There is renewed interest among U.S. health systems in launching provider-sponsored health plans (PSHPs), despite the rocky start that many organizations experienced with this strategy over the past decade. New factors and circumstances have emerged to create an environment much more conducive to success.
Health systems that were first to test the PSHP waters shared one thing in common: They were pioneers embarking on a bold strategy, with hard-to-predict challenges ahead. Not surprisingly, from 2010 to 2017 there were more failures than successes.
Plans that had little understanding of the levers required for success. Often, their leadership had limited experience in running a health plan. As a result, PSHPs largely were encumbered by low margins and unrealistic expectations. They faced challenges in understanding how to effectively manage utilization and drive greater efficiency as their organization operated in a largely fee-for-service environment. They also struggled to meet enrollment thresholds that would better position them for success, largely because they didn’t have the scale to price premiums lower than their competitors.
Some PSHPs also lacked the analytical capability to extract insights from claims data to stratify and manage member populations. This led to their revenue suffering because of their limited ability to demonstrate to Medicare that certain enrollees were more expensive to cover. Most PSHPs also were not highly skilled in negotiating rates and establishing truly high-performing, quality-driven networks.
These and other factors put these plans at a competitive disadvantage relative to large commercial plans. Just four of the PSHPs launched from 2010 to 2015 posted a profit in 2015, while some recorded heavy losses and five went out of business.
Given the tremendous challenges confronting healthcare organizations that wish to take on a PSHP, what accounts for renewed and emerging interest? Key factors include the following.
The example set by leading health systems
Successes of leading PSHPs prompt leaders to ask, “What if?” In 2016, Geisinger Health Plan, founded in 1984, made a bold promise: If its members weren’t happy with the quality of care or service they received, they could receive a refund of up to $2,000 in out-of-pocket costs. Geisinger’s success as a PSHP — including a 28% decrease in emergency department visits for congestive heart failure patients, a 13% decrease in total health spending among Geisinger Health employees and a 19% decrease in per-member-per-month costs through reduced acute inpatient stays — positioned the health plan to stand by its guarantee of a phenomenal patient experience.
A surge in enrollments in MA plans
Managing a Medicare Advantage (MA) population is considered key to success at a time when one-in-six Americans will be age 65 or older by 2020 and margins for these plans average 4% to 5%. Beneficiaries that grew up with and are used to managed care are now aging into and more willing to sign up for MA. As a result, one-third of Medicare enrollees are currently covered under MA plans, and half of Medicare enrollees could be in an MA plan by 2023. Meanwhile, policy changes have made MA plans more attractive to administer.
Health systems’ interest in MA plans also are being fueled by regulatory changes such as the phase-out of Medigap plans, a final rule that that expands access to telehealth as a basic benefit for MA members in 2020, Medicare initiatives that have slowly pushed providers into risk-bearing arrangements and continued bipartisan support that has led to annual increases in revenue funding. Among not-for-profit hospitals, in particular, MA plans offer the opportunity to drive increased revenue while providing seniors with new opportunities for care.