Provider-led health plans: Factors for success

Thirteen percent of all U.S. health systems currently offer health plans in one or more market, but it's unclear how many of them will succeed. A new report examines the challenges of provider-led insurance plans and asks key questions that hospitals and health systems must consider before taking on this new service line.

Success in the market is extremely difficult. The few health systems that have successfully sponsored health plans--such as Intermountain Healthcare, Geisinger and the University of Pittsburgh Medical Center--have special circumstances or unique market structures that most organizations can't easily replicate, researchers write in the McKinsey & Company report, "Provider-led plans: The next frontier--or the 1990s all over again?"

"If new entrants are not deeply familiar with the challenges they are likely to face and the factors required to win--and if they do not know how to position the owned health plan in their specific market--success will likely be elusive," they write.

Gunjan Khanna, Ph.D., one of the authors of the report and a member of McKinsey's healthcare systems and services practice in Pittsburgh, told FierceHealthcare in an exclusive interview Thursday that he believes the market could grow.

But health systems must do their homework before taking on this venture, he says.

"This is clearly a segment we should be paying attention to…There has been a lot of discussion wondering if the market is just a repeat of the 1990s," says Khanna, referring to the rapid growth and decline of health maintenance organizations. "I think time will tell, but there are three or four reasons why I think it could be different than the 1990s."

Khanna says that factors that make it possible for success in the provider-led market include the push through healthcare reform and private insurers to link patient outcomes to reimbursement, the tremendous amount of access to data now available, and the creation of new markets options, such as exchanges that allow low-cost distribution for consumers.

"The health systems that end up succeeding are the ones that can differentiate what they are offering in the local market versus through other health plans," he says. "Scale also matters from an operation and financial standpoint. Scale has multiple meanings but local scale in this case is more important…The third thing is the health plan that can navigate the complicated relationship with third-party payers in the market tend to succeed more than others."

But operating a healthcare plan is quite different than running a health system. Organizations must consider the financial and operational implications before setting up their own insurance plans, Khanna says. The report suggests organizations answer the following questions before embarking on the venture:

  • What is the strategy you are trying to pursue, and where will the incremental value created by the health plan come from?
  • What will the structure look like? How should you structure the health plan to manage the tension likely to arise with other payers?
  • How will you get ready to handle a new plan, and what investment is required? Consider operational, financial and regulatory readiness.

For more:
- read the report