With the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and the proliferation of alternative payment models looming on the horizon, many health systems are taking a fresh view of how to best manage financial risk and assure themselves of a steady or growing market share. Across the US, nearly 25 provider-sponsored health plans (PSPs) are operating with high margins, growing profitably and outperforming their competitors. Some of them have enrolled more than 100,000 lives. Many of these plans also consistently perform better than their peers in serving the most complex and challenging patients who often are enrolled in Medicare and Medicaid plans.
Earlier this month, attendees at the America’s Health Insurance Plans 2016 National Health Policy Conference heard from several of these health plans. Leaders from each of the organizations spoke about their members and the innovative approaches they are using to care for them. Woven throughout each of their discussions were the themes of personalized and integrated care, interdisciplinary teams, and an understanding of the drivers behind why people make the health decisions they make.
Today, PSPs cover nearly 10 percent of the US market. These organizations exemplify the convergence of financing and care innovation. They have discovered that integration can serve as a catalyst to improve the value chain and reduce costs.
Several transformative changes have combined to make the last few years an opportune time for providers interested in sponsoring a health plan to capture market share. For one, consumer-driven forces from other industries are beginning to awaken health care consumers’ needs for value and affordability. New technologies are also enabling clinical transformation across the system, allowing health care organizations to serve the needs of their entire patient population with new tools and systems of care. And finally, new regulatory forces by way of the Affordable Care Act (ACA) and more recently MACRA are disrupting the way that health care businesses have operated for decades, creating incentives for health care to shift away from volume and toward payments based on value.
Health systems are asking whether having their own health plans will help them successfully navigate these changes. PSPs have at their fingertips the very levers that are needed to be successful in the post-transformation world. These health care organizations that take on clinical and financial risk have several potential advantages.
For one, PSPs control key parts of the delivery system that traditional health plans do not. This incentive alignment allows PSPs to break the constraints of fee-for-service payment models, using premium and prepaid revenue to address patient needs more efficiently. They often have better and quicker access to claims and clinical data, which allows these organizations to quickly derive strategic operational insights from their past performance.
Most importantly, PSPs often have more engaged relationships with consumers – their past, present, and future patients. These organizations are founded in the communities they serve, which allows them to understand the unique needs that are facing their populations. PSPs may serve some of the most complex and hard-to-reach populations, and serving Medicare and Medicaid is turning out to be a priority. Often in need of physical and mental health services, these populations can benefit from services that are accessible, culturally sensitive, and, most of all, local. The individual care management and coordination needs of such populations often require solutions from community-driven organizations.
But, for all the potential upsides of PSPs, the road to success is not an easy one. Many underestimate the start-up capital required, which can be rate limiting. Achieving enough scale to deal with infrastructure costs is also a challenge. PSPs also need to consider the staffing and core competency challenges that come with running a health plan. Lack of actuarial expertise, little experience with health insurance marketing, and regulatory and legislative compliance challenges under Medicare and Medicaid have contributed to many of the past PSP failures.
Organizations that have overcome these challenges have discovered the success that comes from having customer expertise, population health capabilities, and strong physician alignment. But traditional health plans, many with deep pockets, are not simply standing by. Many are actively competing. So, while being a PSP can come with significant financial upside risk, these organizations also must face the potential of significant downside risk.
For a health care provider that is willing to take on the challenge, becoming a PSP may allow their organization to disrupt convention and stand out among their competitors. Those who do may be faced with key questions, such as, “What are the implications of PSPs on the broader market competition?” “How do you balance relationships with existing health plans?” “Do the traditional governance models work in a broad convergence strategy of financing and care delivery?” and “Should we build our own plan or create a joint venture or alliance with existing players?”
For now, we can look to a select few for answers. The 25 most successful PSPs continue to outperform their competitors, take on complex patient populations, and scale their solutions to reach new heights. This type of convergence is just the innovation that health care needs to enhance value and reduce costs across the system.