The number of health systems entering the market with provider-sponsored health plans is rising after fizzling out in the '90s, according to healthcare legal expert Gary Scott Davis, a partner in McDermott Will & Emery. New market conditions are making home-grown plans more attractive to healthcare businesses.
Providers in the 1990s lacked the financing, staffing, scale and expertise needed to run an insurance business, Davis said, and therefore many failed. But this time around, providers are more likely to succeed, as the shift away from fee-for-service towards value-based reimbursement is playing into the hands of health systems.
"There's clearly a resurgence," Davis said. "The renewed interest by providers either owning or being part of a health plan is being driven by the realization that healthcare is evolving. Success is not based upon how many services you provide, but the right service."
Providers moving to value-based care are already taking on more risk. In starting a health plan they gain the advantage of using claims data for managing population health.
Both providers and insurers are looking for outcomes and treatment data, said Susan Namovicz-Peat, director of Directories and Databases for Atlantic Information Services.
"It's a unique opportunity to get that data, you don't have to pay anybody," Namovicz-Peat sad. "The providers are realizing they have something valuable on which to build a health plan."
Atlantic Information Services, an independent provider of healthcare data, count 272 current provided-sponsored health plans, compared to 269 for the 2016 plan year and 257 for 2015.
These provider-sponsored plans represented more than half, 52 percent, of all insurance companies offering coverage in the 2016 plan year, according to AIS's 2016 Directory of Health Plans.
The Affordable Care Act has also driven up the numbers, said Namovicz-Peat, who started the AIS database 13 years ago.
More than a third of all provider-based plans sold coverage on the exchanges for the 2016 plan year.
"For 2016, provider-based plans make up 46 percent of all insurers participating on public exchanges, and this percentage is increasing each year," she said in the company's 2016 market overview.
Pluses and minuses
Despite the destabilization of the Obamacare business due to the exit of several insurers from the public exchanges, and lawsuits over the federal government's risk corridor payments, provider-based plans have some advantages in the individual marketplaces, Namovicz-Peat said.
One is that traditional health insurers on the exchanges are narrowing their networks to meet consumer budgets, so this eliminates one of the main competitive disadvantages, the narrow networks inherent in most provider-sponsored health plans.
"Provider-based plans are, by definition, more likely to have any market expansion strategies restricted geographically, and this has kept them more stable during the tumultuous first years of public exchanges and the individual mandate," Namovicz-Peat said. "Now it is apparent they have an advantage. The trend is towards a narrower provider network; it's deemed to be somewhat more efficient."
Provider plans are also already entrenched in the communities they serve and have access to data not available to insurance companies. Launching insurance plans help health systems diversify their revenue through premiums.
On the downside, health systems that start new insurance plans must deal with significant competition from established payers, according to the Advisory Board.
Advisory Board partner Zachary Hafner said providers aren't currently focused on starting their own health plans. That's because the urgency is not to move into risk but instead to get physicians to align on better outcomes, he said.
"Real pay for performance, such as readmissions, have become the focus," Hafner said.
Hafner also said the narrow networks offered by many provider-sponsored plans remains a disadvantage.
"In order to sell products you have to have a network that offers choice," Hafner said. "They don't buy ultra-narrow networks."
Providers looking at getting the benefits of a health plan are more commonly partnering rather than building from the ground up, he said.
"Building your own is an expensive proposition," Hafner said.
Davis said he also sees more interest in a hybrid approach that allows provider-sponsored health plans to be created through joint ventures with existing health plans or with other health systems that already have a health plan.
These can be accomplished structurally through traditional joint ventures or contractual arrangements.
This gets the product to the market faster, for less money and reduces the regulatory burden. It allows for shared risk and makes use of the health plan's management expertise.
Davis sees less interest from providers in buying, either in whole or in part, an existing health plan, as this is costly, Davis said.
Health insurers such as Aetna are partnering with providers.
"From a payer perspective, we bring some of the expertise to create financial models to align payers and providers," said Brigitte Nettesheim, CEO, Accountable Care Solutions for Aetna. "Sharing in financing risk necessitates a partnership."
Aetna has over 1,500 value-based contracts, she said. Within that are 275 accountable care organization agreements.
One of these ACO partners is Memorial Hermann in Texas. Aetna participates in their provider-sponsored plan but not under the Aetna brand.
"They are able to touch more of the community," she said. "They have their own provider-sponsored health plan."
The problem of scale for providers is no longer an issue in these agreements.
"The way health insurance products are sold today, local and even regional health plans struggle with scale," she said. "Only a certain amount of the population in the provider circuit area purchase a product directly and locally. There's a cap on the scale."
Also she said, "The set-up cost, the start up cost of a health plan, is prohibitively expensive. At what point in time can they expect to break even?"
To run a successful provider-sponsored health plan, health systems need to establish many of the saving measures they're already practicing to meet population health models, Davis said.
Becoming more efficient in where treatment is given, becoming more patient-centered on wellness, involving physicians in leadership decision-making and implementing health information technology and care management processes are all key.
Savings can be passed along to plan members in the form of lower premiums, creating a competitive advantage.
The biggest mistake providers make is to underestimate the complexity of the insurance business. The hospital business is highly regulated, Davis said, but the insurance business is very highly regulated.
Before jumping in, health systems need to develop a business plan that fits clear goals, and develop a strategy for the geographic scope, market segment and potential product offerings.
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Additionally, if the past is a guide, health systems will need new expertise through human capital, he said.
Having a provider-sponsored health plan should be linked to the integration of the broader health system.
"Unlike in the past," Davis said, "health systems are much further along in the process of developing true clinical alignment with other providers across the continuum of care."