Jan 23 2019 | Thought Leadership | By

Why Provider-Sponsored Health Plans Fail – Part 1

by Matt Nolan, Vice President, Lumeris

This Perspectives series looks at why provider sponsored health plans (PSHPs) fail. This post, Part 1,  discusses the market dynamics that are forcing organizations to stand up their own plans and the major strategic misstep many PSHPs make when bringing a plan to market. 

Last year, Lumeris published a thought leadership piece describing why Medicare Advantage must be part of every health system’s long-term strategic plan. One of the key takeaways was that non-privatized Medicare—both fee-for-service and some value-based—will not provide, in the intermediate- to long-term, the margins necessary for supporting the investments health systems must make to generate top-tier clinical and financial outcomes under risk arrangements. This is significant because payer mix shifts, specifically Commercial patients aging into Medicare, will accelerate over the next 5 to 10 years and further limit the ability for health systems to generate a positive margin on their investments. Medicare Advantage, with revenue opportunities three to five times greater than existing Medicare value programs (e.g., CPC+ and MSSP) and a national penetration rate that is projected to grow to 50% by 2025, presents as the best, and possibly only, financially viable option for health systems.

Lack of Collaborative Payer-Provider Relationships

As more health systems recognize the long-term importance of Medicare Advantage and become educated on the product, they are learning that the traditional win/lose payer-provider relationship is a major barrier to success. Instead, health systems are finding that managing MA populations effectively requires a truly collaborative payer-provider relationship which, as summarized in the accompanying table, is a substantial change from the traditional way these businesses interact.

Though health systems are trying to engage payers in a more collaborative fashion, many traditional payers have, to-date, been slow to change or generally resistant. This has forced provider organizations into pursuing one of the two remaining options available to them: bringing a new, non-traditional payer entrant to market or, if the market dynamics allow, launching their own Medicare Advantage plan.

Launching a Provider-Sponsored Health Plan

Though the prevalence of health systems partnering with non-traditional payers is increasing, many still prefer the option of launching their own plan known as a provider-sponsored health plan (PSHP). There are several reasons systems prefer the PSHP approach, including total autonomy over plan strategy—specifically network design, benefit design, and market launch/expansion.

Intuitively, total strategic autonomy would seem to be a major benefit for health systems. However, often this has proven not to be the case. This is because PSHPs, rationalizing that they need to gain as many lives as possible at launch, will utilize a “Me Too” strategy that seeks to mimic the broad positioning traditional payers have in the market. However, when PSHPs go beyond the reach of their aligned network with a PPO product, they lose their competitive advantage and then must compete against traditional payers in a playing field those payers have been in for decades and are typically already established.

The better approach for PSHPs is an HMO narrow-network strategy that starts with a vanguard group of providers within their aligned network and includes a focused market rollout that, as desired, scales over time as the organization’s network expands. This strategy has proven to be effective for PSHPs because it cultivates a highly engaged provider network which is the key to generating top-tier clinical and financial outcomes with Medicare Advantage.

In Part 2 of this series, we will delve further into effective strategies and rationale for launching a narrow network MA plan.


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