What Are Provider-Sponsored Health Plans?
Throughout history, there have been many famous rivalries. Yankees v. Red Sox. Pepsi v. Coca Cola. UNC Chapel Hill v. Duke. But there is only one that stands above all the rest: University of Michigan Wolverines v. Ohio State Buckeyes. In college football, it is simply referred to as “The Game.” Now this is a healthcare innovation blog, so the equivalent to “The Game” in the U.S. healthcare system could only be between the two most important organizations, health plans and hospitals. One holds the money, the other delivers the care. Ardent supporters lob criticism towards each other’s stakeholders related to rising healthcare costs and insufficient innovation. The unstoppable force meeting the immovable object.
Now the real problem with this relationship is that billions of dollars are spent each year negotiating and posturing against one another. Their relationship is viewed as zero-sum. More health plan profit likely means lower medical expense (“Medical Loss Ratio” or “MLR”). The largest driver of MLR is hospital and employed physician care. The same goes true vice versa. Imagine if you could eliminate this fighting and instead align interests towards the same goal of better managing cost and improving outcomes? That in a nutshell is a provider-sponsored health plan (PSHP). They have an incredible amount of opportunity, which I will discuss in this blog. However, opportunity doesn’t equate to impact, and next week I will discuss why new PSHPs have struggled to gain traction over the past decade.
The most famous and profitable example of a PSHP is Kaiser Permanente (often referred to as an “integrated delivery network” or “IDN”). To give you a sense of how successful this concept can become, at the end of 2019, Kaiser had 12.2 million members and reported $84.5 billion operating revenues. The health plan receives premium revenue for managing millions of Americans, same as any large payer. In addition, the Kaiser Permanente system includes 712 medical offices, 39 hospitals, and 50 retail and employee clinics. Essentially, Kaiser has the potential to make money on the health system and health plan side of the business each year. And similar to a slush fund, they can move the money between each as required through contracted network rates and loans, instead of zero-sum fighting over the same premium dollar.
Now I’m not the only person who believes PSHPs can offer unique value. Many proponents of value-based care see PSHPs as the holy grail of aligning reimbursement and care delivery. If providers have greater accountability over the premium dollar, it is believed that physicians will alter their practice patterns towards better managing total cost of care, not on legacy volume or utilization metrics (fee-for-service). This will because these providers will have assumed greater accountability through a mechanism called, “downside risk”, meaning the provider agrees to share in a portion of or all of the downside risk between the expected total cost of care versus the actual. The purest form of this example is capitation, where the provider is prospectively determined, lump-sum payment for managing a set population with full delegated authority to offer whatever patient benefits they want. Why bother with two separate entities fighting over the capitation rate, when it could just be the same organization?
Now in addition to the potential financial and strategic benefits from double-dipping on the margin perspective and steering insurance patients into self-operated health system facilities (and not competitors), PSHPs also have the opportunity to deliver higher levels of quality. Unlocking data silos and employing the full continuum of the insurance and provider experience can be very powerful. To understand the potential, take a look at the National Committee for Quality Assurance (NCQA) health plan rating results. They publish annual health plan ratings on a scale of 0 to 5 (0 is the lowest) in 0.5 increments, similar to the Medicare Five-Star Quality Rating System. For the 2019-2020 results, they reviewed and rated more than 1,000 health plans based on their combined HEDIS, CAHPS, and Accreditation standards scores.
Now to ensure we’re measuring apples-to-apples, let’s look at Medicare Advantage. After reviewing the ranking list, I counted ~400 MA health plans that actually reported full datasets. Of those 400 health plans, only a total of 26 health plans were rated 4.5 (4 plans) or 4.5 (22 plans) by NCQA. That’s only 6.5%. I think it’s safe to assume the top 6.5% represent the crème de la crème of quality. Here’s an alphabetical list of all the provider-sponsored health plans that made the top 26.
- Kaiser Foundation Health Plan – Southern California
- Kaiser Foundation Health Plan of Colorado
- Kaiser Foundation Health Plan – Northern California
- Medical Associates Health Plan
- Capital District Physicians’ Health Plan
- Dean Health Plan
- Geisinger Health Plan
- Group Health Plan
- Kaiser Foundation Health Plan of Georgia
- Kaiser Foundation Health Plan of the Mid-Atlantic States
- Kaiser Foundation Health Plan of the Northwest
- Kaiser Foundation Health Plan of Washington
- Kaiser Foundation Health Plan – Hawaii
- Medical Associations Clinic Health Plan of Wisconsin
- Network Health Insurance Corporation
- Priority Health
- Quartz Health Plan Corporation
- Quartz Health Plan MN Corporation
- UCare Minnesota
Now for those who hate counting, there’s 20 MA PSHPs listed above. That means 77% of the top 26 MA health plans in 2019-2020 were owned by providers (physicians or health systems). If that isn’t an incredible statistic, given the fact that majority of health plans are non-PSHPs, I don’t know what is. So what’s the problem? If PSHPs deliver financial and strategic value to the providers and they deliver higher quality of care, why doesn’t every hospital start their own PSHP? There’s plenty of reasons why, which I will discuss in next weeks blog post.
Andy Mychkovsky is the creator of Healthcare Pizza, who also provides strategic consulting to startups and healthcare companies. Follow him on Twitter (@AMychkovsky) and LinkedIn for future thoughts and updates.