Taking the leap into coverage

By Michael Abrams, Gordon Phillips

Trustee talking points

  • Provider-owned health plans are becoming more common as hospitals and health systems look for ways to manage value-based payment and assume risk.
  • Benefits of a POHP can be numerous, whether they be economic, clinical or strategic.  
  • A number of competencies are needed before a health system moves into a POHP, and there is always the potential for financial loss in the insurance marketplace.
  • Hospital boards should play a significant role in the POHP process, asking questions and ensuring oversight. 

Provider-owned health plans are commanding a larger share of the strategic dialogue in hospital boardrooms. POHPs aren’t a new phenomenon. Emerging from a history of mixed success in the 1980s and '90s, they have gained popularity as the industry moves from volume- to value-based payment and as risk shifts from payers to providers.

For providers, a big question is, “Is launching a POHP a good idea for our organization?” Given the strategic and financial ramifications, board members need to play a central role in answering this question.

The fundamentals

Unlike health plans owned and offered by commercial insurers, mutual organizations or the government, POHPs are owned and operated by health care providers — on their own or in partnership with an existing insurer. By establishing a POHP, providers assume financial risk for insuring a patient population. They’re also taking responsibility for competing in an industry that’s highly regulated and undergoing major transition.

There are many approaches to entering the POHP business. POHP structures and product offerings are shaped by a provider’s risk tolerance, financial strength, and numerous marketplace and internal capability factors.

The number of providers in the U.S. offering at least one health plan grew 3 percent annually from 2010 to 2014 to 106, and total enrollment grew 6 percent annually over that same period, to 15.3 million lives. While this still represents fewer than 10 percent of all insured lives, the number of people covered under POHPs is growing as new providers launch POHPs and existing POHPs broaden their product offerings.

Looking for benefits 

Why the growth in POHPs? The reasons vary and range from mission-driven factors to the desire to preserve or grow margins. For many providers, POHPs are seen as key vehicles to:

  • Control their destiny in an industry where value, provider consolidation, population health management, cost pressures and the shifting of risk from payers to providers are becoming the norm.
  • Increase their influence over the selection of network partners and the attractiveness of their network, which affects a provider's volume.
  • Take advantage of ready access to integrated claims and clinical data for managed populations, allowing for more targeted (and effective) population health management.
  • Improve their ability to offset lower provider-side revenues by capturing quality and efficiency-related savings on the payer side.
  • Foster stronger physician relationships and innovation through greater alignment of incentives for cost, quality and care coordination. 
  • Grow volume with insurance products that can be offered through federal and state health insurance exchanges.

Provider interest in POHPs is not dissipating. According to a 2013 Advisory Board survey, 28 percent of hospitals indicated that they hoped to launch a plan by 2018.

What's needed

The resources and capabilities that are required for a health plan vary depending on the approach taken.

Providers looking to build a health plan from the ground up need significant financial resources. They need to have enough cash reserves to meet regulatory capital requirements. And they need a strong balance sheet and revenue stream to build out the necessary operating infrastructure (claims processing, data analytics, product design and pricing, actuarial experience, health plan marketing, regulatory compliance, member services, provider relations, and so forth). None of these capabilities are natural to health care providers.

Strong provider brand recognition and community brand loyalty are essential. Brand and scale — in terms of geographic coverage and market share — help ensure that a POHP offering can attract, service and retain members through the quality and convenience of its in-network clinicians, facilities and services. Brand and scale also help command the attention and respect of employers and payers.

Most providers launching POHPs already have experience assuming risk. They’ve developed skills in areas such as population health management, evidence-based care models and pathways, data analytics, clinically integrated networks, performance measurement systems, and care coordination. The big questions are: How far along are they? Are they ready to assume full risk? Can they monetize these capabilities as a payer?

For providers seeking to build and operate their own POHP, payer-side experience and expertise is critical to bringing appropriately designed, priced and supported insurance products to market. Many past POHP failures can be attributed to the lack of suitable experience in plan design, actuarial risk analysis and pricing, network design, provider credentialing, member enrollment and customer service, and marketing and sales. Building out these capabilities can be a lengthy, time-consuming and distracting process, prompting more providers to explore partnership models in which insurers remain responsible for these activities.

In practice

If recent POHP growth is any indicator, more providers are concluding that the value of owning a POHP offsets the risks. SelectHealth, Intermountain Healthcare’s POHP, is among the top 10 provider-owned plans in the United States in terms of enrollment. Formed in 1984, it took Utah-based SelectHealth six years to break even. Today, it has more than 720,000 members and is a leader in using data analytics to identify and manage high-cost, high-utilization patient populations.

Innovation Health, a 2012 joint venture between Inova Health System in northern Virginia and Aetna, has grown to include more than 180,000 members. In its first two years, Innovation helped employers realize cost reductions of 8 percent to 20 percent, 15 percent fewer hospital admissions and 21 percent fewer readmissions. As a system, Inova has embraced the transition to value, moving from having no at-risk revenue in 2012 to 50 percent in 2016.

POHP offerings, however, are not for everyone, as demonstrated by recent high-profile cases.

On top of losing $110 million in 2014, Boston-based Partners HealthCare’s Neighborhood Health Plan had to book an additional $92 million in reserves for the following year. Losses were attributed to higher-than-projected medical claims, high drug prices and low Medicaid payment rates.

Minnesota's PreferredOne, a plan that was jointly owned by Fairview Health Services and North Memorial Health Care, experienced major losses in the state’s individual exchange market after selling its policies at some of the lowest rates in the nation and signing up a higher-than-projected proportion of sicker-than-average people. PreferredOne, now solely owned by Fairview Health, withdrew from the exchange in 2015 and has reached an agreement with Aetna to compete for the insurance business of large Minnesota-based companies.

Recently, major insurers like UnitedHealth Group, Aetna and Humana have all suffered significant losses from their exchange products. Their experiences are a sobering reminder that experience and sophistication can’t guarantee success. They also point to the unforgiving nature of the insurance business — something that should give providers pause as they consider applying for an insurance license.

Range of options

As more providers consider POHPs, some are also seeking a less risky path to the benefits that a POHP can offer. Following are a number of strategic options for providers considering an alternative to complete health plans. These options range from extracting the full value of one’s current business model and forgoing the POHP route to entering the POHP market on a more risk-limited basis:

Increase the number of full-risk payment arrangements from health insurers. San Francisco–based Dignity Health is moving into contracts with California health plans in which Dignity will assume full risk for a patient’s medical care. Providers like Dignity that have proven their ability to deliver market-competitive care can bypass the POHP path and maximize the opportunity to capture performance-based incentives being built into more Medicare, Medicaid and commercial contracts.

Offer insurance products focused on narrow populations. Many providers that have gained experience managing risk through a Medicare accountable care organization are expanding into Medicare Advantage offerings for the senior population. Others start by self-insuring their employee base. By starting small, they gain experience in risk management and avoid conflicts with other insurers in their market.

Enter into joint ventures with insurers. As mentioned, Inova and Aetna have teamed up to offer InnovationHealth. Anthem Blue Cross and Blue Shield in Wisconsin and Milwaukee's Aurora Health Care recently announced a 50/50 venture offering a commercial health insurance product named Well Priority. These ventures enable the participating organizations to bring their core competencies together to create innovative health management and risk-based payment models.

Acquire rather than build. In 2012, Detroit Medical Center acquired ProCare Health Plan, and Partners HealthCare acquired Neighborhood Health. While this approach can be more expedient than building from scratch, acquisitions — bringing together two businesses with different cultures and processes — can be costly and risky.

Develop private-label or cobranded health plans. Aetna provides a private-label product to large health systems with ACO offerings. Targeting large employers, Aetna holds the insurance license and performs traditional insurer functions. The participating health system is the leading in-network provider and gains broader access to Aetna’s claims data, enabling it to better influence physician practice patterns, drive more-efficient care and increase patient engagement. Aetna gains market access through the strong reputation of its provider partner.

Bring a stronger value argument to the negotiation table with payers. Providers are best-placed to measure and communicate the economic and clinical value of their products and services. Armed with this information, providers are in a position to command premium prices and secure a larger share of the savings they generate rather than incur the risks of entering the insurance business.

Determining the best option or options is no easy task. Key questions providers need to consider include:

  • What’s the best use of our human and financial capital?
  • How much risk are we willing to tolerate?
  • How will existing insurers react if we position ourselves as a competitor?
  • Are we prepared to run a POHP as a profitable and regulated enterprise, contracting with other providers in the marketplace and avoiding unfair pricing or service advantages?
  • Do we have the skills to select strategic partners and to effectively manage partnerships through well-defined processes, service-level agreements and risk-sharing arrangements?
  • How well-positioned are we to manage cost and quality and deliver predictable outcomes at a predictable cost?

Board members’ role

Providers that haven’t mastered cost and quality management shouldn’t be getting into the POHP business. Payers want to align with providers that can deliver a quality product at a competitive price. If a provider can’t make this claim, it’s naive to believe it can create a payer that thinks and acts differently.

Winners in health care are value creators. Shifting money from one pocket to the other creates nothing — although it might create the illusion of control. If a business has demonstrated mastery in managing cost and quality and the health of patient populations, it might make sense to launch a POHP offering.

Given the significant strategic and financial implications associated with starting a POHP, board members must have a significant presence throughout the process. Their fiduciary responsibility requires that tough questions be asked and assumptions challenged. This requires:

  • An understanding of POHP regulatory requirements and implications.
  • Testing and challenging the underlying business case — including the time it takes to achieve profitability.
  • Understanding the full range of options available for providers considering POHP offerings.
  • Ensuring there is a thorough and objective assessment of the provider’s preparedness to assume risk, including its track record to date with taking on risk.
  • Ensuring there is a clear understanding of the skills, competencies and resources required to successfully establish and operate a POHP.

If knowledge gaps exist, board members should fill them with the help of education programs and organizations that have significant experience working with providers and payers and that have helped providers plan for and navigate their POHP journeys. The stakes involved in POHP decisions are simply too high to take a leap of faith.

Michael N. Abrams, M.A. (mabrams@nai-consulting.com), is the managing partner, and Gordon Phillips (gphillips@nai-consulting.com) is a consultant at Numerof & Associates Inc. in St. Louis.

A handy resource for trustees, executives

Hospital and health system trustees can learn more about provider-sponsored health plans in a prerecorded webinar produced by the American Hospital Association’s Center for Healthcare Governance.

The webinar, “Provider-Sponsored Health Plans: Considerations for Governing Boards,” is presented by Kevin Weinstein, of Valence Health. It is designed to help hospital boards engage in a candid conversation about the realities of starting and successfully running a provider-sponsored plan by exploring a series of questions:

  • What market conditions favor the creation or success of a PSHP?
  • Should the plan serve people covered by Medicaid, Medicare or commercial insurance or some combination of the three?
  • How should this type of plan relate to and interact with the delivery system?
  • What are the financial realities of starting and running a PSHP?

Because the webinar is recorded, it can be viewed anytime by individual executives and trustees or by full governing boards as an educational resource during board or committee meetings, retreats or orientation sessions. Discussions can consider an organization’s own situation and needs.

Find the webinar on the CHG website.

Trustee takeaways

Health systems and other providers are increasingly developing their own health plans, many of which often include narrow networks. Here are seven reasons why outlined in a July 17 presentation at the Health Forum and American Hospital Association Leadership Summit.

1. Increase volumes

  • Narrow networks at affordable rates can increase volumes for providers.
  • Potential to carve out local network arrangements with national companies.

2. Greater control of premiums

  • Capture financial benefits of shift in delivery systems to focus on population health.
  • Providers may have better success in influencing patient behavior because they are closer to patients than a traditional health plan.

3. Obtain data needed for population health management

  • Provides necessary data, technology platforms to develop clinical informatics to successfully manage a population
  • Clinical informatics platform enables the diffusion of best practices

4. Direct relationship with ultimate payer

  • Public and private exchanges disrupt traditional intermediaries, enabling providers to establish a direct relationship with consumers and employers.
  • Competitive advantage through brand loyalty for plan and provider programs.

5. Counterweight to hospital finances

  • Health plan profitability is frequently countercyclical to the profitability of provider operations.
  • Rating agencies see geographic and product diversity as key credit strengths.

6. Better physician alignment

  • Develop physician leaders on medical staff through enhanced leadership opportunities.
  • Opportunities to test new payment mechanisms, care management models and disease management protocols.

7. A more level playing field with plans

  • Providers with their own health plans can better negotiate with other payers.

Source: “Moving Beyond the ACO: Four ‘Game-Changing' Approaches to Value-Based Contracting,” by Kurt Janavitz, CEO, Integrated Health Network of Wisconsin, and David Fairchild, M.D., M.P.H., director, BDC Advisors, July 17, 2016.