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Top 6 Factors for Success in Provider-Sponsored Health Plans

With the upfront costs so demanding for provider-sponsored health plans, how can hospitals and physician groups ensure they perform well?

By Vera Gruessner

The health insurance industry may have a complete transformation on their hands with regard to hospital and medical practice reimbursement. The number of provider-sponsored health plans is growing among physician groups and hospitals, according to a report from PwC Health Research Institute.

Risk-based Health Insurance Contracts

The latest statistics show that there are currently 270 provider-sponsored health plans operating around the country today. Additionally, throughout the last 12 months, membership enrollment in provider-sponsored health plans has risen by 11 percent. Along with these results, PwC surveyed consumers and found that 44 percent are “likely to buy a health plan from a hospital or provider system.”

While these type of health plans are rising in popularity, what does a typical provider need to accomplish to operate a successful health insurance option for its patient base? With the upfront costs so demanding for provider-sponsored health plans, how can hospitals and physician groups ensure they perform well? PwC Health Research Institute attempted to answer these questions in its report.

To garner more information about the steps providers should follow when creating their own health plans, spoke with Jeff Jaymont, Advisory Principal of Health Industries at PwC. Why are provider-sponsored health plans increasing in number among healthcare systems?

READ MORE: Affordable Care Act Cuts Uninsured Rate by 6.4% Since 2013

Jeff Jaymont: “I think we’ve seen a few things begin to lead to some of the changes. First, it is due to the advent of the exchanges in the ACA. It did two things when it came to providers getting into health plans. First, it began to pair up some payers and some providers in narrow networks. If you look at silver plans, 50 percent or greater contain a narrow network option. We’ve seen payers begin to pair up with certain providers. in certain markets.”

“This means that some other providers have been excluded and essentially cut out of some opportunities to serve the population. That created a bit of a rift for providers that were cut out.”

“The second thing that the ACA did was it created a channel for them to reach out to consumers through the exchanges. If you had a strong brand, you could begin to market yourself directly through your own narrow provider network on the exchanges.”

“Those two things are one large contributing factor. The other contributing factor is that providers have been taking on increasing risk over the last few years. We’ve seen ACOs, increased interest in capitated arrangements and delivery system arrangement.”

“Providers have gotten increasingly comfortable with taking on risk. It’s not that far of a reach for them to look at some of the things that have come up through the ACA and really think about how to go all the way in terms of their own insurance company.”

READ MORE: Aetna Posts Q1 Loss After ACA Withdrawal, Merger Collapse

“Those have been a few of the driving factors. The third major factor is the access to operational capabilities. We’ve seen a lot more in certain payer-in-a-box type of offerings that have come onto the market. Vendors have increasingly been willing to offer white label of back-office operations. All of that has met the barrier to entry in terms of standing up the operations of a health plan, which are a lot lower than they have been in the past.” What strategies would you suggest for a healthcare provider to use when developing a provider-sponsored health plan?

Jeff Jaymont: “We’ve seen varying levels of success. There are six factors as we look at it from the PwC side mentioned in the paper of those that have been largely successful in this space.”

“Prior experience is one. Do they have experience in risk-based contracts? Do they have experience in managing the health of their own employees? Do they have experience in understanding what it takes to manage from the back-end?”

“The second is about alignment around leadership. Making sure that the leadership of the system including the clinical and administrative side is really rallied behind that. The third factor is a robust network of services. It’s great when you can find a way to service the basic needs of an individual within your own system.”

READ MORE: Payers Face 9.6% Underwriting Loss on Health Insurance Exchange

“This includes primary care, specialty care, and ambulatory services. Having access to all those increases attractiveness of the offering in the marketplace and it really reduces the complexity of having to go out, negotiate, and cover the significant gaps in a network.”

“The fourth is having that distinctive brand - something that consumers can rally behind. This means offering something that the market is interested in purchasing and engaging with on the exchanges.”

“The fifth is secure financial health. Folks should expect to probably see some losses in the first few years of this. Having the financial health to manage the reserves and manage the losses is important.”

“The sixth factor is the market position itself. You have to look at the environment you’re in, who the competition is in the marketplace, what the power is between payers and providers, and really think about how that fits with the overall market and where that goes.”

“Those are the six building blocks. This has to be something that fits with the overall strategy of the system. This has to be a system-wide integration to go after.” How can health insurance companies develop stronger relationships with their providers to meet the needs of both parties?

Jeff Jaymont: “I think the opportunity for payers as they look at this is to understand where they have depending upon their own strategy, the opportunity to support, whether through white label services or through partnerships, some of those providers.”

“We’re seeing increasing skepticism by some of the larger payers around the ACA. As we look at where they begin to go, this is a way for them to continue to provide membership on a local level through these types of channels and continue to augment a larger brand. They can either do that through partnering and continuing to find a way to provide a lot of the backbone through an increased narrow network option or find a way to offer white label type of opportunities.” Are provider-sponsored health plans even worthwhile for hospital systems due to the significant upfront costs? Why or why not?

Jeff Jaymont: “We continue to believe that they are worth it. They’re not worth it for everyone. The economics in the plan itself have to align in order to make it financially worthwhile.”

“There are other reasons to look at this. Some of it may be an option for the future depending on where healthcare goes in the future. There is also opportunity and benefit largely within the system itself to continue to provide care and really to strengthen bond within that local market."


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