When providers become payers

Spurred on by healthcare reform, provider organizations are taking more control over the entire spectrum of medical services and financing. Their business savvy has spawned a number of health plans that operate as all-in-one providers and payers.
A burgeoning number of health systems are assuming the risk of insurance plan ownership. A 2013 survey of more than 100 hospitals and health systems across the country revealed that 34% of respondents already owned health plans. Another 21% reported their intentions of ownership by 2018, according to The Advisory Board Co., a Washington, D.C.-based technology, research and consulting firm.
“We have reached a tipping point with affordability in the U.S. healthcare system. The shift to value-based care, and the incentives that go along with it, are driving health systems to take on more risk,” says James Porter, MD, executive vice president and chief physician executive of Deaconess Health System in Evansville, Indiana.
In 2012, Deaconess began its program of assuming risk for populations, with a focus on creating a clinically integrated network of providers called OneCare, which initially targeted its own employees. That year, Deaconess established an accountable care organization (ACO), called Deaconess Care Integration, entered the Medicare Shared Savings Program and partnered with commercial insurers. Since then, Deaconess also has formed a partnership with a provider-owned health plan to offer this care model to additional members of the community.  
When a health system sponsors its own insurance or partners with an existing provider-owned plan, it helps “connect the dots along the entire continuum of care,” allowing for better insights into the right care pathways for individual patients, Porter says. This delivers better outcomes and clinical value. “All in all, we are seeing that patient health and quality of care goes up, while costs come down,” he says.

‘More collaborative than ­adversarial’
Integration between providers and insurers “is a huge advantage in the new world order,” adds Francis X. Solano, MD, FACP, president of UPMC Community Medicine Inc., a network of about 300 primary care and specialty physicians affiliated with University of Pittsburgh Medical Center.

“In the past, both physicians and hospitals were ‘widget’ providers who were not really lined up with the insurer as to providing high-quality, cost-effective care,” Solano adds. “We got a piece of the premium but were at the mercy of insurers as to their utilization metrics, which could have an onerous impact on our survival from a reimbursement perspective.”
Now, in the dual role of provider and payer, “we are more collaborative than adversarial with insurers we own and work with,” he says. “We can also impact change quickly, whereas we have little say with other insurers who only look at the bottom line.”
Changes in Medicare reimbursement, such as bundled payments, are compelling health systems to exercise greater leverage in insurance plan design. “Medicare is trying to put a lot more risk for entire populations on the backs of providers, and health systems recognize that,” says Christopher Kerns, managing director of research and insights at The Advisory Board. “As a result, they’re looking to expand their risk management capabilities into the commercial population as well, and starting their own health plan is a vehicle for them to do that.”
Based on a pre-negotiated formula, shared savings are disbursed in the form of a monthly, quarterly, or annual bonus to hospitals and physicians who work together to reduce costs and improve quality. However, “the lion’s share of the savings tends to go to physicians,” Kerns says.

Physicians’ emphasis on delivering value has accelerated in recent years, says Francis Mercado, MD, an internist and primary care division chief of Franciscan Medical Group, a Catholic Health Initiatives affiliate with about 700 providers based in Tacoma, Washington.
Now that the medical group is part of an ACO-Rainier Health Network-it has started investing in care managers and clinical pharmacists with the goal of reducing hospital admissions and readmissions. In addition, it uses technology to track patients, helping ensure necessary tests and follow-up, says Mercado, who is also Rainier’s chief medical officer.  
Management of chronic conditions also holds promise for reining in costs while enabling patients to benefit from follow-up and education about their diseases. In July 2014, Mercado began an ongoing pilot study involving 10 complex patients whose health improved with the guidance of the network’s clinical pharmacists and nurses. Meanwhile, those providers were able to bill for chronic care management under the CPT code designed for that purpose.
Persuading some providers to adopt a new mindset of tying payments to cost savings is no easy task, however. “We’ve had challenges with well-meaning physicians who do not readily see the value of this somewhat sudden change,” Mercado admits. With change comes uncertainty in reimbursement. “But I think they will turn around, especially if we are able to demonstrate an improvement in the overall healthcare of our patients,” he says.

Plan advantages
Like any business decision, however, starting a health plan involves calculated risks. Collecting enough dollars in premiums is essential, as is predicting use of the plan’s services, says Holly D. Meidl, MBA, managing director and national healthcare practice leader at Marsh, an insurance broker and risk management advisory firm based in Nashville, Tennessee.

Although hospital systems foresee value in forming health plans, it’s too early to determine whether their endeavors will pay off, she cautions. Meanwhile, many primary care physicians are aligning with health systems or joining them as employees. Physicians hope to benefit from shared savings while bearing more of the risks and costs of care as the concept of population health management gains traction.
“For population health to improve care and reduce costs,” Meidl notes, “health systems need both the tight alignment of primary care physicians coupled with their health plan to create the greatest impact.”
The advantages of owning an insurance plan include more flexibility in controlling costs and capitalizing on provider organizations’ local brand recognition, which makes it feasible to compete against national players. However, Meidl predicts that health systems will continue to accept private and government insurance in addition to their own plans.
“It’s not about excluding anybody,” she explains. “It’s about trading on their own brand, as well as being able to attract a member and a patient who they’ll be able to work with on multiple parts of the equation around their health.”
Competition in the marketplace is beneficial, Meidl says, adding that insurers are “jockeying for position and looking to make acquisitions.” With consolidation beginning to limit competition, future rivalry will stem from individual systems offering health plans.

The concept of provider organizations establishing health plans for their employees and even certain populations isn’t new. But healthcare reform has been a catalyst for motivating hospital systems to expand their plans to include broader segments of their communities, Meidl says.

All parties are incentivized under healthcare reform to engage in value-based purchasing-to carefully consider the necessity of tests and procedures and to eliminate redundancies, Meidl says. Physicians are prompted to rethink healthcare delivery and ask whether they can arrive at the same diagnosis without ordering as many tests.

Controlling costs
Whether health systems will succeed in insurance plan ownership remains an open debate. Some hospitals tried in the early years of health maintenance organizations (HMOs) but encountered obstacles. However, experts contend, those HMOs emerged before modern data analytics became available to guide providers in steering members toward preventive health measures and care trajectories with favorable outcomes.
“Moving toward health systems taking financial risk is promising for the long-term health of the nation,” says Seth Frazier, MBA, chief transformation officer at Evolent Health in Arlington, Virginia, a consulting firm that helps health systems manage clinical and economic risks in the value-based care market. “We really see these efforts on the part of health systems as pioneering, and we have been able to learn a lot from those plans that are long-term successes.”
From both market- and patient-centered perspectives, he says, integrating financing and healthcare services promotes more value-based care. As health systems become more focused on prevention and complex care management, they help patients develop healthier lifestyles that decrease the need for more intensive and expensive services. This strategy focuses on administering better all-around care, not just individual services.  

“Provider-sponsored models really create the opportunity to bend the cost curve while delivering better quality,” Frazier says. “We now have strong documented evidence that providing more of the right care produces savings.”
For patients, provider-owned plans may represent a variety of approaches, but they typically operate under an HMO framework. The group forming the insurance plan becomes its exclusive providers, notes Tricia Marine Barrett, MHSA, vice president of product design and support at the National Committee for Quality Assurance (NCQA), a Washington, D.C.-based nonprofit that collaborates with policymakers, employers, works to build consensus among stakeholders and drive improvement in the healthcare system.
“The difference is just that they are coming at the business from a different angle,” she explains. “They are a provider group or network first and then formed an insurance company rather than being an insurance company that builds a network.”

Greater risk, better care
Integrating health plans and systems can address challenges related to price and cost transparency, data sharing, economic alignment, and clinical resource allocation to patients who require more intensive support, says Juan Serrano, former senior vice president of payer strategy and operations at Catholic Health Initiatives’ national office in Englewood, Colorado. Serrano was recently named president and CEO of insurance/reinsurance firm Munich Health North America.
A wholly-owned subsidiary, Prominence Health, offers commercial and Medicare Advantage plans, care networks, and related options. “Insurers may favor health systems that have figured out how to perform well in an integrated fashion,” explains Serrano. “Over time, those who can’t or won’t play in the integrated space will likely fall behind.”
Porter, Deaconess’ chief physician executive, believes there will be greater incentives for investing in the capabilities to produce better patient outcomes, and those efforts will benefit all involved parties. “This trend of providers taking on more risk will grow as health systems continue to see significant results towards achieving greater care value and better patient engagement,” he says.

Primary care physicians in particular are vital players in managing patients with complex diseases and directing them to specialists. “One of our core beliefs is that it’s important to identify those individuals who are most in need of a care partnership and working with them before their health deteriorates even further,” says James T. Parker, MBA, president of Indiana University Health Plans Inc. in Indianapolis. “We’ve been very happy with the success we’ve had in that regard.”
Launched in 2009 as a Medicare Advantage option serving Greater Indianapolis, the straightforward Medicare model presented a less-risky option to venture into health plan ownership, with only a fixed amount of resources required to make capitated payments to providers, Parker says.
In 2012 the plan broadened its scope, embracing the management of health benefits for the system’s employees. Three years later, it entered the federal healthcare exchange for individual consumers while simultaneously launching products for commercial employers.
Parker acknowledges that the plan’s expansion should be tempered with a healthy dose of restraint. “We’ve only been in the commercial market for a short period of time. It’s important that our growth be sustainable,” he says.  
Nonetheless, Indiana University Health Plan’s reputation as a large system with good clinical quality has spawned interest from potential purchasers. While its competitors have broader networks, the plan “is consistently less expensive,” according to Parker. He says it’s able to save money by improving members’ health, reducing utilization, and receiving favorable pricing from its exclusive network of partners.

Team-based insurance
University of Pittsburgh Medical Center (UPMC) is proof that health systems can succeed in insurance plan ownership over the long haul. Two decades ago, the medical center embarked on this journey toward “creating an integrated ecosystem of healthcare delivery,” where excellent coordination between experts resides at the epicenter, explains Scott Lammie, chief financial officer of UPMC Health Plan and senior vice president of UPMC Insurance Services Division in Pittsburgh, Pennsylvania.

This has provided UPMC with more insight into its own spending. “We’re moving away from individual practitioner medicine to more team-based,” Lammie says. “Team-based insurance enables the plan to combine claims data with clinical input from physicians to better understand its members and their health challenges.” UPMC Health Plan uses that information to offer in-house, targeted wellness and disease management programs as well as clinical support to its members.
UPMC Health Plan is now part of the UPMC Insurance Services Division, which offers a full range of group and individual health insurance, Medicare, special needs, Children’s Health Insurance Program of Pennsylvania, Medicaid, behavioral health, employee assistance and workers’ compensation products and services to more than 2.8 million members, making it the nation’s second-largest provider-owned health insurance company.
The ability to work closely with providers and hospitals is a natural by-product of a health system establishing an insurer, a process Lammie compares to flying a plane. “An individual pilot can guide a plane, but it’s a lot safer and more effective with a crew and an air traffic control system behind you,” he says.

Carrier collaboration
Health systems contemplating entering the insurance business may consider tapping into a large carrier’s expertise to stratify risk among populations, design and establish pricing of products, and perform administrative functions. Other systems may feel more secure in formalizing a 50/50 split ownership with an insurance company, says Daniel P. Finke, chief executive officer of accountable care solutions at Aetna’s national headquarters in Hartford, Connecticut.

Although not every joint venture is an equal split, Aetna co-owns Innovation Health, with Inova Health System in Falls Church, Virginia. Each organization is financially on the hook for all aspects of performance-from underwriting to care management, quality, marketing, accountability to customers, and governance of the plan’s success.
Owning a health plan is “the fullest expression of risk that a provider can take,” Finke says. Ultimately, regardless of whether a health system pursues complete or partial plan ownership, “providers are seeing it as another opportunity for [a] revenue stream, when they’re sharing in the premium dollars. And some are considering it a natural extension of the services they’re already providing.”
As more forces come into play to re-engineer healthcare, plans will have to gain and maintain the loyalty of consumers to stay in business. Long-term survival will depend on a mix of quality, affordability, sophisticated decision support, and high-quality customer service, says Lammie of UPMC Health Plan, which began in 1996. “Every market is going to evolve over time,” he adds. Since the passage of healthcare insurance reform, “we are still kind of in a nascent transformational period.”
However, the ability to mitigate clinical risk doesn’t necessarily translate into skillfully overseeing the insurance end of the equation. Health systems will need to acquire greater market share if they hope to remain viable as care continues to shift from the hospital environment to outpatient settings, says Barrett of NCQA.
“It’s a very challenging time certainly for hospital systems, because it’s really turning their business model on its head,” she says. “They have increasingly a need to keep patients out of their hospitals, but they’ve got all this stranded capital invested in the management of this facility.”
Regardless of whether combining clinical and financial risks pays off in the long run, health systems’ foray into insurance ownership will leave a mark on healthcare by creating more connected entities of care.
“They will be noticed in the market,” Barrett says. “There are absolutely a number of success stories, and the numbers will grow. Whether they will displace the big national insurers is the part that’s a little harder to quite envision, but they will definitely play a significant role.”