The Financial Advantages of Provider-Sponsored Health Plans

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“Provider sponsored health plans are gaining traction in the market” – Molly Mulebriar

By GEORGE LYNN

There are many stepping stones in the journey from fee-for-service to value-based care. Although shared savings, bundled payments, and shared risk are meaningful steps in the right direction, the most comprehensive solution is the provider-sponsored health plan (PSHP).

With a PSHP, a provider network—often led by a hospital system—assumes 100 percent of the financial risk for insuring the patient population. Some organizations make a gradual transition by starting with a hospital-sponsored employee health plan before insuring larger, more diverse patient populations.

When a provider decides to launch its own health plan, the organization immediately enters the world of insurance and risk management. The provider first must obtain an insurance license and get approval as a health plan in states where it will operate its commercial, Medicare Advantage, or managed Medicaid plans. PSHPs collect insurance premiums directly from employers or individuals—and therefore at first blush feel as if they are the furthest “upstream” a provider can get from direct patient care.

This approach requires the provider not only to play a clinical role but also to assume all the responsibilities of a payer: eligibility and enrollment, claims payment, customer service, insurance reporting, administrative operations, and more.

Although such a wide-ranging array of duties may seem overwhelming at first, PSHPs have the advantage of being anchored by a mission that does not apply to traditional insurers: to become more fully integrated into the communities they serve by providing medical care via high-quality, affordable health insurance. PSHPs extend this mission through their commitment to improving the health and well-being of their members, who also happen to be their neighbors.  PSHPs also are equipped to offer innovative health plan designs that can incent providers to deliver—and patients to receive—health care in the most appropriate settings.

Creating a PSHP offers other advantages as well.

Less revenue leakage. In a PSHP, primary care physicians (PCPs) often work closely with health plan administrators as part of the same clinical community. As a result, these physicians have greater incentives—including value-based payments—to keep patients within the health system to promote more effective care coordination.

Lower costs to the health plan. If a health system has a risk contract with a private payer and an inpatient has a $20,000 bill, the insurer writes the check. In the PSHP scenario, the provider’s health plan writes the check to the hospital—but in this case, the check might have to be for only $5,000, to cover the incremental costs incurred by the health system when providing the care. (In contrast, fixed costs such as beds and nursing staff are covered in payments by traditional insurers.) When the hospital and plan are part of the same organization, money may move from one revenue line to another—but it’s still tied to the organizational P&L.

More freedom in financial decisions. In the PSHP model, providers who are part of the executive team have control over both plan design and payment decisions. For example, a PSHP can ensure that aspects of preventive care that are especially vital to its community have low or no copayment requirements. Value-based care incentives for physicians who meet key plan quality metrics also can become part of the network design from day one.

More targeted population health management. A PSHP allows the organization to better understand the unique needs of its patient base and deliver more customized care. Having a wealth of new data to analyze helps improve outcomes and lower costs.

More efficient risk management. By using new predictive modeling technologies, a PSHP can perform sophisticated actuarial analysis without the hundreds of actuaries that commercial insurance companies employ. These tools give providers greater visibility into financial risk—and the ability to manage it.

The more an organization aligns financial risk with clinical incentives, the better equipped it is to seize financial opportunities. Shared savings, bundled payments, and shared-risk solutions are essentially road stops on the way to the most comprehensive and rewarding solution: a well-designed PSHP.

George Lynn, MBA, is a former chairman of the American Hospital Association and a recipient of the association’s Distinguished Service Award.

Publication Date: Monday, May 04, 2015

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