Provider-health plan integration in Wisconsin may serve as model for hospitals and health systems nationwide as they establish their own health insurance plans
One interesting new trend in healthcare is the growth in the number of provider-owned health insurance plans. This is a development that could be auspicious for local clinical laboratories and anatomic pathology groups because most provider-owned health plans want local labs in their provider networks. This includes contracting with their own hospital labs.
In fact, experts at the Deloitte Center for Health Solutions believe that provider-sponsored health plans are “a potentially disruptive industry innovator.” If this assessment plays out, provider-owned health insurance plans may make big inroads on the market share currently held by insurance industry giants such as UnitedHealthcare, Anthem, Aetna and others.
Shrinking Profits Motivating Health Systems to Launch Their Own Health Plans
Frank Williams is the CEO of consulting firm Evolent Health. He believes shrinking profit margins are forcing health systems to either orchestrate shared savings arrangements with health insurers or launch their own health plans.
“There is a cost to just standing pat and continuing to do what you’re doing,” Williams told Hospitals & Health Networks magazine. “I think that’s why we are seeing a lot of innovators and leaders begin to move and say, ‘we can’t tolerate this because it won’t fund our mission,’ and so we’ve got to look at a new way of getting paid or a new way of delivering value.”
Wisconsin Sets Standard for Provider-sponsored Health Plans
Data from McKinsey & Company shows that Texas leads the nation with 15 provider-owned plans. However, Wisconsin’s longevity in the provider-owned health plan business is what sets it apart from other states.
In the 1980s and 1990s, forward-thinking providers across the nation began creating their own health maintenance organizations. However, most of these provider-owned health plans ultimately folded or were sold off as competition from traditional insurance companies and lack of rate-setting experience took their toll. That did not happen in Wisconsin because most provider-sponsored plans there stayed the course.
“In most of the other markets where these health plans evaporated, it happened because the provider system wasn’t able to manage the tension between their own health plan and the third-party stand-alone payers in their market,” explained Gunjan Khanna, a partner at McKinsey, in a story published by Modern Healthcare.
As Modern Healthcare notes, provider-owned plans cover almost one-third of Wisconsin’s insured population, a total surpassed only by Utah, where 36% of the population has a provider plan. The long-established provider-health plan integration is due in part to Utah’s rural makeup.
“A lot of communities didn’t have strong national or Blues penetration, and there had to be an answer to someone financing healthcare,” Bill Copeland, Vice Chairman, US Life Sciences & Health Care Leader at Deloitte, told Modern Healthcare.
“The dominant market leaders—provider systems—started those plans a long time ago.”
In recent years, Wisconsin’s hospitals, physicians, and other providers came together to form statewide accountable care organizations (ACOs). These offer providers more flexibility about the network and benefits offered in their own health plans. For example, since it launched in 2010, Integrated Health Network of Wisconsin (IHN) has grown to include eight health systems and 49 hospitals, while AboutHealth includes eight health systems and 48 hospitals.
Wisconsin is not the only state with a strong presence of provider-sponsor plans. According to Modern Healthcare, provider-sponsored plans have a 36% market share in Utah, followed by Wisconsin (32%), New Mexico (28%), Oregon (27%), Arizona (20%), Michigan (19%), and Washington (19%).
Premier Health of Dayton, Ohio, introduced its own health plan for its 17,000-plus employees and their family members in 2014. Today, the Premier Health Plan is offered to individuals, families, and employers, as well as those eligible for Medicare in southwestern Ohio.
“For us, the insurance business is just a vehicle to cover as many lives as we can in our service area with our population health initiatives,” Mike Maiberger, FACHE, Chief Value Officer/Chief Executive Officer Premier Health Plans, told Modern Healthcare. “We’re not out to be one of the largest national players in the insurance market.”Provider-Sponsored Plans Now Outperforming Standard Insurance Plans
As Modern Healthcare outlined, “Medicare Advantage is a ‘relatively easy market’ for provider-plans to enter because Advantage plans are marketed directly to individual beneficiaries.”
Unlike the 1990s, providers entering into the health insurance marketplace in the past few years are achieving financial success. A report prepared by the Deloitte Center for Health Solutions analyzed the financial and market performance of provider-sponsored managed care organizations from 2012 to 2014.
Deloitte determined that provider-sponsored plans are outperforming their purebred peers. The best performing provider-sponsored plans, on average, improved their underwriting margin from 2.4% in 2012 to 2.6% in 2014, compared to other health plans that operated in the same states, which lost money with a margin of -0.8% in 2014. Medicaid-focused plans were among the best performers. Longer-tenured plans, and those with greater market share and larger enrollment, recorded the highest profitability.
Deloitte Labels Provider-sponsored Plans ‘Disruptive’ in Value-based System
As noted earlier, such proven financial successes are what caused Deloitte to label provider-sponsored plans “as a potentially disruptive industry innovator.” Deloitte argues the ground is shifting under the healthcare industry, leaving providers with little choice but to “embrace innovation.”
“Gaining access to innovative reimbursement models will become increasingly important to delivering sustained financial performance in a value-based environment,” states a second Deloitte report on provider-health plan integration. “New models of provider-health plan integration can serve as an attractive option to secure sustained margins.”
Not All Health Systems Are Candidates for Provider-Health Plan Integration
“For most health systems, offering a health plan is not easy. The providers most likely to succeed with this move are those that have an aligned strategy across their system, a strong balance sheet, well-developed population health management capabilities, solid brand recognition, and sufficient scale,” concluded the McKinsey report.
While providers must overcome obstacles when sponsoring a health plan, healthcare experts believe the stage is set for continued provider-health plan integration.
“Payment reforms such as shared savings/loss arrangements, capitation, and bundled payments are forcing providers to re-engineer care delivery, and giving them experience managing financial risk,” wrote Robert Belfort, a partner in the healthcare practice of Manatt, Phelps & Phillips, and Anne Karl, an associate at the same practice, in Executive Insights. “In short, when providers are asked to think more like insurers, they begin to contemplate actually being insurers.”
Should ever-greater numbers of providers—typically large hospitals and integrated health systems—decide to enter the health insurance business, it is likely that they will want something different from their clinical laboratory test providers.
Instead of the “cheapest price per test” that is currently attractive to national health insurance companies, provider-owned health insurers will probably want ever-shorter lab test turnaround times, the capability of a single regional lab to serve inpatient, outpatient, and outreach settings (and keep a full, longitudinal record of each patient’s lab test results in their LIS), and close, ongoing collaboration involving pathologists, lab scientists, and the physicians they support in ways that contribute to measured improvements in patient outcomes.
Don’t forget one more key factor in this type of transformation. Provider-owned health plans will not be reimbursing providers—including medical laboratories—on a fee-for-service basis. Rather, they will be selecting labs to serve their physicians and patients that can meet the criteria described above, at some type of budgeted or capitated priced. Thus, being local and being imbedded within the communities served by provider-owned health plans may be factors that tip the competitive balance back in favor of local and regional laboratories.
—Andrea Downing Peck