Provider-sponsored plans carry on despite hefty losses

It seems simple enough: A provider wanting to move into value and looking to gain the population health prowess needed to get there decides to sponsor a health plan.

Sometimes it works, but recently there's been harsh examples showing how it hasn't.

Health systems backpedaling their decision by recently divesting of health plans that put them in the red include Catholic Health Initiatives of Englewood, Colorado and Tenet Healthcare in Dallas.

Other providers that have been resetting their business plans due to insurance losses include Texas Children's Hospital in Houston, Banner Health in Phoenix, and Partners HealthCare System in Boston.

The majority provider-sponsored plans have not even produced savings, according to independent consultant Paul Keckley.

[Also: Majority of provider-sponsored plans losing money, report says]

"It's hard to get scale, to get enrollment, especially where you get dominant in the market," Keckley said. "They've run into challenges."

But when he talks to clients, Keckley finds that most didn't enter the insurance game to make money.

"They went in for the long-term population health management," Keckley said. "This is an excuse to get doctors to work together."

Systems that are making it work have said they were modest about expectations going in, he said.

One example is the Marshfield Clinic Health System and Security Health Plan in Wisconsin. Its two hospitals, 40 clinics and health plan are thriving if CFOs can base that definition on a margin of 1 to 2 percent.

Another success is Sentara Healthcare and its health plan Optima Health in Virginia.

"Running a hospital is very different from running a health plan," said Michael Dudley, president and CEO of Optima Health and senior vice president of Sentara Healthcare. "It takes a lot of patience and a lot of time. It takes time in terms of several years, for people to understand both sides of the equation. Hospital administers are designed and have the incentive to fill hospital beds. A health plan executive is designed to help people stay healthy and not need healthcare."

[Also: Improving Payer-Provider Collaboration]

Providers taking on the disparate businesses of treating patients and then taking the responsibility for paying for that treatment seems like a crazy business model. But as Woody Allen said about accepting craziness from a guy who thought he was a chicken, "We need the eggs."

Providers need the information, the data and the population health. If there's one certainty providers agree on, it's that the move to value-based care will continue.

"I think from the standpoint of population health management, it gives you a perspective," said Richard Miller, deputy CFO, business strategy for Northwell Health and senior vice president, payer relations and contract development. "Without having a health plan, we wouldn't have that level of insight around care management and analytics."

Managing a plan is harder than you think, said Howard Gold, Northwell's executive vice president, chief managed care and business development officer. "It's not for the faint of heart. I think providers can do well on certain kinds of value-based contracts, bundled payment or shared savings. A lot of that rests on how providers organize and deliver care, not the funding mechanism. The issue is, is there enough money in value-based  programs, or does value-based take funding away from providers?"

Having a health plan gave Northwell more knowledge on how to handle shared savings and even risk contracts, Gold said.

New York-based Northwell Health, formerly the North Shore-LIJ Health System, suffered losses due to its health plan CareConnect. It originally set premium prices low because it was a narrow network, and also ran up against risk adjustment numbers that favored the larger Oxford Health Plan owned by UnitedHealthcare.

Northwell is in the number two spot for business, right behind Oxford, Miller and Gold said.

Northwell posted an operating loss of $36.2 million during the first quarter, with $22.7 million of that from losses in CareConnect's individual and small group plans.

The losses were due to federal risk adjuster methodology in the small group line of business, which represents about 80 percent of the business.

In the budget neutral risk adjustment system, CareConnect had to pay $130 million in 2016 because the government deemed its members were less sickly than the populations served by other plans in the New York City metropolitan area.

State regulators have since agreed to reduce the risk adjustment by 30 percent in 2018 and 40 percent in 2019, in a move signaling recognition of CareConnect's higher cost for member care.

Northwell has filed for a 30 percent premium increase in its individual line of business, and for a 20 percent hike in small group.

Both products are sold on or off the exchange.

"The relief from New York State partially helps us to move towards a breakeven or better financial result," Gold said. "The rate increase, both in the small group and individual line, we believe will move us in the right direction."

Even with the premium increase, CareConnect has a low-priced insurance product compared to the market, Gold said.

"It does move us closer to break even," Miller said. "We're pricing products to be sustainable."

Northwell and CareConnect have made a decision to stay in the commercial line of business. For individual and small group, "we're here to stay for now, and do what we have to do to fix it," Gold said. "We may get more relief depending on what's happening in Washington on risk-adjuster."

Northwell started the health plan in 2014 to take advantage of the newly insured under the Affordable Care Act and Medicaid expansions in 31 states and the District of Columbia, according to Miller and Gold, who serve on the board of the Northwell Health Plans Holding Company.

"The rationale was to enter with a narrow network product around our providers, but not (be) exclusive," Gold said. "By having our own insurance company, patients to the extent they needed healthcare, would use our healthcare and physicians. We thought that would give us a competitive edge. More would come into the health system and stay in network."

That has happened, he said.

"The more we're in it, the better results we'll have."

Alan Murray, CEO of CareConnect, said Northwell CEO Michael Dowling recruited him to work in the managed care environment to see how the system could move into risk. That's when CareConnect was founded three-and-a-half years ago.

"The reason Northwell started this was to be in the business of keeping people well, to be part of an integrated delivery system," Murray said.

If not for the risk-adjustment, by any other measure, CareConnect is successful, Murray said.

It has a medical loss ratio under 80 percent, an integrated arrangement with the health system and a large amount of value- based contracting. Administrative costs are running about 15 percent.

"Next year we'll probably break-even if get rate increases," Murray said. "The cultural impact of owning the medical risk of a population is not just your ability to manage a population, you have to retain them from a medical experience. We focus heavily customer experience." 

Programs to improve care include Northwell Health Solutions that coordinates home visits and takes responsibility for patients for 30 days post discharge from the hospital or emergency room.

"If you're going to start an insurance company, you're starting a completely new business," Murray said. "Like any other business, you have lessons learned as you move forward. Very few businesses start up and start making a profit in three years."

Sentara Healthcare, which owns the health plan Optima Health, has been successful in the provider-sponsored business for a number of years.

Optima Health offers commercial products including employee-owned and employer-sponsored plans, individual and family health plans, employee assistance plans and plans serving Medicare and Medicaid enrollees.

Sentara Healthcare, which has 12 hospitals, also contracts with non-Sentara providers.

Optima is about halfway down the continuum to value-based agreements, moving towards the total cost of care targets and taking risk, Dudley said.

It will stay in the exchange market, Dudley said, though it also had adverse selection and the risk adjusters did not fully make up for the losses sustained.

"For those providers who got into health plan business last five years, a start-up is tough," Dudley said. "If there isn't good experience and knowledge to anticipate risk, there might be losses."

To be successful, a provider-sponsored health plan must have everyone in the organization aligned on goals and have experienced leadership on the health plan side, he said.

Health plans need to have enough enrollees to be competitive on pricing. Many of the 140 provider-sponsored health plans in a recent Robert Wood Johnson Foundation report were only able to price competitively by paying their own providers below-market rates.

The report found that most provider forays into health insurance have failed financially. Of 37 provider-sponsored health plans that have formed since 2010, only four were profitable in 2015, according to the report released in June by Allan Baumgarten, an independent research analyst.

"This is risky business for providers to get into," Dudley said. "For those of us who have been it for a number of years, we've had made it work. We foresee we will see strong results going forward."

Twitter: @SusanJMorse