will be the impact and implications of an increasing number of
health plan and local health system product joint ventures
around the country?"
Epstein Becker & Green, P.C.
Payor provider joint ventures have had a long history. They
arise out of a natural impulse to marry the skill sets of
the joint venturers. I worked on a series of them as early
as the 1980s. While the plans in many cases survived, they
did not persist as joint ventures at the equity level. For
that reason, as some identified in this piece, lawyers will
always spend much of their planning and drafting work around
As with other joint ventures, the
payor/provider variety must weather the vicissitudes of each
of the joint venturer’s capital budgets and strategic goals.
The revenue of the provider participant, and the specialist
physicians in the community, likely remains volume based.
The care management aspirations of the venture carry that
burden. Moreover, it is likely that the co-venturers may
differ as to product design preferences (e.g., how many eggs
to put in a narrow network basket).
That said, they
will remain compelling propositions to provider systems
seeking full-risk opportunities, particularly without the
challenges of fully capitalizing a new insurer, contracting
a wrap-around network and standing up medical management,
claims and other functions. However, decision-making in
these endeavors is inherently more difficult. Participants
should go into these ventures “caveat emptor.” That is,
participants need to understand that the fundamental
friction between payer and provider perspectives requires
careful attention to the governance issues. Furthermore,
participants need to anticipate what the path would look
like if a particular book of business, developed off of the
joint venture, needed to transition to a non-joint venture
These new markets entrants are likely to be a transitional
phenomenon. In the short run, they are a way for health
systems to gain experience in managing risk without fully
diversifying into the health plan space. In the longer term,
many (most?) will fail to gain market traction, or the
health system partner will fail to manage care effectively,
or the health plan will fail to operationally support a
narrow product, any one of which will lead to the
dissolution of the venture.
A few will be very
successful in the market, and lead to health systems
internalizing health plan capabilities (e.g. Inova
dissolving their Aetna partnership). A small number may grow
into durable partnerships.
The reality is that while
joint ventures can be useful, they are hard to sustain. One
partner or the other realizes that they are bringing more
value to the relationship than the other. Or changes in
corporate priorities and/or leadership alters one partners
commitment to the relationship.
Deloitte Center for Health
Provider-sponsored health plans (PSPs) are growing in
importance. PSPs give health systems an opportunity to use
health care financing as an enabler to create innovative
clinical care models. Health care organizations that
successfully innovate to reduce costs and improve quality
should prosper under new performance-based financial models;
in particular, those called for by the Medicare Access and
CHIP Reauthorization Act of 2015 (MACRA).
Collaborations between health plans and health systems for
PSPs also are growing in number. The relationships can give
health systems access to health plans’ expertise and deep
pockets. Such collaborations have generated innovative
approaches for health plans with population health, member
engagement, predictive analytics, and member retention.
To better understand PSP opportunities, approaches,
experiences, and potential concerns, Deloitte convened nine
executives in 2016 from health systems, health plans, PSPs,
and other organizations to discuss what it might take to
develop successful PSPs. Deloitte also interviewed four
executives from health plans that have PSP partnerships to
better understand the strategy behind their collaborations.
Executives agreed with each other that more health systems
than in the past are interested in developing PSPs. They
also concurred that collaborative models are attractive to
both parties because they offer access to:
• Scale, which
is important to be successful.
• Required health plan
capabilities and competencies that are usually not
found inside a typical health system.
• Innovation with
population health, particularly cost and quality
Recent studies show financial struggles
for PSPs in general. However, executives in our research
agreed that developing a PSP can enable a health system to
experiment and innovate in population health. There are
challenges to running a successful PSP. However,
collaborating with a health plan can provide needed
capabilities and capital, enabling a health system to enter
the health insurance market more quickly and more prepared.
For further reading, please see our research:
Executive perspectives on provider-sponsored health plans:
Collaboration meets innovation.
Lindsay R. Resnick
Senior Strategic Advisor
Before he dies, Romeo & Juliet’s
Mercutio cry’s out "A plague o' both your houses!" We see
this result too often as providers and payers engage in
contract disputes over network inclusion or payment
formulas. Most of the time, they’re fighting these battles
in the local media. Finger pointing in healthcare’s ongoing
‘who’s at fault or who’s breaking it?’ debate accomplishes
With spending for hospital care and total
private health insurance expenditures each topping $1
trillion, "A plague o' both your houses!" isn’t going to cut
it. The true answer lies in collaboration.
payers and providers need to figure out how to align their
interests, cultures and incentives to sharpen a patient
focused approach for better care at a better cost. Examples
of collaboration around value-based payment, direct primary
care, online patient communities, chronic or behavioral care
management, and digital health solutions are proving the
importance of partnerships everyday.
that takes the form of a joint venture (JV) isn’t easy when
it comes to agreeing on financial risk, aligning brands,
managing customer (member – patient) experiences,
coordinating operating practices and communicating across
organizations. It’s said there are two shining moments in
every joint venture --- the day both parties sign an
agreement and the day they say good-bye!
healthcare landscape JVs are more and more common. Going in
to them smart saves time, money and aggravation. Scrutinize
the hell out of potential partners to assess compatibility
and value. Use an appraisal process no less intensive than
you’d use for an acquisition…bring an investor's due
• What’s the JV's
primary objective, core rationale, staying-power?
Who's bringing what: resources, specialty skills, brand
• What are the
exposures, scalability factors, and points of gain or
• Where's the value: up-front
investment vs. pay-back targets?
success: KPIs, benchmarks and performance scorecard?
Collaboration is becoming a cornerstone business practice in
today's turbulent healthcare marketplace. For payers and
providers willing to make the right investment, these
arrangements can yield big rewards: open-up new markets,
extend product offerings, expand customer base, accelerate
innovation, and reap financial gain. More importantly, they
can broaden access to care, enhance customer experience,
improve patient outcomes, and bring efficiencies that lower
JV partnerships can also take their
toll: lost development time, unmet expectations, internal
conflict, and ultimately, financial disappointment.
Successful joint ventures incorporate effective,
well-defined controls: know as much as possible prior to
selecting a partner, devote adequate resources (and C-Suite
commitment) to aggressively managing the venture, and employ
meaningful partnership performance measures. Go forth and
collaborate: "A win o' both your houses!".
Pendulum Health Care Development Corp.
We are seeing several health plans private labeling their
health plan for a health system in order to do the back
office work and leverage their experience to help health
systems start up their own product.
We have learned
that this must be a joint venture in that the health system
can no long operate business as usual but must tighten its
belt and recognize there is a defined pool of money for care
in their community. They will need to shift that money and
use any to create a new high performance system to
differentiate themselves from their competitors.
health systems fail at this by first putting themselves at
risk for a substandard payment and then paying additional
admin expense from their partner to manage the ACO or Health
Plan. Many insurance company “partners” hold the actuarial
risk with reinsurance and algorithms promising the health
system that all shall be paid after the insurer’s expenses
are paid. The pro forma may look lucrative but only if the
health system can truly drop their utilization 18 % net of
admin costs. Otherwise the excess utilization and admin
costs are withheld and the hospital system may see a major
reduction in revenue from these joint ventures.
There are many other assets a hospital system can leverage
into the employer space. Many employers are paying thousands
for the HMO to do care management and now some hospitals,
especially those with an ACO where they can prove their care
management works, have a means to charge employers a flat
fee for assigning care management teams to a workforce and
stratifying patient illnesses based upon severity and risk
score. We have seen charges range from flat fees to an index
of severity with a fee attached to each level. In some cases
the employer is the client and in some cases the Health plan
is the client hired by a national insurance company to
manage a local population
If done well, the health
system that reduces the employers expenses may receive some
portion of the savings. This necessitates the employers to
build a benefit plan that uses the single or partnered
health system and medical staff more than other providers.
This stand-alone service can generate dollars either by
contracting with the employer, the employer’s health
plan/insurer or TPA to become the preferred network.
All of these strategies are related to new patient growth
through contracting and managing more effectively than ever
before. Waiting until all is settled in Washington is a
surefire way to get caught off guard by the local or
regional competitor. What we do know is the health plan or
hospital that brings profitable visits to the physician
aligns the physician in their direction and earns their
trust in a confusing market.
Peter R. Kongstvedt
In the commercial sector, the impact of health plan and
local health system product joint ventures around the
country will be similar to what it has been in the past:
many will grind to a slow diminution or a halt and a few
will do OK, but not much more. On the other hand, both
health plans and health systems have a better understanding
of each other’s needs than they had the last time we saw a
wave of joint ventures and products back in the 1990s.
Both health plans and for health systems share one goal,
which is to increase market share, but strongly differ on
other goals. Many, if not most, hospital and health systems
are able to enjoy market power and the ability to obtain
high prices that has two major implications:
Any savings from utilization management comes right out of
• A product that requires the
exclusive use of hospitals, physicians, and
other services that are high priced will increase health
plan costs, even if
utilization is controlled.
Theoretically this is
offset when the health system is also at risk, but unless
the joint product accounts for the majority of a health
system’s revenue, behaviors are not likely to change. On top
of that, health systems are still rewarding leaders and
managers for keeping beds full and revenues up, which will
not be offset by having a few executives rewarded for a new
The other major factors are that health
systems are adverse-risk magnets that often target their
frequent users, and attract them even if they don’t target
them. In addition, many of these products have focused on
the health insurance exchanges, which are adverse-risk
magnets on their own.
These are not insurmountable
problems, but they take a lot of change and work to
successfully address. Also the dynamics are different for
the Medicare managed care market, but that’s another topic.
Finally, changes in the healthcare environment will continue
as they always have, and what I’ve described here will
change as well. I just can’t say when.
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