As provider-sponsored health plans grow in popularity, it may be tempting for hospitals to start their own plans, but there are several factors that healthcare leaders must first consider before making the leap, according to a new report from PwC's Health Research Institute.
Although some hospitals and systems have had success with offering their own insurance plans, it is a complex undertaking and many organizations have failed, the report notes. "This is not for the faint of heart," Dennis Laraway, executive vice president and chief financial officer at Houston-based Memorial Hermann Health System, told researchers in the report. Laraway said that the organization has to be committed to the strategy and also have the financial resources and personnel needed to build a health plan.
Health systems must be able to design a health plan, manage risk pools, process claims and educate consumers, Laraway said. "Forming a health plan and all the capabilities it requires--including underwriting, a claims shop, back-office administration--is a significant challenge."
To help hospital leaders understand what it takes for a successful launch, the institute interviewed leaders of provider-sponsored health plans. Here are the questions they say all executives should answer and consider to determine if they have the right tools to implement their own plans:
Do you have the necessary resources? Before launching their own plans, hospitals and health systems must make sure they begin with robust leadership, strong branding and financial reserves. However, most important, leaders said, is a working knowledge of risk-based contracts. Indiana University Health, for example, only launched IU Health Plans after it spent time as partial owners of a third-party administrator and Medicaid managed care plan.
Have you considered different health plan models? Providers must also consider the three primary models, each of which feature different levels of integration within the system, to determine the best fit based on the provider's market position and available resources. The more integrated the plan, the more the system must invest in necessary infrastructure, according to the report. Leaders can start from scratch, which will give them total control in shaping the plan, or buying or partnering with existing plans. Executives interviewed for the report suggest that providers without insurer experience of their own buy an existing plan rather than starting from scratch.
What is your primary motivation for entering the market? Health systems must consider their primary motivations for starting a health plan, according to the report. The most common motivators include revenue diversification, bending the system's cost curve and increased utilization. Each of these motivators has a plan model that suits it best, according to the report, and "the key becomes creating coherence across strategy and execution."
Another key component is the timing of the launch, according to healthcare policy expert Paul Keckley, Ph.D. Hospitals that start their own plans must also leverage the trust they have with insurers in the market and not do anything to lose that trust, FierceHealthcare previously reported.
To learn more:
- download the report (.pdf)