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How Can Provider-Sponsored Health Plans Compete?

Lessons from the past may help them compete in a tough payer environment

19Dec

Introduction

Provider organizations that take the leap to develop their own health plans compete in a highly competitive healthcare environment with established national, regional and local plans, and in some markets, new non-traditional entrants in the health plan space. Provider-sponsored health plans (PSPs) are not new; PSPs were formed in a wave during the 1980s and 90s. And while notable successes such as Geisinger, SelectHealth, UPMC, HAP, and Denver Health Medical Plan exist, many of the PSPs that were formed during the 1980s and 90s are no longer around. Reasons for failure were many. They ranged from misaligned incentives between providers and the PSP to launching a plan in already saturated and price competitive markets. Not being able to manage out-of-control utilization and associated financial risks were also a leading cause for failure.

PSPs that form now will likely not have the scale advantage of their traditional health plan competitors. In addition, they will need to build or acquire new competencies to operate a health plan—something that health plans already have. PSPs need to have a full suite of health plan capabilities that include sales, marketing, product development, enrollment, billing, claims, care management, and servicing. PSPs need to learn from the past. Managing financial risk will continue to be a critical determinant of success or failure – these are table stakes for a provider organization that wants to launch a PSP. Yet PSPs have many advantages and can compete head-to-head against large health plans – and beat them at their own game.

We suggest two ways that PSPs can differentiate themselves in the market. PSPs can separate themselves in their local markets by focusing on a specific line of business like Medicare Advantage or managed Medicaid. Being focused enables PSPs to optimize operations around a market segment which enables them to compete with traditional plans. We also look at the competitive advantage that PSPs can create with the depth and breadth of their clinical data assets.

Segment Focus

One way that PSPs can beat the big boys is by focusing on one or a few market segments. Start-up companies can’t be all things to all people. Amazon began with books, Google started with search, Microsoft with operating systems, and Starbucks focused on coffee when they launched. Many traditional health plans support multiple lines of business – commercial, exchange, Medicare Advantage, and managed Medicaid.

To create scale and achieve greater membership, PSPs might be tempted to launch multiple lines of business. However, operating complexity and costs increase when servicing multiple lines of business. As an analogy, think about Southwest Airline’s operating model. They fly one type of airplane, the Boeing 737. Pilots, mechanics, and other employees only need to be knowledgeable on a single type of equipment. This limits variability in operations which reduces costs. Now, apply this concept to health plans. Medicaid benefits and plan designs are quite different from other products. Every different product requires additional training or dedicated staff to a product line. This reduces the scale benefit that large plans like to leverage.

Segment focus allows you to keep your health plan operations more simple as you don’t need to account for line of business (LOB) variability across operations. This idea of segment focus was examined in a recent study by Deloitte. They found that tenure in the marketplace and scale were important factors in financial performance. That’s not surprising as experience and size do matter. As important, they also found that higher market share in a single segment correlated with better financial performance. In other words, you’re probably better off trying to get 100,000 members in a single segment than 25,000 members in each of four segments.

Is there still room out there for a PSP? Any decision on market segment needs to be a function of supply and demand. If Medicaid is expanding in your state, that may be an opportunity. Large plans have not universally pursued the managed Medicaid market, as the top ten plans represent only 53% of the market. Conversely, the top ten Medicare Advantage plans account for nearly 70% of the market. Does that mean you shouldn’t consider Medicare Advantage? Here again, focus might be the answer. Rather than focusing on a broad Medicare Advantage product, there may be a sub-segment of the market to serve. If there is a large but underserved dual eligible population, a special needs program (D-SNP) might be the place to start. This population is traditionally high utilizing and has multiple chronic conditions. A plan focused on this population serves an important need in most communities. In conclusion, the answer of where to focus is not universal and is a large function of the local markets.

Building and Leveraging System Integration

PSPs with integrated delivery systems should have a big advantage over traditional health plans since they face fewer barriers to accessing their members’ clinical data. However, to benefit from this, plan and provider leadership at a provider-sponsored health plan should foster a culture of collaboration and shared accountability.

As previously mentioned, a key operational challenge for provider-sponsored health plans will be the development of health plan capabilities. While the plan’s initial focus will be to devote attention and resources towards the creation of the organizations, people, systems, and processes to develop these new plan capabilities, it’s important not to lose focus on its strategic collaborative relationship with its provider network. This may include the sharing of knowledge and insights, but also tangible assets such as data, reporting, and staff. When there is a close partnership between the plan and provider, they can collaborate on programs that provide significant benefits for both plan and provider with results such as engaged members, better health outcomes, and improved customer satisfaction. But this requires agreement by plan and provider on what the member needs, data and systems integration, analytics to inform the collaboration and measure the results, and partnership on the back end to share critical feedback to support ongoing improvements in the program.

Designing meaningful, effective programs requires thoughtful consideration of the customer experience. PSPs will need to view their enrollees as consumers with broader service needs, and not just as patients. To this end, PSPs will need to give thought to how they will collect and analyze consumer data and services they will provide. This involves mining traditional data sources including call center, IVR, customer services, and web usage data in addition to its claims and outcomes data. Smaller plans may need to partner with analytic solution providers such as those which can provide expertise in data collection, patient and risk stratification, member outreach, care coordination, and reporting.

As healthcare evolves, PSPs will need to consider how to use data that can be collected through emerging channels such social media and mobile platforms, video platforms, and biometric devices. These platforms enable organizations to gather critical personalized information on consumer sentiment, attitudes, behavior, as well as some health information which are difficult to collect otherwise. Many of these platforms provide unstructured data, and will present new challenges for data management, reporting, and analysis. The emergence of these new platforms significantly raises the technical bar and adds additional uncertainty for health plans from a strategic planning perspective. This also provides additional entry opportunities for new, more technically savvy competitors in the health plan space such as Oscar Health and Clover Health.

To effectively integrate its systems and leverage data, a PSP will need to first develop its business strategy and value proposition relative to its competition. And in doing so, it will need to determine how it will work with both other health plans and other providers, who will become both competitors and partners, to provide its value proposition. How it answers these big questions will be critical inputs which will inform its systems integration strategy and roadmap.

Conclusion

Starting a PSP is not a small endeavor and should be approached after due consideration. While examining the local and national competition, provider organizations should think through the areas of differentiation that can pave the road to success. A strong integrated delivery system with a local presence and brand should be able to compete in their market. Focusing on a specific, sizeable market segment increases the likelihood of success. Doing so can help simplify aspects of plan operations, reduce administrative costs, and meet a true need in the marketplace. Finally, provider systems should be able to leverage their data advantage by mining their data to better understand their customers’ needs and provide a consumer experience which meets a broader set of their needs as consumers. Leveraging their data to better manage utilization and risk is critical to the PSP’s long-term financial success. Provider organizations that can create a compelling value proposition, differentiate themselves in the market, manage risk, and deliver effective service can greatly increase their chance of success.

Sources

Warren Suh, Senior Manager, Top Tier Consulting (T2C)

Ross Erlebacher, Client Director, Top Tier Consulting (T2C)

Originally published in Health Payer Intelligence.

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