the ACA. "The majority of new buyers are in the marketplace; 60 to 70 percent never had insurance."

Being in the ACA marketplace creates a cash flow issue because of the wait for receiving advanced premium tax credit subsidies from the federal government, and in reconciling those payments with the patient's share, after confirming the member still has coverage.

"You have to front the cash for 15, 18 months. To automate all of that is a nightmare," Mixer said, adding, "I think we have weathered the roller coaster ride of ACA." 

Hierarchical Condition Category risk scores have also become vitally important since the ACA, Mixer said.

"It all drives back to the information we receive," Mixer said. "Our business is driven by claims or codes. At the end of the day, it is the technology. I would argue no one can define population health."

The biggest mistake providers make is hiring a hospital person to run the health plan, Mixer said.

"They bring that hospital mentally; to make a health plan successful, it's not the same," said Mixer who served on the provider side for years as a former president of three HMOs in Georgia, and one of the largest PPO network in that state.

One of the biggest advantages to running a health plan is that it fits with where healthcare is heading, to being reimbursed for keeping people healthy. Managing a population fits that mission, Kamp said.