A Provider-Sponsored Health Plan Is A Hospital’s Natural Next Step

July 16, 2018 - Many hospitals and health systems are bypassing the ultimate opportunity to gain greater control of the outcomes and costs of their patients. That opportunity is developing their own provider-sponsored health plan, according to Geisinger Health Plan’s Chief Financial Officer.

“It’s important to think about how important hospitals are to local communities. In many health systems, there have been decades – in our case over 100 years – of goodwill created by our performance in managing individuals,” Kurt J. Wrobel, who also functions as the health plan’s Chief Actuary, recently told RevCycleIntelligence.com.

“There's just a connection that hospitals have with their local communities and extending that to bring in the financing component of the business is a natural next step.”

Encouraging hospitals to make the leap into the payer space will be key to ultimately transforming our healthcare industry into one that is truly value-based, Wrobel explained.

“There's a lot of different forms of risk-taking that can occur,” he elaborated. “You can think about it on a final payment basis. You could think about it on a total cost of care basis. The other would be like what we do here at the Geisinger Health Plan, which is to have the insurance company directly connected to the providers, so you have greater accountability around the entire premium dollar and greater ability to manage that premium dollar.”

READ MORE: Understanding the Value-Based Reimbursement Model Landscape

 “The purest form of risk-taking is when you have the insurance company connected with the health system,” he emphasized.

But taking that “natural next step” may seem like too big of a risk for many hospitals and health systems. In fact, only four of 37 provider-sponsored health plans formed since 2010 were profitable five years later.

Instead, many health executives and providers are stopping on the financial risk spectrum at the accountable care organization (ACO). Provider organizations are avoiding taking the next step into the payer space because provider-sponsored health plans seem too risky.

And they aren’t necessarily wrong. According to Deloitte’s Center for Health Solutions, provider-sponsored health plan development is riskier than ACO participation.

ACOs require less capital, with the average organization spending $4 million in initial investments versus $9 million for a health plan. ACOs also involve less financial risk because the payer assumes a portion of it, and fewer state and federal rules regulate ACO formation and participation.

READ MORE: Hospital Utilization Management Can Reduce Denials, Improve Care

However, ACOs do not give providers complete control over patient outcomes and total cost of care, Wrobel contended. Without taking on the higher risk of a provider-sponsored health plan, providers are failing to go all the way with true value-based care.

“Depending on the arrangement, ACOs have components that are powerful and are advantageous. But it's still not going the entire direction,” he said.

“ACOs can form relationships with insurance companies. They can potentially do things with CMS,” he continued. “But here we have the individual in an insurance product from beginning to end, the entire continuum of the delivering and financing of care, and we think there's a significant advantage.”

The advantages of a provider-sponsored health plan

Greater accountability and responsibility over the member and patient population over a long period of time is that significant advantage, according to Wrobel.

“Having the entire premium dollar is important because when you have an individual for an extended period of time, you can make investments,” he remarked. “You can better coordinate the delivery of care with the administrative capabilities of the health system. You have a greater ability to impact the product design.”

READ MORE: Good Data, Better Value-Based Care Can Boost Population Health

“You wouldn't be able to do it on a fee-for-service. And it'd be more difficult to do if you have a risk arrangement with an insurance company,” he added. Risk arrangements through other payers only provide hospitals with a small portion of the premium dollar.

Owning a provider-sponsored health plan also gives innovative, risk-taking hospitals and health systems some financial cushion, Wrobel argued.

“You also have – and this is one thing that some organizations haven't talked about – a natural hedge. If the health system has a less profitable or worse financial month, then it's likely the insurance company has a better month,” he said.

It also works the other way around, the healthcare executive explained in a recent Healthcare Financial Management Association (HMFA) report. By financially diversifying, a health system seeing lower utilization, especially under value-based purchasing arrangements that discourage increased use, can offset their losses on the delivery side because their insurance product will benefit.

“Taken in total, the broader organization is protected against both higher- and lower-than-expected utilization,” he wrote.

Developing your own provider-sponsored health plan will also help hospitals and health systems respond to a changing healthcare industry that is prioritizing consumer choice. Larger insurers have dominated the health plan space with their broad, national networks, Wrobel explained in the HFMA article.

But the healthcare insurance marketplace created under the Affordable Care Act, managed Medicaid, and Medicare Advantage plans give consumers more choice when it comes to coverage.

While broad networks are a benefit, healthcare is local. The diverse insurance products from smaller payers and health systems can offer comprehensive local networks.

“There's a lot of products out there where individuals are making a choice. And in that world, it's natural for health systems to take the lead with an insurance company,” Wrobel explained to RevCycleIntelligence.com.

How to see financial, quality gains from a provider-sponsored health plan

Realizing the financial and care quality benefits of a provider-sponsored health plan has proven to be a challenge for hospitals and health systems. But Geisinger Health Plan’s CFO stressed that it is very doable.

Hospitals and health systems need a large membership base, he advised. The Pennsylvania-based health plan has nearly 600,000 members.

Provider-sponsored health plans also require the ability to pay claims, provide comprehensive customer service, and implement technical skills around managing risk and creating rate-setting processes. Insurance product development is critical, too.

“For example, in our team here we have over ten credential actuaries, which is not something a health system would typically have,” he continued.

Focusing on managing total cost of care is also key for hospitals and health systems operating successful provider-sponsored health plans.

“You need an increased focus on managing the cost of care, which is one thing that insurance companies do. We think we can do a particularly good job of it, being connected with our own health system,” he related. “But you're also trying to do it with providers outside of your own health system as well. The data is an important piece, and that's all part of managing the cost of care.”

Hospitals and health systems may worry that they might not be able to effectively partner with other providers outside their delivery network. But Wrobel remains confident that bringing on other providers under the plan and successfully managing their costs and outcomes is possible.

In fact, a health system that doubles as an insurance company may find success with working with other providers because of their connection to the delivery side of care.

“We come at it as an organization looking to achieve the Triple Aim, and that's our starting point,” he explained. “We're trying to get cost-effective quality care, and we find a lot more willing partners in part because of our cultural connection. We start at the same place as a lot of other health systems.”

But Wrobel’s biggest piece of advice once hospitals and health systems have this foundation of skills and capabilities is to think long-term.

Many healthcare organizations have not realized the benefits of owning their own plan even five years after they launched the product. Providers lacking profitability are abandoning their insurance products, with five of the 37 plans formed in 2010 going out of business.

Wrobel emphasized that the health systems seeing the financial and care quality benefits of their provider-sponsored health plans are the ones sticking with the product.

“Short-term thinking is simply not going to work if you want to start an insurance company. It has to be thought about as the potential for a long-term opportunity,” he said.

“The Geisinger Health Plan has been at it since 1985, and we've been able to build both infrastructure, expertise, and the ability to manage our business over a long period of time. It’s not something where you can immediately switch gears and make it work immediately. You need to think about the long term.”

Long-term thinking is crucial to provider-sponsored health plan success because many of the investments made to improve patient outcomes and spending need time.

“A lot of the investments that we make are investments that may not yield results in the short term,” he explained. “And when you have an individual for a longer period of time, which we certainly see in our Medicare Advantage line of business, is that you can really impact things over the long term. When you have the entire continuum from insurance to the provision of care it really makes a big difference.”

And that big difference is not just a purely financial improvement. Hospitals will also find their patient populations getting healthier by being connected to both their providers and health plan.

“There's a direct connection between the insurance company and our health system. You don't have that same connection if you're connected with an insurance company by some other means,” he said.

“Ultimately, the best way to provide care is when you have that connection, and we see it in our results when we have a patient who goes to our health system and is connected to the health plan. That's when we get our best quality results.”