Prepared for the Foundation of the American College of Healthcare Executives Session 99AB Provider-Sponsored Health Plans Are Increasing in Number: What Leaders Need to Know Presented by: Bruce Henderson Eric Meinkow
Provider-Sponsored Health Plans Are Increasing in Number: What Leaders Need to Know Disclosure of Relevant Financial Relationships The following faculty of this continuing education activity has no relevant financial relationships with commercial interests to disclose: Bruce Henderson Eric Meinkow 2 1
Faculty Bruce Henderson Eric Meinkow 3 Learning Objectives Gain an understanding of the strategic factors to inform operational considerations of forming a providersponsored health plan / payer provider partnership Gain an understanding of the key success and risk factors to inform a decision of forming a provider-sponsored health plan / payer provider partnership 4 2
Agenda State of the Market PSHP / PPP Preparedness Elements of a Successful PSHP / PPP 5 State of the Market 6 3
State of the Market: PSHP / PPP State of the Market Implementing a payer-provider partnership strategy or a Provider Sponsored Health Plan (PSHP) may enable significant strategic and economic advantages in managing risk and growing the populations served by the health system Degree of Financial Risk Full FFS PCP FFS + P4P Episodic Bundling Shared Savings Capitation Degree of Clinical / Admin Integration Global Budgets Health Insurance All Services Evaluating the type of PSHP will need to consider the optimal design for a given health system Buying a health plan and integrate services Creating an integrated joint venture with an existing health plan Building a de novo PSHP with integrated services 7 State of the Market: Catalysts for Change Catalysts for Change The evolving health care market has led to health systems assuming more risk as a result of market consolidation, continued medical expense pressures on the health care system and payers and providers pursuing differing partnership models Risk Shifting from Plans to Providers Alternative Payment Models: Accountable Care Organizations Bundled payments Partial and full capitation Consolidation of Plans Pending: Aetna-Humana; Anthem-Cigna Big Three Post Merger: Premiums: over $100 billion Membership: 132.5 million 44% of total U.S. population Catalysts for Change Success of Fully Integrated health systems and plans: Kaiser Intermountain Presbyterian Geisinger 8 4
State of the Market: PSHPs by the Numbers PSHPs by the Numbers This market shift of risk to providers has led to an increasing number of provider sponsored health plans and the volume is continuing to increase 13% of all US health systems offer health plans in one or more markets 9 MM Medicaid (23.5% of lives in market) 7 MM Commercial (4.3% of lives in market) Present in 39 states Slightly over 100 systems provide coverage to 18 million members 2 MM MA (9.7% of lives in market) Source: Provider-led health plans: The next frontier or the 1990s all over again?; McKinsey & Company 9 State of the Market: PSHPs by the Numbers (cont d) PSHPs by the Numbers As the number of PSHPs continues to increase, there is significant diversity in the size and geographic location The size, and potentially needs, of the PSHPs significantly vary: The 10 largest plans account for approximately 43% of the 18MM lives The next 10 largest plans cover another 20% of the lives Conversely, the 10 smallest plans represent only 1% of the covered lives Source: Provider-led health plans: The next frontier or the 1990s all over again?; McKinsey & Company 10 5
State of the Market: Trends in PSHPs Trends in PSHPs The number of PSHPs as well as the number of products being offering by PSHPs has shown significant increases Number of PSHPs PSHPs Offering > 1 Product 110 70 105 65 100 95 108 60 55 50 65 90 94 45 47 85 CY2010 CY2014 40 CY2010 CY2014 11 State of the Market: Trends in PSHPs (cont d) Trends in PSHPs as well as significant increases in the volume of lives under government products such as Medicaid and Medicare Enrollment: Medicaid (millions) Enrollment: Medicare (millions) 10 2.0 1.5 5 8.8 1.0 1.8 6.1 0.5 0.6 0 CY2010 CY2014 0.0 CY2010 CY2014 12 6
State of the Market: In the News In the News The trend of hospitals and health systems developing health plan capabilities and partnerships is expected to continue Hospital-sponsored health plans: Why now may be the right time to launch FierceHealthcare 1 in 5 Health Systems to Become Payers by 2018 HealthLeaders Provider Plans Comprise One-Quarter of New 2015 ACA Plans HFMA Provider-Sponsored Plans Make Up Half of New MA Plans HFMA Hospitals, Health Systems Quicken Pace to Own Insurers, Full-Risk Health Plans AISHealth Provider-sponsored health plans rising to meet competition ACHP Provider-sponsored insurance plans can boost outcomes, credit" FierceHealthcare 13 PSHP / PPP Preparedness 14 7
PSHP / PPP Preparedness: The Payer-Provider Balance The Payer-Provider Balance Although fairly straight forward, to truly form an effective partnership you must find a way for the following objectives to converge Bend the medical expense curve and maintain an adequate MLR Payer- Provider Dynamic Provide high quality of care to patients and maintain an appropriate margin Payer Objective Provider Objective 15 PSHP / PPP Preparedness: Self-Reflection Self-Reflection The level of risk and when to assume it should be based on the key circumstances that face a health system and their market conditions Why should the strategic direction of your organization change to assume more risk? Where, or what markets, should you assume more risk? Who, or what products should you assume more risk? Self Reflection Questions What resources are in place and what will be needed to evaluate the impact of assuming varying levels of risk? When is the optimal time for your organization to assume more risk? These considerations lend to assessing the macro-level question of: How can a PSHP or PPP enable your organization to achieve its short and longer term vision as well as its strategic and economic goals? 16 8
PSHP / PPP Preparedness: but should be followed by conducting a thorough evaluation of the following key readiness components and considerations Strategic Ownership Partnership Decision Matrix Financial Operational 17 PSHP / PPP Preparedness: Strategic Strategic Strategic Ownership Before any action should be made, a system must evaluate the following strategic questions, Financial Partnership Decision Matrix Operational Where can we receive incremental value if we create a PSHP /PPP? What is our value proposition to stakeholders and differentiators versus competitors? What volume of lives needs to be captured? How do we select the optimal payer partner? When is the right time to form a PSHP / PPP; should we follow local market trends or should we be a disruptive innovator? What will be the response of the health plans as a result of forming a PSHP? What products should the PSHP / PPP enter into? 18 9
PSHP / PPP Preparedness: Ownership Ownership which should include adopting the optimal ownership structure to ensure alignment and direction between the organizations, Strategic Financial Partnership Decision Matrix Ownership Operational What are the advantages of partnering vs. building a PSHP / PPP? If partnering, what are the advantages / disadvantages of having a partner with equity ownership versus purchasing TPA services? If equity owner, what is the optimal structure that aligns the organizations strategically and financially? How do we structure an effective governance model to succeed (including decision making rights)? How should risk be allocated between the parties? 19 PSHP / PPP Preparedness: Operational Operational which should include evaluating the operational readiness of the plan partner as well as the health system, Strategic Financial Partnership Decision Matrix Ownership Operational What operational services should be covered under the Management Services Agreement? If the partner is out-of-state, what should be the distribution of executive and staffing resources to support the PSHP / PPP? What key operational areas need to be strengthened or created? What functions should be bought through a vendor rather than built out internally? What strategies should be considered to ensure physician alignment? 20 10
PSHP / PPP Preparedness: Financial Financial Strategic Ownership and conclude with assessing the financial readiness and underlying opportunity of forming a PSHP / PPP. Financial Partnership Decision Matrix Operational Is the level of investment reasonable given the value and expected market volume? How will financial risk be allocated between the parties? What will be the ongoing administrative cost levels and will they be competitive? What level of administrative cost savings result from partnering with a health plan versus building a PSHP / PPP? What amount of capital is needed to maintain an appropriate RBC level? 21 Elements of a Successful PSHP / PPP 22 11
Elements of a Successful PSHP / PPP The 5 C s of SUCCCCCESS Parties will need to mitigate any level of C deficiency to ensure the effectiveness and success of the partnership Capital Can the parties appropriately capitalize the PSHP / PPP at remain financially viable during periods of adverse experience? Composition What product composition (MCR, MCD and Commercial) should be considered over the short and longterm? Competition Is the competitive landscape for the service areas being pursued by the parties optimal for PSHP / PPP entry? Cost How will the PSHP / PPP effectively control the cost of the underlying product to be competitive with traditional health plans? Consumers All things considered, will the PSHP be able to obtain appropriate levels of enrollment compared to expected volumes? 23 Elements of a Successful PSHP / PPP Prepare to Manage Risk and will need to be prepared to identify, manage and mitigate risk pre-start up, post-start up and moving forward Payer Reaction Operational Sophistication Performance Monitoring Prepare to Manage Risk Marketing Strategy Long-Term Volume Strategy Regulatory Compliance Scalability 24 12
Elements of a Successful PSHP / PPP Market Positioning A successful partnership between health systems and payers starts and continues with understanding your market, Payer Reaction: For the product being covered by the PSHP / PPP, how will the competing health plans react given new competition? For other products, will the health plans increase rate pressures? Marketing Strategy: What is the long-term value proposition? How can the PSHP / PPP differentiate itself? How can product development and marketing mitigate adverse selection? Prepare to Manage Risk Operational Sophistication Performance Monitoring Payer Regulatory Compliance 25 Elements of a Successful PSHP / PPP Volume Adequacy needs a model to meet the needs for the current volume of enrollees but must also be scalable to meet long-term volume goals, Long-Term Volume Strategy: What is the timing new products to the current portfolio? What should be the geographic expansion strategy? What other strategic partnerships should be pursued? Scalability: Is the IT / operational infrastructure scalable to larger volumes and new products? What care management / clinical changes will be needed to enter into new products? Prepare to Manage Risk Operational Sophistication Performance Monitoring Payer Regulatory Compliance 26 13
Elements of a Successful PSHP / PPP Operations and needs to be supported by an agile operational infrastructure to succeed in an evolving market and one that can monitor and maintain compliance Operational Sophistication: What should be built and maintained internally versus using a leading class vendor? Performance Monitoring: How do we measure the value of a product / initiative? What changes need to be made based on the performance? Regulatory Compliance: What is needed to ensure compliance with state and federal regulations? Prepare to Manage Risk Operational Sophistication Performance Monitoring Payer Regulatory Compliance 27 Elements of a Successful PSHP / PPP What it Looks Like The following hypothetical example is an illustration of how a fully integrated partnership with a payer can be financially advantageous $0.0 Start-Up Costs System Obligation Rate Reduction Utilization Reduction Incentives Steerage Share of Premium Revenue and Margin System Opportunity 28 14
Questions 29 Faculty Biography & Contact Info Bruce Henderson Navigant Consulting, Inc. Phone: 513.325.8885 Email: bruce.henderson@navigant.com Bruce Henderson is a Managing Director in Navigant s Healthcare Strategic Solutions practice. Bruce is a senior executive with more than 40 years of experience leading, growing and advising integrated healthcare systems, academic medical centers, regional and national payers, large multi-specialty group practices and diversified healthcare businesses. Prior to joining Navigant, Bruce led the convergence and integration strategies and advisory services for Aetna s accountable care solutions group in developing over 30 partnerships with large multi-market health systems. 30 15
Faculty Biography & Contact Info Eric Meinkow Navigant Consulting, Inc. Phone: 630.853.1051 Email: eric.meinkow@navigant.com Eric Meinkow is a Director in Navigant s Healthcare Strategic Solutions practice and is based out of the Chicago office. With more than 15 years of healthcare management consulting experience, Eric specializes in supporting commercial and government payers, as well as health systems, as they look to assume more risk, specifically focusing on defining and executing strategy, and developing and enhancing operations through strategic, operational, and data analytic assessments. His experience includes payer strategy, payer-provider integration solutions, at-risk strategies for health systems, payer operations, exchange readiness and strategy, benchmarking, contracting, and implementing alternative payment models. 31 Bibliography/References Gunjan Khanna, PhD; Ebben Smith, MD; and Saum Sutaria, MD. Providerled health plans: The next frontier or the 1990s all over again?. healthcare.mckinsey.com. January 2015. Budryk, Zack. Hospital-sponsored health plans: Why now may be the right time to launch. fiercehealthcare.com. January 2016. Tocknell, Margaret Dick. 1 in 5 Health Systems to Become Payers by 2018. healthleadersmedia.com. August 2013. Daly, Rich. Provider Plans Comprise One-Quarter of New 2015 ACA Plans. hfma.org. September 2015. Daly, Rich. Provider-Sponsored Plans Make up Half of New MA Plans. hfma.org. September 2015. Connole, Patrick. Hospitals, Health Systems Quicken Pace to Own Insurers, Full-Risk Health Plans. aishealth.com. August 2013. Brino, Anthony. Provider-sponsored health plans rising to meet competition. healthcarefinancenews.com. May 2015. 32 16