Partnering with an insurance company to form a joint-venture health plan is a new business entirely rather than a twist on the traditional payer-provider relationship.
Beginning Jan. 1, Aspirus Arise, a new health plan owned jointly by a health system—Aspirus, based in Wausau, Wis.—and a health insurer will be available to individual marketplace, small group, large group, and self-funded plans in 16 Wisconsin counties.
Aspirus and its partner—WPS Health Solutions, Wisconsin’s leading not-for-profit health insurer—share the goal of offering affordable coverage for members who receive care within the Aspirus network, which includes four hospitals in Wisconsin, four in Michigan, 50 clinics, and more than 500 affiliated physicians. Although the two organizations have had payer-provider contracts for many years, the new health plan represents an entirely new way of working together with different strategies, responsibilities and success metrics, says Kathryne McGowan, senior vice president, population health for Aspirus.
Health systems that see a joint-venture health plan as simply an expansion of a payer relationship are making a mistake, she says. “It is completely different because you are getting into a new business,” McGowan says. “The conversation becomes about basic business strategy. Why do you want to get into this? What do you expect to get out of it? And it is essential that you understand why your partner wants to do this and what they expect to get out of it.”
Before deciding to become business partners, potential partners in a joint-venture health plan need to consider two things that do not come up in traditional payer/provider negotiations.
How does a joint venture support each partner’s business strategy? Joint-venture health plans are increasingly common, but that is not a good reason to pursue the idea, McGowan says.
A joint-venture health plan could support broader strategies such as population health management or the transition to value-based purchasing. “Those are probably two good reasons to look at doing a joint venture,” she says.
How will the joint-venture health plan define success? Traditional payer-provider negotiations typically center on rates; the payer wants the lowest possible rates and the provider seeks to maximize rates. By contrast, in a joint-venture relationship, rates are negotiated in the context of the goal of the new company. “Is success measured by profitability? Is it around enrollment and market share?” McGowan says. “This comes back to the strategy of each party. If the goal is to grow market share, success might be breaking even financially. If the goal is to maximize profits from the insurance side, then enrollment is less of a priority.”
Building the Relationship
The path toward Aspirus Arise started more than five years ago when Aspirus’ leaders developed their strategy for healthcare reform. “As we were deciding how we should position ourselves, we recognized that the healthcare delivery side needs to be closer to the healthcare financing side,” McGowan says.
“Instead of jumping in, we began a process with WPS of learning how to work together,” McGowan says. “The co-branding project over three years let us get to know each other at the senior leadership level and begin to understand how each other thinks.”
A lot of that groundwork is trust-building, learning about one another’s business models and understanding each other’s priorities. “Everybody thinks they know the other person’s business and the reality is they do not,” McGowan says. “You can look at the same topic and use the same words, but you are coming at it from different perspectives. Until you really can get your senior leadership in both organizations to understand those different lenses, there will be challenges.”
For example, both partners will need to contribute a variety of assets—capital, management expertise, data, and so forth—and agree to new processes and protocols for the benefit of the new entity. Unless the partners understand one another’s perspectives, misunderstandings can occur.
Beyond that, top executives at both organizations will likely understand the motivation and logic of a partnership more easily than other staff members, some of whom may have been in adversarial payer-provider negotiations in the past.
“The challenge is less in inking the deal than making this work after the deal is struck,” McGowan says. “You have to bring in a lot more people who have to understand the ‘why.’ If you have not spent the time as shareholders during the organizing phase to know that, it makes it much more difficult to translate to your next layer of management and beyond.”
Points of Negotiation
Payers and providers who are used to haggling over rates have an entirely different—and broader—focus when they negotiate the details of a jointly owned health plan. The following are important points of negotiation.
Ownership. WPS and Aspirus are 50/50 owners of Aspirus Arise, but that even split is not the only way to share ownership, McGowan says. In deciding the ownership split, health system leaders should consider the following factors.
- The amount of capital reserves they will need to set aside as per state regulations for insurance companies
- How the new health plan may affect the system’s relationship with other payers in the market
- The financial risk of delivering high-quality care at low cost, coupled with the financial risk if the health plan does not perform well
Data sharing. Both parties will need to share data they typically hold private. Deciding what information to share and how to share it is likely to be a difficult and time-consuming process because insurance companies and healthcare providers think differently about what data they need to be successful, McGowan says.
“That conversation is oftentimes the most enlightening,” she says. “Once you start talking about what data you need and how you use data, you start to learn how each other thinks.”
At a minimum, the health system needs to know the insurance company’s market share and financial performance in each of the market segments the joint venture will offer. Likewise, the insurance company needs to know the health system’s market share, its patient satisfaction scores and the status of its value-based contracts and population health management initiatives.
During three years of working together on a co-branded product before they established their joint-venture health plan, WPS and Aspirus incrementally increased the types of data they shared. In the first year, they shared basic market demographics; in the second year, they shared more targeted demographic data and some financial performance data.
By the third year, the two parties were looking at the financial performance of each market segment, examining claims, and honing in on high-cost claims so they could identify and implement interventions that would improve performance.
Other areas for collaboration include the following.
Rates.When they own a health plan together, both parties need to agree on the rate structure that will allow the health plan to meet its goals.
For Aspirus Arise, the owners set a guiding principle that rates for WPS’ administrative services and Aspirus’ clinical services will be “competitive” in the marketplace, rather than mandating that rates be a specific percent lower than the lowest-priced competitor.
“Market dynamics change over time, and each insurance company in the market makes its own pricing decisions so you cannot know that you are always going to be a certain percentage lower than somebody else,” McGowan says. “But if you know that you are giving rates within agreed-upon guidelines, then both parties can have confidence in the other partner.”
Division of labor—and intersection of effort. When Aspirus Arise starts in January, WPS will handle pre-certification, eligibility verification and utilization review, while Aspirus does complex care management, disease management and care coordination.
“We are already seeing synergy in care coordination that gives the patient a better experience,” McGowan says.
Preparing for Success
Health systems entering into joint-venture arrangements must surround themselves with advisers who understand the insurance business.
McGowan recommends talking to peer health systems that are in the insurance business, either through a wholly owned plan or a joint venture, to learn from their experiences. Aspirus recruited McGowan to its leadership team because of her experience working with provider-owned health plans. An actuary who has experience in setting up a new health plan or working with a provider-led plan—and can teach health system executives how the insurance business works—is also essential.
“It is very important to be clear-eyed about the potential financial risk,” McGowan says. “While lots of dollars flow through insurance companies, typically they have very narrow margins that are lower than what delivery systems typically experience.”
Identify the start-up team. WPS and Aspirus each designated executives responsible for achieving milestones toward creating Aspirus Arise. Leadership was equally shared, but WPS had the heavy lifting in the early stages. “The insurance company ends up doing the bulk of the work during the development phase because of all of the regulatory aspects that need to be handled,” McGowan says.
Hire a leader dedicated to the health plan’s success. The Aspirus Arise CEO was appointed after the partners applied for the company’s license but before operations began.
Bringing Payers and Providers Together
Partnering with an insurer to form a joint-venture health plan is an increasingly common way to bring healthcare financing and healthcare delivery closer together, helping to control costs while improving the patient experience. Many observers think the joint-venture approach is less risky and more likely to be successful for health systems than starting a health plan from scratch. But the health insurance business and health system executives must bring in staff with the expertise needed to succeed.
Lola Butcher is a freelance writer and editor based in Missouri.
Interviewed for this article: Kathryne McGowan is executive director, Aspirus Network Inc., and senior vice president, population health, Aspirus, Inc., Wausau, Wis.
Forum members: What do you think? Please share your thoughts in the comments section below.
- Please share your experiences with joint-venture health plans. What challenges or solutions have you encountered?
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