Possible routes to success include forming partnerships with existing insurers and prioritizing plan success over driving revenue to the provider part of the organization.

June 9—Insurance plans launched by health systems in recent years have struggled to attain profitability, but some have found success, according to a new analysis.

Robert Wood Johnson Foundation (RWJF) research found that of the 37 health insurance companies that providers have founded since 2010, only four achieved profitability by 2015. Additionally, five of those companies have gone out of business and two are being sold.

The provider-sponsored plans offered coverage through Medicare Advantage (MA), Medicaid, employers, and the individual market using limited networks of hospitals and other providers.

“Based on the analysis reported here, it is hard to identify any of the new cohort of provider-sponsored health plans that show strong promise,” the RWJF authors wrote.

A few new plans have enjoyed some success, reaching enrollments of 100,000 in just a few years. But almost all the plans continue to operate at a loss—in some cases “very large losses,” the report stated.

“We’ve definitely seen the profitability challenges,” said Alexis Levy, a director for HealthScape Advisors, which helps provider-sponsored plans. “Certainly a lot of these plans saw maybe a much larger loss than expected.”

The poor results followed strong growth in provider-sponsored plans in recent years, with many health systems looking to add them as a way to move up the revenue stream and financially benefit from their expansive efforts to improve efficiency and develop value-based care.

“A lot of systems probably rushed out to join Medicare Advantage because they were being asked to take that risk anyway; with the new reimbursement schemes that [the Centers for Medicare & Medicaid Services] has, why not take full risk and be more in control?” said Carole Cusack, vice president of Innovative Provider Solutions for 3M.

As part of that rush, providers sponsored 58 percent of new MA organizations that entered the program in 2016, according to an Avalere analysis. That year, 70 provider-sponsored organizations offered a total of 403 MA plans in 41 states.

But the newly reported losses demonstrated to industry observers the challenge of moving into a new line of business.

A vulnerability of provider-sponsored plans that previously raised concerns for Cusack was evident in the average enrollments of such MA plans: 21,000

“That’s not enough to sustain in a negative underwriting cycle,” Cusack said in an interview.

Commercial plans can have lower enrollments because they tend to have a healthier mix of enrollees compared with the Medicare-age population.

Plan Trends

The surge in provider-sponsored plans identified in the RWJF report echoed what Cusack has seen among health systems in areas where large national insurers pulled out of the Affordable Care Act (ACA) marketplaces.

“Their success is really about whether they can get the critical mass of enrollment in their local market, and that’s going to depend on your brand and the price point,” Cusack said.

Other complicating factors are the murky status of the ACA, which is facing the possibility of partial repeal and replacement, and its effect on provider-plan success in the government-run marketplaces.

“Right now, there is a fundamental reassessment about a lot of things because there is so much uncertainty,” Benjamin Isgur, leader of the Health Research Institute for PwC, said when asked about provider-sponsored plan trends in the context of healthcare reform. “Providers and payers we’re talking to are more focused on scenario planning because they don’t know what the scenario is.”

Robin Fisher, vice president and research analyst for Franklin Templeton Investments, said some hospitals have run ACA plans well and some have struggled. Among the challenges has been the propensity of plans to drive down a health system’s days of cash on hand. As an investor, Fisher values health systems that bring in executives with health plan management experience and those that are willing to divest their plan if it performs badly, he said at Citi’s annual not-for-profit healthcare investor conference in May.

Another industry trend may involve fewer providers starting plans on their own and instead partnering with an existing insurer, Levy said. 

Success Factors

Partnering with an existing payer that wants to move into a local market is a possible route to success, Levy said. Such partnerships can come with their own challenges, such as finding the right match based on the goals of the health system.

“It’s important to consider starting a plan with a partner plan to avoid some of the startup costs,” Levy said, referring to extensive infrastructure and capital reserve requirements.

An example identified by RWJF was the joint venture insurance company formed in recent years by Inova Health and Aetna. Each partner contributed capital to create and sustain the new company, and Aetna provided a range of administrative services to the PPO and HMO health plans, both of which were profitable in 2015.

Another characteristic of provider-sponsored plans that have been most likely to succeed, according to Cusack, is diversification in the health system’s approach to revenue generation.

“If that system is only focused on getting throughput in its facilities and getting the highest price possible, then the entire health plan is not going to do well,” Cusack said.

But an approach focused on nurturing the health plan has to come from the board of directors.

“If it is business as usual, then that’s a recipe for failure,” Cusack said.

The RWJF research found a key to being able to price competitively was a willingness to have the plan pay its own providers below-market rates. However, such a strategy cannot be sustained over the long term.

Other Considerations

A provider-sponsored health plan’s profit-and loss-statement may not be the only way it should measure success, according to Levy.

“From a health system perspective, there’s value in the diversification of having a health plan and having varying capabilities,” Levy said.

Plans also have been a way for health systems to respond to the dominance of narrow-network plans in the ACA marketplaces, which may have excluded their facilities.

Another consideration is how a plan may fit with a health system’s long-term strategic goals.

Health systems might “expect the up-front losses but see a lot of long-term value to having the health plan aspect, and they are going to stay with it for a longer period of time,” Levy said.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Friday, June 09, 2017