The five steps to successfully implementing a provider-sponsored health plan

Provider-sponsored health plans (PSHPs) have been around for decades, helping health systems to control costs, capture premiums, and manage patient care. But more recently—since 2010—a new generation of PSHPs have emerged in response to changing healthcare markets, reimbursement pressures, and regulatory conditions. As of 2016, there were approximately 270 provider-sponsored plans, a 25% increase over the past 5 years.

While many plans are showing early signs of progress, the long-term viability of these plans will hinge on the ability to gain traction in the market, recoup the up-front investment, manage ongoing operating costs, and attract members with a differentiated plan design. Given the level of investment required to launch a PSHP, it is critical to evaluate the rationale of the strategy, as well as the implementation plan, to achieve success.

Determining whether to implement a PSHP

Reimbursement pressure and other disruptive trends, such as health insurers acquiring physician practices and other providers, are leading many health systems to build or acquire provider-sponsored health plans. However, this may not be the best answer for every organization. Before implementing, hospital leaders should address a few key questions to determine whether a PSHP is a viable strategy, given internal and external factors.

1. Do you have a strategic rationale? Providers should have a compelling strategic rationale for making the decision to build a health plan. This could be related to the transition to value-based care, a response to reimbursement pressure or competitive threats, or financial objectives.
2. Does your system have the necessary capital to invest? It is also critical to consider whether the system has the financial resources and appetite to build a plan, collaborate with another organization or acquire a small health plan. All options are viable, but each comes with a significant upfront and ongoing financial investment.
3. Is the system ready to change? Finally, health systems must assess whether the organization is ready to change and has the capacity to create this new business. PSHPs require a different set of competencies as well as a leadership team and provider organization that has bought into the new integrated model.

If, after answering these questions, a system determines that building a PSHP is the right path forward, the question then moves to the best option for implementation. Whether it be building the capabilities, collaborating with a third party or acquiring a health plan, the following steps are essential.

Our recommendations to help successfully implement a PSHP

1. At the outset—construct appropriate governance structure: Leadership committees with organized reporting structures should be established to oversee both initial implementation and ongoing operations, as well as balance interests of the health system and plan.
2. In the first 90 days—create health plan infrastructure: The organization should develop interim leadership to identify any key gaps and make sure experience in claims, compliance, call center, and enrollment are in place.
3. Within the first six months—establish strong core functions: Provider training should begin whereby physicians and clinical staff are trained on the value-based care transition and population health approaches.
4. By the end of the first year—develop competitive plan design: Plan design should be pursued with a deep understanding of the local market and competition.
5. Within the first two to three years—enroll members and market to employers: A targeted marketing plan should focus on key brokers and/or employers in the market, depending on products being offered. Enrollment should ideally reach critical mass.

The healthcare industry is consolidating, both vertically and horizontally, and hospitals are advised to have a managed care strategy to survive and thrive in a value-driven care environment and protect against reimbursement pressure from other payers. Determining whether a provider-sponsored plan is the right approach for the hospital is a question every hospital executive should be asking.

Andy Bechtel is a managing director in the EY-Parthenon Health Care practice of Ernst & Young LLP. He has more than a decade of consulting experience, advising corporate and private equity clients across health care verticals with a focus on hospitals and health systems, academic medical centers, multisite providers, and payers. His areas of experience include growth strategy, customer segmentation, competitive analysis, due diligence and post-merger integration.

Marisa Greenwald is a vice president in the EY-Parthenon Health Care practice of Ernst & Young LLP, with eight years of consulting experience. Her focus is addressing key strategic issues such as market growth, new opportunities, and strategic planning around cost reduction and innovation. She has worked on a number of large provider engagements focused on investment opportunities, organizational design and cost reduction.