The most fundamental question facing hospitals and physicians in every community is this: Given the shift in accountability for costs from insurers to hospitals and physicians, does sponsoring a health plan make sense?
The facts that prompt the question are these:
Health costs are increasing. The Centers for Medicare & Medicaid Services' Office of the Actuary reported last month that total health spending increased 5.3 percent last year to more than $3 trillion (17.5 percent of the GDP, $9,523 per person) last year. It forecasts health costs to increase at least 5.6 percent annually for the next decade — far more than household wages, the overall economy and government revenues that fund services including Medicare, Medicaid, military and veterans' health and others. That means purchasers — employers, individuals, government agencies and private insurers — will put intense pressure on providers to reduce cost, unnecessary utilization, fraud and waste.
Accountability for managing costs is shifting from payers to providers. The Affordable Care Act ushered in three fundamental changes in the delivery of health services.
1. Incentives are shifting from fee for service to outcomes (volume to value).
2. What’s covered, i.e. tests, procedures, et al., are increasingly authorized based on verifiable medical necessity (Patient-Centered Outcomes Research Institute) instead of physician preference alone.
3. There’s a cap on what’s spent (i.e., Independent Payment Advisory Board, MedPAC, MACPAC, et al.). Accountable care organizations, bundled payments and value-based purchasing are permanent features of the ways care will be delivered and how providers will be paid by purchasers.
The bottom line: Physicians, hospitals and post-acute providers are at risk for managing costs and quality. The buck stops there.
Private insurers are changing their game. Recent announcements by United Health Group, Aetna, Health Care Service Corp. and other insurers that they “might” jettison the individual plans they are selling in the health care marketplaces are not a surprise. The individual insurance market is unstable due to the regulatory constraints imposed by the ACA. Every major insurer is diversifying its programs and services, expanding globally and pruning unprofitable plans where able. Some will seek to partner with hospitals and physicians as a business partner; others are betting on the value of their data as a valuable commodity. All the while, the balance sheets of the Big Three and most of the 36 Blues plans are strong, and investments in global ventures and diversified businesses a major focus. Insurers are changing their game and, in many cases, leaving a void.
Ironically, physicians and hospitals in most communities have long played the role of insurer in a different way: They provide services to those with or without resources to pay for them, they operate clinical programs for which the chances of breaking even are slim to none, and they invest capital and human resources in community health programs even as bad debt has increased and margins shrink. The added responsibility for total population health management and participation in alternative payment programs is an extension of that role.
Four key factors
Given that hospitals and their physicians will have responsibility for costs and quality, what’s missing? Arguably, what’s needed is a financial structure through which efforts to manage the sick efficiently and maintain the health of those who are well can be coordinated. That vehicle is a provider-sponsored health plan. But it’s no small decision to offer one. Four factors must be considered:
1. Mission: Managing total population health is consistent with the role and mission of community-based health organizations. Sponsoring a plan — whether Medicaid, Medicare or commercial — affords a provider organization the mechanism whereby it is able to build and sustain continuous, ongoing relationships with individuals and households (otherwise known as patients). Traditional health insurers jettison “member” relationships indiscriminately; provider-sponsored plans serve a higher purpose. And relieving physicians of the $83,000 annual administrative cost burden of dealing with multiple plans is an investment in an environment healthy for physicians and caregivers.
2. Capability: The management skills, capital, infrastructure and regulatory risk associated with sponsoring a plan can be mitigated through collaboration with successful provider-sponsored plans. There’s no shortcut to competent administration of a plan, nor is it easy. Nonetheless, it’s been done successfully by many, and their lessons, resources and professionals can be tapped. It’s a myth that provider-sponsored plans under-perform their private competitors: Recent studies by Navigant, Deloitte and A.M. Best showed that plans sponsored by provider systems compete favorably against even the strongest national plans. In the Deloitte analysis, health plan executives said provider-sponsored organizations that acquire care management skills represents a threat to insurers — thus their reluctance to share risk with providers equitably. There are no shortcuts to effective plan design, actuarial risk analyses and pricing, network design, provider credentialing and performance measurement, medical management, member enrollment and customer service, formulary design and the plethora of competencies required in a plan. But providers that share these operational and financial risks are able to compete well.
3. Trust: The public trusts hospitals and physicians more than insurers. That does not mean a provider -sponsored health plan can charge significantly higher premiums or offer poor service. It means the community — employers, individuals, legislators and community leaders — will respond favorably if a provider-sponsored plan is offered that’s competitive.
Not to be delusional, a decision to sponsor a plan should be deliberated carefully and not taken lightly. In most communities, a business partner will be necessary to achieve scale efficiently and effectively. And if the costs of the health system are high or physicians’ expectations are that plan sponsorship is to “protect the status quo,” all bets are off. The bigger challenges are strategic:
• How to build a sustainable structure whereby physicians, hospitals and others can share risk and compete and grow on the basis of costs, outcomes and service.
• How to design programs and services as a purposeful transition from a delivery system of independent affiliated parties to an integrated, interdependent system of health.
• How to contract with private plans and avoid their retaliation if the system sponsors its own.
4. Timing: The private health insurance industry is at a tipping point. Its margins are at risk. Its traditional market — employers — is becoming more demanding. Its once-soaring profits are shrinking and regulators are watching. As policymakers scrutinize the insurance industry’s consolidation (Anthem-Cigna, Aetna-Humana) and as employers seek more value for their premiums, a locally sponsored plan that’s competitive on premiums and plan design with clear alignment to the local provider community is worth discussion, especially if its financial performance is tied directly to the community’s benefit rather than insurer shareholder value. And circumstances might exist today for provider organizations to petition legislators and policymakers for provisions that facilitate their role as the safety net for the fast-eroding individual insurance market and as backstop to the expanding Medicaid managed care market. Timing is everything.
I believe 20 years from now, the centerpiece of health care in every community will be an integrated system of health that features a set of retail and inpatient facilities and service centers, a clinical network of physicians and allied health professionals connected to each other and to their patients, and a health plan through which its services are accessed and transactions managed. I am sure Aetna, Anthem, United and the Blues will still be in business, perhaps supporting provider sponsored plans along with their other endeavors. And I am confident consumers, employers and other purchasers will reward provider-sponsored plans that perform well and punish those that don’t.
Sponsoring a health plan is a big step for most hospitals and their physicians. Having a provider-sponsored plan is not an assurance of success: Running a plan is a tough business but several notable provider organizations have been successful.
Sponsoring a plan, either independently or in collaboration with other provider organizations, seems a sensible destination. It’s a matter of mission, purpose and trust. For these reasons, the future is bright for provider-sponsored health plans.
Paul H. Keckley, Ph.D., is managing director of the Navigant Center for Healthcare Research and Policy Analysis, Washington, D.C. His H&HN Daily column appears the first Monday of every month. He is a member of Health Forum’s Speakers Express. For speaking opportunities, please contact Laura Woodburn.