Assessing the Health Plan Ownership

Healthcare providers have unprecedented opportunities today to own and operate health plans, but they need to understand the full ramifications of such a strategy.

Lately, it seems that not a week goes by without an announcement that a provider organization intends to either acquire or start its own health plan. About one in five hospital networks currently operate health plans, and according to a recent survey of 100 hospital leaders, another 20 percent are exploring doing so.

The proliferation of provider-owned plans raises a number of questions. Why are providers interested in becoming payers? What factors in the marketplace are encouraging this trend? And what important factors should leaders evaluate in making this decision?

Same Dilemma—But New Circumstances

This isn’t the first time that hospitals and hospital systems have traveled this path. During the 1980s, when insurance companies began to experiment heavily with managed care, some provider organizations saw an opportunity to develop their own, competing plans. A handful of provider-payer organizations succeeded—such as Geisinger Health System in Pennsylvania, Marshfield Clinic in Wisconsin, and Henry Ford Health System in Detroit—while many others closed. Many hospital-based health plans could not weather
the financial risks associated with health insurance. Facing a changing environment in the 2000s, these health systems divested their health insurance operations.

The emerging healthcare marketplace presents a very different set of circumstances from the years prior to 2000. Today’s marketplace has seen:
>A transition away from fee-for-service toward payment based on outcomes and efficiency
>A movement toward a focus on populationhealth management
>The emergence of new structural models—often involving consolidation and/or affiliations—to achieve greater economies of scale
>The emergence of new care delivery approaches, such as integrated behavioral and physical health services aimed at improving the health of populations

These circumstances suggest that hospitals and hospital systems have an important impetus for acquiring or starting a health plan: In the emerging marketplace, they require many of the capabilities of traditional health plans simply to remain viable as a provider. For example, population health capabilities such as chronic disease management or wellness programs, once the purview of health insurers, are migrating to become core competencies of health systems.

Healthcare providers have unprecedented opportunities today to own and operate health plans, but they need to understand the full ramifications of such a strategy.

Lately, it seems that not a week goes by without an announcement that a provider organization intends to either acquire or start its own health plan. About one in five hospital networks currently operate health plans, and according to a recent survey of 100 hospital leaders, another 20 percent are exploring doing so.

The proliferation of provider-owned plans raises a number of questions. Why are providers interested in becoming payers? What factors in the marketplace are encouraging this trend? And what important factors should leaders evaluate in making this decision?

Same Dilemma—But New Circumstances

This isn’t the first time that hospitals and hospital systems have traveled this path. During the 1980s, when insurance companies began to experiment heavily with managed care, some provider organizations saw an opportunity to develop their own, competing plans. A handful of provider-payer organizations succeeded—such as Geisinger Health System in Pennsylvania, Marshfield Clinic in Wisconsin, and Henry Ford Health System in Detroit—while many others closed. Many hospital-based health plans could not weather
the financial risks associated with health insurance. Facing a changing environment in the 2000s, these health systems divested their health insurance operations.

The emerging healthcare marketplace presents a very different set of circumstances from the years prior to 2000. Today’s marketplace has seen:
>A transition away from fee-for-service toward payment based on outcomes and efficiency
>A movement toward a focus on populationhealth management
>The emergence of new structural models—often involving consolidation and/or affiliations—to achieve greater economies of scale
>The emergence of new care delivery approaches, such as integrated behavioral and physical health services aimed at improving the health of populations

These circumstances suggest that hospitals and hospital systems have an important impetus for acquiring or starting a health plan: In the emerging marketplace, they require many of the capabilities of traditional health plans simply to remain viable as a provider. For example, population health capabilities such as chronic disease management or wellness programs, once the purview of health insurers, are migrating to become core competencies of health systems.

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