Laura McLaughlin

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	Interest in provider-sponsored health plans (PSHPs) has never been greater. This comes at a time when providers shoulder more risk, face increased pressure on their operations and are pushed to deliver higher-quality care at lower costs. However, starting a health plan is a complex undertaking and providers must carefully consider if they have what it takes to successfully make the leap to payer.

What does it take to successfully launch a health plan?

	To answer this question, PwC’s Health Research Institute interviewed executives at leading PSHPs and surveyed members of the Health Plan Alliance, an association representing 49 regional health plans in 27 states. Forty of the Alliance’s plans are provider owned. The 

 showed five key steps to starting a plan, each with its own considerations for success.

Before launching a plan, you must ensure you have certain foundational building blocks in place, including financial reserves, a strong leadership team, a distinctive brand and solid market position. According to HRI’s survey of Health Plan Alliance members, the most important determinant of a provider’s readiness to start a plan is prior experience with risk-based contracts. Ask yourself the following questions about each of the six building blocks:

	• Do you have experience in health plan administration?

	• Are you currently participating in risk-based contracts?

	• Have you had success managing the health of your own employees?

	• Do you know how to manage risk within your organization?

	• Do you have invested and engaged physician leaders who are aligned with a strong health system leadership team?

	• Is there visible commitment to the idea of standing up a health plan from executive leaders, setting the tone across the enterprise?

	• Do you have a clinically integrated network providing end-to-end care via full integration or contracting?

	• Do you have a breadth and depth of services both in terms of location and offerings?

	• Is yours a distinct brand in the market?

	• Do you have a strong reputation for quality service?

	• Are financial resources available for upfront investment in payer infrastructure?

	• Are there other sources of revenue and assets to balance initial financial loss while building the plan?

	• Are you an influential provider in the market?

	• Is there a proliferation of narrow networks in the market?

	There are three primary approaches for PSHPs, which are differentiated by the strategic intent of the plan and the level of integration with its health system. The least integrated is a network model in which the health system remains the primary focus. A bare bones plan is built to market the system and drive patients to it. At the other end of the spectrum, a health plan in an integrated model is highly intertwined with the provider system. In this model, the system and plan work together to manage usage of services, lowering the cost of care. Risk is shared, providing clear incentives to keep costs down while maintaining quality. The profit center model lands in between these two. In this model, the health plan stands independent of the health system, but equal focus is given to growing both organizations. Existing capabilities and market position should inform which model is selected.

	After you’ve chosen a model, there are three ways to move forward:

-Going it alone means complete ownership and an opportunity to tailor the plan’s business. But it also means making a sizable capital investment that doesn’t come with built-in insurer experience.

-Acquiring a plan provides essential insurer experience but it also presents the challenge of retrofitting the plan to fit with the health system.

-Partnering with a healthcare provider who already has an established plan to create a plan can add administrative complexity, but it can also lead to an increase in scale in a market while strengthening clinical credibility. The fastest and least capital-intensive way to get to market is to partner with an insurer. Risk is spread between both organizations. This minimizes the downside for a health system, but also means the system will see less of the upside because the healthcare dollar is still being shared. The system also may not have the autonomy they are looking for.

	Some PSHPs choose to target a single product while others develop portfolios that may include group and individual commercial, Medicare and Medicaid.  The timelines and requirements can vary greatly by product and require a disciplined approach to entry.  The key becomes balancing probable per-patient profits, potential future market growth and your strengths as a provider.

	Running a health plan requires having certain front-, middle- and back-office functionalities. You need to be able to design products, perform day-to-day operations, manage member and provider interactions and monitor financial performance.  Many of the capabilities required to start a plan can be obtained from established service providers, reducing the time and cost needed to enter the market. However, health systems should use a targeted approach when making these investments to manage costs and keep in line with the overall plan strategy.

	Now that you know the steps to launching a PSHP successfully, take time to consider these additional recommendations as you prepare to make the leap from healthcare provider to payer.  

 Starting a health plan requires significant upfront investment and profit is likely years away. Carefully evaluate potential returns on investment.

 Markets with one or two dominant insurers are riskier bets than more fragmented ones. Assess the readiness of your market and map out potential responses from other payers.

 Determine why you want to start a PSHP. Increase utilization? Diversify revenue? Bend the cost curve? Each of these goals is best achieved with a different plan model, growth strategy and infrastructure investment. The key is creating coherence across strategy and execution.

Tout unique advantages-trusted brands, niche offerings and community presence.

 Differentiate yourself with more innovative health plan products and value-based reimbursement models tailored to your community.

Deepen relationships with other insurers.

 Maintain relationships with insurance companies and find opportunities to work together in collaborative models.

	As margins are squeezed and more money is put at-risk, healthcare providers are looking for new ways to manage costs and generate income. Owning a health plan is an attractive option. It not only provides an additional source of revenue, but also creates access to a trove of clinical and financial data that can be used to better coordinate care and ultimately lower healthcare costs. But launching a plan is not for the faint of heart. It entails significant capital investments upfront, likely losses early on and added pressure on existing relationships with insurers. Before making the leap, providers must be certain they know what it will take and are well-positioned to face those challenges.

Laura McLaughlin is a senior manager with 

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As health systems and physician groups marshal resources to launch their own plans, they must consider whether they have the necessary building blocks to successfully make the leap, how integrated a model they will pursue and whether they will build, buy or partner strategy.

Laura McLaughlin

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Launching a provider-sponsored health plan: 5 things to know