Provider-led health plans: The next frontier—or the 1990s all over again?

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Over the past few years, forces have been aligning to make offering a health plan look increasingly attractive to health systems. Many providers we speak with believe they deliver efficient, outstanding care and superior customer service, and thus they assume that if they were to offer a health plan, they would succeed. Our experience suggests, however, that many of these providers will fail to meet their expectations. Without a deep understanding of the strategic, operational, and organizational factors needed for success, health systems may end up repeating mistakes of the past.

History has shown that it is quite difficult to reach the level of payor-provider integration needed to succeed as a provider-led health plan. In fact, the health systems that have successfully sponsored health plans (e.g., Intermountain, Geisinger, University of Pittsburgh Medical Center) have special circumstances or unique market structures that are not easily replicated. If new entrants are not deeply familiar with the challenges they are likely to face and the factors required to win—and if they do not know how to position the owned health plan in their specific market—success will likely be elusive.

Many of us witnessed this phenomenon in the 1990s, when there was a similar wave of entrants to the provider-led plan space. Furthermore, some of the challenges to success have become even more acute since then. Thus, it’s hard not to wonder: Is this current phenomenon a repeat of what we saw during that decade? There are at least four core reasons to believe that might not be the case: 

  1. Explicit linkages between care quality/ outcomes and reimbursement. Increasingly today, reimbursement is being tied to quality and outcomes, causing more providers to be “at risk” for the care that they are delivering. Payors at all levels (e.g., federal, state, private) are recognizing the limitations of trying to manage care from a distance and are increasingly willing to fund provider efforts to take on longitudinal management of care beyond their office walls.
  2. Improved access to data, driven by technology. The healthcare delivery infrastructure is much more connected now, and significant improvements have been made in how to use data to design better clinical care programs.
  3. Increasing consumer acceptance of restricted-access networks. Consumers today, unlike those in the 1990s, are increasingly willing to accept restrictions on access to providers. Although consumers rebelled against the strict gatekeeper model used in earlier health maintenance organizations (HMOs), they now appear to be much more open to narrow networks (in part because of their concerns about rising healthcare spending).
  4. New markets in which to offer products. Providers today have more options for marketing themselves to consumers (e.g., through public and private exchanges). This flexibility disrupts the status quo in a way that offers providers an entry point into rapidly growing consumer segments.

These factors increase the likelihood that providers will consider offering health plans and that the health plans will succeed. It is not clear, however, that offering a health plan can ensure a viable economic future for every health system, or that providers can maximize the value they could potentially derive from having a health plan. Although this move can deliver several potential advantages, it also entails considerable risk, the degree of which varies from one health system to another. This paper presents a comparison of the pros and cons—including financial, option value, channel conflict, and operational implications—of establishing a provider-led health plan. It also outlines a series of questions health systems considering this step should ask themselves before moving forward.

Note: A large number of health systems are considering various accountable care organization (ACO) relationships, including Medicare Shared Savings Programs and Pioneer ACOs. In this paper, however, we focus not on ACOs but on health systems that are already offering insurance products or may be considering offering them in the future.

The current landscape

Today, 13 percent of all US health systems offer health plans in one or more markets— commercial, Medicare Advantage (MA), or managed Medicaid (Exhibit). Together, these 107 systems operate health plans covering about 18 million members, about 8 percent of all insured lives. Ten more provider-led plans will be offered on the public exchanges in 2015. Approximately half of all those covered by provider-led plans—8.9 million people—are enrolled in Medicaid products and represent 23.5 percent of all insured lives in that market. The 7 million people covered by provider-led commercial plans constitute 4.3 percent of that market. Another 1.6 million people (9.7 percent of the market) are enrolled in provider-led MA plans.


This is excerpted from a longer article.

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