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Provider-Sponsored Health Plans Poised for Comeback

What was old is new again

As health care delivery shifts from the traditional fee-for-service payment system to alternative value-based, bundled, and/or population-based payment models, the provider-sponsored health plans (PSHPs) that were so prevalent in the 1980s and 1990s, but largely fizzled out in the 2000s, have re-emerged as a viable option for health systems, according to an article in the National Law Review

In the past, hospitals and health systems often couldn’t make a success of the plans because they didn’t fully understand the business of insurance, lacked experience, and were unable to maintain the significant cash reserves that were necessary under risk-based capital requirements, write Gary Scott Davis and Joel C. Rush of the law firm McDermott Will & Emery. Now, however, the move away from fee-for-service payment systems has heightened the desire of many organizations to move back into the PSHP business. What’s more, the health care environment has changed so that new attempts to launch hospital-owned plans should succeed this time around, Davis and Rush say.

For example, hospitals and health systems now have the benefit of:

  • Significant progress with clinical alignment throughout the care continuum, through such factors as value-based reimbursement, population-focused care strategies, and an emphasis on care coordination
  • More-sophisticated health information technology (HIT) that makes care coordination and cost control less daunting for health systems
  • The increase of alternative payment models that lead health systems to improve care for specific patient populations
  • Increased adaption of the “triple aim” of better care, improved patient experience, and lower costs, which means certain costs are already being handled by the systems, freeing up money that hospitals and systems would normally need to fund provider-sponsored health plans
  • The opportunity to create a competitive advantage through improved brand leverage as a result of narrow networks

No matter what PSHP approach a health system ultimately chooses, however, it is critical to have a well-planned strategy and a business plan in place before moving forward, the authors point out. Specifically, it is important to establish clear goals and objectives (e.g., expanding the health system’s mission, increasing its ability to succeed in population health management, and leveraging HIT) and to develop a strategy for the PSHP’s focus (e.g., geographic scope, market segment focus, and potential product offerings).

But building a PSHP from the ground up comes with a host of challenges. For example, the licensing and regulatory process for establishing a new PSHP and for developing Medicare Advantage and Medicaid products can be long and cumbersome, according to the article.

Buying (either in whole or in part) an existing health plan is a much easier proposition from a timing and regulatory standpoint, and typically allows a health system to get its PSHP to market much faster. However, buying an existing health plan can be a costly endeavor.

Sources: National Law Review; August 19, 2016; and FierceHealthcare; August 18, 2016.

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