Pursuing a Provider-Sponsored

Health Plan: Key Considerations

© 2018 PYA

No portion of this white paper may be used or duplicated by any person

or entity for any purpose without the express written permission of PYA.

2 | Pursuing a Provider-Sponsored Health Plan: Key Considerations

© 2018 PYA

Introduction

of commercial payers, Medicare Advantage (MA) plans, and state Medicaid programs, conducted by the Health Care

Payment Learning & Action Network, showed nearly one-third of all healthcare dollars are in shared-risk arrangements.

For many providers, APMs are new terrain. It takes time and commitment for physicians and health systems to build

the infrastructure and master the competencies required for value-based payments. These include reliable health

information exchange; near real-time data analytics; adoption of, and adherence to, evidence-based guidelines; and

robust care management programs. During this development phase, providers look to partner with payers, moving from

no-risk to shared-risk models.

For those provider organizations that have deployed required infrastructure and developed necessary competencies—or

those with a denite plan to accomplish this—bearing greater risk in exchange for greater control over premium dollars

is an attractive and manageable proposition. A provider-sponsored health plan, or PSP, oers these organizations the

physician practice, clinically integrated network, or accountable care organization) that leverages relationships to gain

eciency in coverage and treatment of its insured population. Rather than contracting with a payer for a percentage of

premium (i.e., capitated rates), a PSP contracts directly with the purchaser (e.g., CMS for MA, a state Medicaid program,

an employer) and thus controls the full premium.

According to the latest data compiled in the AIS Health 2016 Directory of Health Plans, there were nearly 300 such

plans operating across the country. AIS Health reported that 10.14% of all U.S.-covered lives were enrolled in a

PSP; approximately three-million Medicare beneciaries were enrolled in an MA PSP, representing 16.5% of all MA

beneciaries. The rapid growth in PSPs—both in terms of the number of plans and the number of enrollees—reects the

value many provider organizations have realized through the PSP opportunity.

Evaluating the Opportunity

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© 2018 PYA

evaluate market conditions:

• What are the current insurance market dynamics in the organization’s service area?

• What are the current provider dynamics in the area?

• What are competitors’ current and future payer strategies?

• What are the market share trends by service line?

• What are the current purchasers’ (e.g., employers, individuals) perspectives?

• Is the market willing to accept a narrow network product in exchange for lower prices and

• Are there available resources to fund necessary plan infrastructure?

• Is a PSP consistent with overall brand strategy?

• Does the provider organization’s brand carry weight with employers and individual consumers?

• Is the organization willing to provide price concessions to its own health plan in exchange for

market share?

• How would the provider organization incentivize physician participation?

• Who is likely to object to the strategy and can those objections be overcome?

If a PSP strategy is not aligned with the organization’s current business goals or doesn’t make sense

within current market dynamics, there is no reason to evaluate further. Instead, the organization

should consider developing a plan for pursuing the PSP opportunity in the future or evaluating

other providers whose services would be oered through the PSP to meet plan members’ health

needs. That network would include, but would not necessarily be limited to, the sponsoring provider

organization.

healthcare expenditures, a strong contingent of primary care physicians and medical specialists (e.g.,

cardiologists, oncologists, neurologists) committed to patient-centered care is the critical component

of a PSP’s provider network. Unless the provider organization maintains a robust primary care

provider network, the success of the PSP will be challenged, if not impossible:

the network?

Additionally, the provider organization may need to contract with other providers—including non-

sponsor hospitals, outpatient surgery centers, urgent care clinics, and pharmacies—to satisfy

network adequacy requirements. The business terms of these contracts should reinforce the provider

organization’s clinical integration strategy, such as compliance with evidence-based guidelines and

participation in care management activities.

Service Area

Next, a provider organization must decide the PSP’s service area, i.e., the communities from which

the PSP will accept members. For example, a PSP applying to participate in MA must identify each

county in which the plan will operate; a Medicare beneciary residing outside the plan’s approved

counties cannot enroll in that plan.

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consider which products and populations to target. We have identied, in the following table, those products and

populations most often served by PSPs and, based on our experience, key considerations for each:

Many provider organizations lay the foundation for their PSPs by developing the provider network to serve their self-

funded employee health plan. In this case, the organization is not truly “at risk,” as it already has responsibility for its

health plan costs.

Taking advantage of this opportunity, however, requires the provider organization to re-structure its employee benets

plan to limit coverage to services furnished by PSP network providers or otherwise incentivize employees to select

network providers. To accomplish this “narrowing of the network,” the provider organization must begin planning several

months prior to open enrollment.

generally is not advisable for a new PSP. The individuals purchasing these products likely would require more monitoring

and management than the provider organization can immediately provide.

PSPs have found it dicult to compete with large national payers to gain access to larger employers’ self-funded plans

and the fully insured non-ACA-Exchange market. Often, local governments or governmental entities (i.e., city/county

governments, school districts) have political incentive to partner with local health systems. Entities such as these may

prove to be fertile grounds for PSPs to plough as they work to expand this segment of their business. Additionally,

there are sometimes opportunities for PSPs to “lease” their provider networks to commercial payers to serve specic

communities.

Whether there is an opportunity for a PSP to contract with a state Medicaid program as a managed care organization

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but not limited to, the following:

• Statutory capital and surplus requirements

• Claims and operating systems

• Compliance programs

• Human resources with deep experience in health insurance

The costs associated with these investments are signicant—potentially millions of dollars—with no guaranteed return.

Organizational leaders should work with their nance team and consultants to prepare a comprehensive business plan to

assess the impact on the provider.

The sticker shock associated with these infrastructure costs, along with anticipated administrative challenges, may

partner, its remaining share likely will be more than the provider organization would earn under a capitated rate contract

with a payer.

Four primary dierences between a PSP and a joint venture health plan can impact a health system. These dierences,

presented in the following table, should be evaluated during the planning phase of any PSP strategy: