Provider-sponsored health plans: Are you ready to take on (more) risk?

By Ryan Smith, Mary K. Totten
  • Provider-sponsored health plans offer a good way for hospitals and health systems to take on risk as they move toward value-base care. Hospitals can start with plans for their employees.
  • Data analytics are essential in developing a health plan.
  • Taking on risk through a provider-sponsored plan can be done differently and at different speeds, but clinical integration and partnerships usually are a big part of the process. 
  • Hospital and health system board members play a crucial role in the move toward risk: They must be prepared to analyze financial projections, weigh opportunities and risks, and keep their sights on the organization's health care mission and future.

As the nation’s health care system moves from fee-for-service to value-based care, hospitals and health systems know they will need to take on more risk. Reduced reimbursement, pay-for-performance models and the move toward population health management demand that providers master skills that formerly mattered most to insurers.

Although the learning curve may seem steep, the textbook needed by health care organizations may already be in their hands in the form of the development and analysis of their internal health plan. Many systems already operate self-funded, provider-sponsored health plans for their employees, which means they already assume risk.

Building a PSHP exposes health care leadership and the board to all the business concepts they need to know to successfully make the shift to value-based care. That’s because a PSHP lets them see how health plan design shapes utilization patterns — and, subsequently, patient outcomes — allowing them to control most of the steps along the road toward successfully managing risk. And for those innovative systems looking even further into the future, the experience they gain from their employee plan will prepare them to serve larger populations, paving the way to expand their participation in value-based care.

Indeed, health systems are finding new ways of controlling their destiny through health plan products as their revenue shrinks. Deductibles are going up, both on and off the insurance exchanges, and when patients can’t cover them, write-offs get bigger. Reimbursement dollars are shrinking in the move to bundled payments. Taking on risk is one way to avoid the ups and downs created by these payment shifts.

Starting in-house

Risk is first about understanding who your population is. Knowing that will help identify your organization’s level of risk. Trying out a PSHP with your own employees is a great way to learn the ropes and find out what risk-containment methods work best. Because it has a captive audience, your hospital can create a more predictable volume of patients when it builds a health plan that exclusively uses its doctors and facilities.

“Employee health plans are a good place to begin because you have the data and the people who are already using the system,” says Kathryne McGowan, executive director of Aspirus Network and senior vice president of population health for Aspirus Inc., based in Wausau, Wis. But there are caveats, she warns. Hospitals and systems need to keep in mind that health care workers tend to have high utilization patterns and may not be a good reflection of the general population.

Data analytics are an essential PSHP starting point. Health systems must understand their data or they’ll jump into something they don’t understand. And that could significantly strain a system’s finances. Data analytics can identify gaps in care the system provides and allow it to determine and prioritize its risks and opportunities.

Internal demographic and claims data are readily available for systems that fully cover their employees or that share risk with an insurer, as in a capitation arrangement. Year-over-year patterns such as length of stay and the types of care used can also be easily tracked. De-identified data sometimes may be purchased from an insurer, while firms such as Milliman and Truven Health Analytics sell national benchmark and charge data. Additionally, the Centers for Medicare & Medicaid Services offers data from the federal insurance exchanges.

Community health needs assessments — already a not-for-profit hospital requirement under the Affordable Care Act — offer another ready-made data tool for analyzing the hospital’s service area and considering what might be required to start a PSHP. As with other types of data analytics, the assessment should identify health needs in the community and, therefore, gaps in care.

Complexity multiplies if a health system decides to take on a patient population beyond its own employees. Health care leaders and their boards should begin with the same data analytics process implemented for their PSHP, feeding local and regional demographic and claims data into the software they use to analyze care and outcomes for their own employees. They can then take what they have learned — both successes and failures — and apply it to a larger target population.

A system can attempt its own data analysis, but the capability can take years to develop. More systems are asking for help — most often from a third-party administrator — as they learn it’s not that easy to master population health management. Once the system has that broader data set, CEOs and their boards should ask: “What are our organization’s strengths and weaknesses? Do we need strategic partners for care areas we don’t specialize in?”

Your health system should not attempt to launch its PSHP alone. Partner with organizations that are already successful and experts who can help take your plan from an idea to a success. Systems that strike out on their own often fail without experienced individuals to help them design their risk-bearing entity.

The experiences of two health systems can offer executives and boards some valuable examples and lessons in taking on risk.

Broadening its horizons

The Aspirus health system, which serves north-central Wisconsin and the western part of Michigan's Upper Peninsula, has had a self-funded employee health plan for 16 years. "It made sense to use it for our employees, and it was the perfect entree into population health,” says Joel Ohrmundt, the system’s director of compensation and benefits.

Its PSHP is the only health coverage option Aspirus offers to its employees. “We have the perfect population to help us improve care pathways and manage health — and our employee population’s experience is the best way to tell Aspirus’ story,” Ohrmundt said.

Since the mid-1990s, Aspirus has had a physician-hospital organization: Aspirus Network Inc. A year and a half ago, ANI transformed into a clinically integrated network that “goes beyond being a contracting entity to truly function as an integrated network that looks at quality outcomes for all participants,” McGowan said.

ANI includes all of Aspirus’ facilities as well as its employed and independent physicians to align with value-based payer contracting and population health management. McGowan estimates that ANI contracts represent more than 96 percent of its region's commercial marketplace. Aspirus continues to look for ways to market its network through contracts with most regional payers, including HMOs, preferred provider organizations, and network-only or “broker” arrangements, in addition to direct contracting with employers and community business coalitions.

About seven years ago, with ANI as its calling card, Aspirus began seeking a more collaborative payer relationship. “We recognized the need to be closer to the insurance side of the equation,” McGowan said. “We’ve worked with [the not-for-profit Wisconsin Physicians Service Insurance Corp.] for decades, and they were interested in a conversation because they wanted to start working more closely with provider systems, so the timing was perfect.”

Even with their shared history, McGowan said, the two organizations had to get to know each other better with the goal of a cobranded insurance product in mind. “We had to understand each other’s market roles — how we both think and work — and build trust between our leadership teams,” she said. “We looked at our community needs and picked several small, scalable projects that were attractive to both of us as a start.”

Combining WPS’ claims processing and regulatory expertise with ANI’s transformed, clinically integrated network and population health management focus, Aspirus and WPS created an HMO insurance exchange product named Aspirus Arise, which officially became a 50-50 joint venture in March.

By implementing focused population health initiatives targeting congestive heart failure, diabetes and hypertension, Aspirus has been able to lower deductibles for its employees, Ohrmundt says.

“We wanted to put a laser focus on those three disease states to improve the health of the population, rather than raise deductibles," he said. "There are small tweaks that can have great benefits, such as having nurse navigators help patients move through the system, and partnering patient-centered medical home coordinators with physicians. Our first-outreach conversations are different now because clinical experts have access to the data ... and [electronic health record] access means we can focus on the relatively few people who are responsible for 80 percent of claims.”

Aspirus’ first population health initiative was bringing together eight employee benefit plans — three self-funded plans and a number of fully insured ones — under one agreement, an initiative that has seen considerable success. “The primary plan we worked with had 4,500 members in 2014, and in 2015 we had 11,000 members,” Ohrmundt said. “Bringing all the employee health plans together has allowed our members access to a common plan design that supports value-based benefits as well as the integration of  clinical data, which supports the best outcomes. The Aspirus Employee Health Plan also has been able to consolidate under one TPA agreement, leveraging economies of scale.”

He added: “Some large insurance carriers are getting out of the exchanges, but we are going in the opposite direction because we have the infrastructure to support ourselves. Health care organizations need to take on risk sooner than later and work with the insurance companies to access claims data that can assist population health efforts.”

Along with ANI’s evolution, the unification of the employee health plans and the formation of its joint venture HMO, Aspirus has standardized its medical record keeping, implementing a single EHR across all its hospitals, many of which are in rural areas. “Before, critical-access hospitals didn’t need to consider medical record integration or where care was provided,” Ohrmundt says. “There were lots of health care silos, but that has changed. ... We’ve learned that there are ever-evolving opportunities and refinements. We all want the health of our population to improve. We just have to reach consensus on what to do first.”

One step at a time

Northeast Georgia Health System has had more than 20 years of experience developing its approach to taking on risk. It originally envisioned a physician-hospital organization in 1994. “But our physicians didn’t want to be partial owners in the beginning,” said Steven McNeilly, vice president of managed care and integration strategies at the Gainesville-based system. So instead, NGHS formed a PPO network named Health Partners, initially for its own employees but structured to be able to offer community-wide contracting.

“We pursued direct-to-employer strategies and selected national PPO network contracting and left the major-payer negotiations up to each individual physician group,” McNeilly said. “Then, in the early 2000s, more small employers and small groups wanted our help. We partnered with several insurance companies and provided credentialing, as well as our network of providers, which gave us a market presence.” Today, Health Partners is composed of 775 physicians, six regional hospitals and 80 outpatient facilities, and it serves more than 30,000 covered lives across its service area.

In 2014, the system created a clinically integrated network within the larger Health Partners PPO network dubbed HP2. “Providers can actually be part of both networks,” McNeilly said. “There is broader engagement and [there are] more requirements to be part of HP2 since it’s a high-performance network with metrics and goals around quality, outcomes and cost.” NGHS offers a tiered plan design with financial incentives intended to promote local in-network utilization, currently over 70 percent, he said.

Because of market changes, some as the result of the Affordable Care Act, NGHS began to use data analytics software and a TPA from a health system and physician advisory firm specializing in value-based solutions. NGHS executives made that decision with an eye toward population health management and evaluating claims data for gaps in physician care.

“CMS is moving health systems into value-based payment methodologies, and we don’t want to be caught unprepared,” McNeilly said. “Our software allows us to analyze all employee claims information and design programs that address exactly where people are accessing care. Our focus now is on care redesign, evidence-based protocols and measuring peer-to-peer performance. We hope to prove our integrated network will outperform on cost and quality over those physicians who are still delivering care under a fee-for-service model. Once we feel we can demonstrate value, we want to bring more providers into our network, hopefully by next year.”

Over the next five years, NGHS will also be working with Medicare on a CMS-mandated Comprehensive Care for Joint Replacement Model, a bundled knee and hip replacement payment initiative. The system also had its first value-based Medicare Advantage contract last year. “Our physicians earned over $2 million in pay-for-performance bonuses over and above our Medicare payments,” McNeilly said. “That business case served as a catalyst to turn talk into actual practice and gave us a road map for how to proceed.”

Up to the board

Understanding the larger shift away from fee-for-service payment should be a board mandate. Board members need to analyze how average reimbursement and profit margins are shrinking and take a hard look at their organization’s net results.

The typical organizational response to that realization is to become more “lean,” seeking process improvements and avoiding unnecessary resource use while continuing to deliver on the promise to provide high-quality care that meets community needs. When that happens, boards need to say to their leadership: “When do we hit bottom? How lean can we get and still function?”

To stay on top of these shifts, health care leaders should share quarterly measurements with their boards. Reports should highlight the various pressures and trends affecting the organization’s financial and clinical outcomes — such as bed-day fluctuations and changes in community provider contracting — and should weigh all factors against the system’s options for attaining lean targets.

Just as it would with any capital needs assessment, the board should weigh the risks and opportunities of taking on risk for the care of its own employees or a broader population. Considerations include evaluating the costs of information technology, staffing and other resources and the return on investment relative to what the organization stands to gain by successfully assuming risk. For example, taking on risk could make the system liable for excess costs incurred for providing care beyond agreed-upon reimbursement rates for specific diseases or conditions, but it also could boost patient volumes.

An important role for the board is to help the organization clarify its risk tolerance and determine how assuming risk for specific patient populations fits into the overall level of risk the organization is willing or able to take. For example, how will your organization manage competing incentives if its other payers aren’t ready to move to value-based care? What is your organization’s tipping point in revenue from both value-based and fee-for-service contracts that would allow broader deployment of population health strategies? Clarification will help determine whether and how the system can assume an acceptable level of risk and decide whether to build its health plan from scratch or seek advisory services and/or partner with an insurer.

“If you want to adjust your business model to adapt to evolving payment models, begin with the end goal in mind,” McGowan advises. “Why do you want to take on value-based risk and for what population?”

Providing value-based care through a PSHP and taking on risk contracts with payers can be viewed as a way to create alternative revenue streams. The larger goals are to move away from filling beds, to reduce resource use and to move toward improving the health of a defined patient population. When that happens, the overall cost for that population decreases.

The future is now

Success in adopting value-based care depends on strong physician engagement and leadership as health care organizations and clinicians work together to redesign care processes to deliver desired outcomes.

“We’re still learning every day,” McNeilly says. “But our experience has been that when you provide physicians with actionable data, they are highly collaborative in working to make cost improvements. The biggest overall challenge is finding the bandwidth to execute successfully — to educate physicians and practice administrators, to have the staffing resources, the right information technology solutions to integrate across the system — and to connect [EHRs] to get meaningful data. And you need a well-thought-out, three- to five-year road map to stay on track.”

As payment models shift in a given market, more pressure from insurance carriers, the government and others will motivate health systems to move to value-based care models. Taking risk first in smaller chunks with a defined population such as employees, rather than jumping in all at once, allows health care organizations to gain the vital experience they need for success in a value-based future.

Those hospitals and systems that are learning how to assume risk now will be more likely to succeed because there is still room to grow. Organizations that begin to take on risk three to four years from now, however, may find that all the dance cards are full. And they may not be able to broaden their provider networks, which could affect future viability.

Even with the tumultuous, fast-paced changes happening in health care, the field's fundamental mission of providing the best care for patients remains a guiding star. Hospitals need to be able to succeed by doing the right thing — and that’s what value-based care is all about.

Ryan Smith (rsmith@valencehealth.com) is vice president of marketing solutions for Valence Health in Chicago. Mary Totten (marykaytotten@gmail.com) is senior consultant for content development at the American Hospital Association's Center for Healthcare Governance.

Five ways provider-sponsored health plans can fail

Some major U.S. health systems that developed their own health plans have had to sell them after suffering major losses. Key mistakes in such scenarios often include:

  1. Growing too fast: Don’t trust that the organization can suddenly jump into the insurance or risk business before learning the ropes. This can bankrupt a system, which is why starting to take risk with your own employees makes sense. Learn before you leap.
  2. Poor risk evaluation: Purchase the right risk-modeling software to evaluate risk based on the health of your community population.
  3. Failure to seek advice: Don’t try to reinvent the wheel. Learn from those who have already successfully managed risk.
  4. Poor management and human resource strategies: Too much money can be lost on poor population health management and claims management programs. Hiring experts with health plan experience to administer your organization’s PSHP is critical.
  5. Failure to focus: Choose a strategy, and enter risk wisely.

Trustee takeaways

Is your organization ready to expand its participation in value-based care? Here are some questions boards should ask:

  • What percentage of reimbursement in your health system is under VBC?
  • What percentage of carriers in your market are administering VBC programs with other health systems?
  • How many Medicare initiatives like the Medicare Shared Savings Program are operating in your market or are opening soon?
  • What percentage of your patients does your organization want to move to VBC in the next 12, 24 and 36 months?
  • What percentage of your market share is shifting to other health systems that are working under VBC?
  • Are there any other provider-sponsored health plans in your area? What market share is your system losing to them?
  • Does your organization participate in an accountable care organization? How many ACOs are in your marketplace?
  • Has your system ever evaluated having its own PSHP? What was the result of that evaluation?
  • Can your organization effectively deliver services across the full continuum of care?
  • What is the capacity of your provider network?
  • What technology and human resources are already in place in your organization? What additional resources might you need?
  • What efforts is your organization undertaking to develop patient-centered medical homes or other VBC models?