Provider-Owned Plans — Will they succeed this time?

Provider-owned plans (POPs) have been around for years. For example, the largest POPs, Kaiser Foundation Health Plan was founded in 1945.

In the 1990s, POPs gained in popularity. Hospital-systems expanded into the role of insurer to increase their profitability and to complement their increasingly close relationships with physicians. For the most part, those POPs did not succeed. Delivery systems returned to focusing on their primary role of providing care.

Today, POPs are a hot trend. Many delivery systems, of all sizes, are developing or considering the opportunity to integrate their own health plan. Delivery systems’ interest grows from the potential for new sources of revenue and an enhanced ability to manage population health and, hence, generate better results for publicly reported outcomes. Established insurers, such as Aetna and Anthem, are interested in partnering with delivery systems for the same reasons, especially in the face of insurer consolidations enhancing competitive pressures.

The POP can be established and operated in many different ways. There are different ownership structures with significant variances in network contract agreements – ranging from most favored pricing to standard market pricing. Regional and state differences abound. Some organizations are solely physician-owned or jointly owned by physicians and hospitals, but most are sponsored by single hospitals or health systems.

The commonality that most share is that of being “integrated delivery system” models – consolidating financing, risk management, care delivery and utilization management into a single corporate entity. Integration encourages and facilitates payers and providers working together better and achieving common goals. For example, through the partnership, payers and providers are both invested in developing a market-leading price to win membership for the health plan and, thus, patients for the delivery system.

POPs focus on aligning reimbursement and incentives with quality and outcomes. This encourages providers to better manage medical cost and related loss ratios, as well as to appropriately capture the health risk profile of its member base. Also, providers and payers are able to share data, which makes it easier to keep patients in-network and encourage compliance with established care programs and care pathways. As a result, POPs tend to have better medical loss ratios than the industry as a whole over the last few years.

(Note: The success of the POPs as a group in terms of medical loss ratios may be due to the advantageous performance of larger, more-established POPs such as Kaiser Permanente and Intermountain Health. Many newer and smaller POPs have yet to realize comparable improvement in their medical loss ratios.)

Despite, for the most part, being newly introduced to the market, POPs account for almost 18% of the health insurance market (based on annual premiums collected) (Source: A.M. Best). Due to the newness of the concept and the composition of the POP segment, market share growth is slow but sure.

POPs’ total premiums underwritten grew by 5.5% from 2012 to 2013 while the health insurance industry as a whole grew by only 3.2%. The growth experienced by provider-owned health plans’ can be partially attributed to the strategic alliance with their parent organizations. These relationships generally have given these plans access to a broader local or regional/national presence.

As the chart below shows, the POPs market segment is dominated by a few long-established plans: Kaiser Health Plan,  UPMC and a few others. Most other POPs are new and small. Outside of Kaiser Foundation Health Plan and UPMC, most POPs cover 100,000 lives or fewer.

POPs are located across the United States (Source: A.M. Best). The charts below yield the distribution of premiums and covered lives by region as of the end of 2013. Kaiser Health Plan has been removed from the data supporting the chart below as it is an outlier in terms of size.

 

Slightly less than two-thirds of POPs’ covered lives, as of the end of 2013, were in the commercial segment. These commercial lives focus on small-to-mid sized employers, government/school accounts, unions and local health care professionals. Some POPs participate in the large/national account segment, but this is limited due to the need for a national provider network and operational support.

Just under one-third of POPs’ covered lives were in the Medicaid segment as of the end of 2013. Some POPs just serve this populations. For example, Cook County (IL) Health System, primarily a safety-net healthcare system, developed a POP named CountyCare to cover its Medicaid beneficiaries.

About 10% of POPs’ covered lives, as of the end of 2013, were Medicare lives.

POPs can be significant contributors to the consolidated revenue and earnings of the parent organization. Being part of an integrated delivery system brings these plans a material source of premium and revenue growth, as well as opportunities for achieving more favorable medical costs through population management and preferred contracting.

For example, CountyCare generated about $653 million in revenue for the fiscal year ended Nov. 30, 2014 about half of the total revenue for Cook County Health System. As mentioned above, the health plan can be a “loss-leader” for the delivery system. During the first six months of fiscal 2014, CountyCare lost about $21.9 million but the health system gained $137.2 million due to a greater census.

If POPs thrive, unlike the 1990s, healthcare manufacturers will need to explore how the POPs’ unique demographics and attributes affect their approaches to coverage, reimbursement, utilization management and population management. Healthcare manufacturers will need to incorporate POPs’ interest in aligning incentives with clinical outcomes into the clinical data development plans for their products.