2016 04 29 medspan research - pops white paper final

Provider-Owned Health Plans (POPs):The New Kids on the Block, Somewhat

MedSpan Research White PaperApril 29, 2016

Objectives and methodology

• Objectives– What are provider-owned Health Plans (POPs)?

– Where is this “new” market segment going?

– Why should drug companies be interested?

• Methodology– Secondary research

– Interviews with insurance industry executives who develop POPs

Brief Internet survey

| April 29, 2016 | MedSpan Research | Slide 2

Provider-Owned Health PlansA Brief History

Though provider-owned health plans (POPs) have been around for some time, they have recently become popular


• Founding of Kaiser Foundation Health Plan, today’s largest POP

1945

1990s

• POPS briefly gain popularity• Most POPs fail

2016

• Today, POPs are a hot trend

The Evolution of POPs

POPs did not widely succeed in the 1980s and 1990s


Providers’ lack of expertise

Insufficient integration across continuum of care

Consumers prefer choice to lower

cost of care

Conflict of physician and

hospital cultures

Necessary for population health management

Causes of 1980s and 1990s Failures

Lack of well-integrated

infrastructure (e.g., IT systems)

• Population health management

• Financial risk management

Today, these challenges have been, or are in the process of, being addressed


Value-based careImproving

integration across continuum of care

Consumers prefer lower cost of care

to choice

Necessary for optimal population health management

Progress by 2016

Improved infrastructure and

data (e.g., EHR)

Necessary for population health management

Links between outcomes and compensation encourage

integration

http://healthcare.mckinsey.com/provider-led-health-plans-next-frontier%E2%80%94or-1990s-all-over-again

Physicians and hospitals working

together better than 1990s

Exchanges provide new channels to reach consumers

POPs Market Profile

POPs play a significant role in the market

IDNs of-fering a

POP13%

Other IDNs87%

Percentage of IDNs offering a POP


POP covered

lives8%

Other Health Plans92%

Percentage of Covered Lives

POP Market Penetration, 2014

Total POPs Market:24 million covered lives

Total Number of IDNs offering a POP:2014 – 1092016 – 270 (148% increase)

Source: https://aishealth.com/marketplace/c6m10_041416?utm_source=Real%20Magnet&utm_medium=Email&utm_campaign=94186288, Accessed April 9, 2016

https://aishealth.com/marketplace/c6m10_041416?utm_source=Real%20Magnet&utm_medium=Email&utm_campaign=94186288

https://aishealth.com/marketplace/c6m10_041416?utm_source=Real%20Magnet&utm_medium=Email&utm_campaign=94186288

The 10 largest POPs account for 64% of all POPs’ covered lives

POP Parent Organization Covered LivesKaiser Foundation Health Plan Kaiser Foundation Health Plan 10.2 million

UPMC Health Plan University of Pittsburgh Medical Center

2.9 million

Health Alliance Plan of Michigan Henry Ford Health System 0.7 million

Priority Health Spectrum Health System 0.6 million

Geisinger Health Plan Geisinger Health System 0.6 million

Select Health InterMountain Health System 0.7 million

Optima Health Plan Sentara Health 0.5 million

Boston Medical Center Health Plan Boston Medical Center 0.2 million

Presbyterian Health Plan Presbyterian Health System 0.2 million

Health Alliance Medical Plans Carle Foundation 0.1 million

TOTAL – Ten Largest POPs 17 million

12 Medium-sized POPs (150,000 to 300,000 covered lives) 3 million87 Small POPs (< 150,000 covered lives) 4 million


Source:A.M. Best Co, Modern Healthcare, company web sites accessed April 5, 2016

POPs plans are located across the United States

Provider-led plans are currently present in 39 states.


• Kaiser Health Plan has been removed from the data supporting the chart above as it is an outlier in terms of size.

• Source: http://www.modernhealthcare.com/article/20150404/MAGAZINE/304049981; Accessed April 5, 2016http://www.e-mds.com/provider-sponsored-health-plans-good-idea; Accessed April 5, 2016

http://www.modernhealthcare.com/article/20150404/MAGAZINE/304049981

http://www.e-mds.com/provider-sponsored-health-plans-good-idea

http://www.e-mds.com/provider-sponsored-health-plans-good-idea

POPs focus on managed Medicaid and commercial products rather than Medicare Advantage


Managed Medicaid • Access to beneficiaries via exchanges• Government funding via 340B and other

sources• Integration offers advantage for state-

driven incentive compensation • Fewer competitors than commercial

market

Commercial• Access to customers via exchanges• Often, can build upon existing health

plans dedicated to hospital employees• Can carve out a niche servicing small,

local businesses, unions, governments

Medicare Advantage• Regulatory compliance is complex and

costly• Takes 3 years to qualify for Stars rating

and associated incentive compensation

Interest in the Medicare Advantage market for POPs is increasing during 2014 and 2015 and many of these plans are succeeding

• Increasing interest in Medicare Advantage POPs– More than half of the Medicare Advantages plans started between 2012 and 2015 were provider

sponsored.– In total by the end of 2015, 70 provider-sponsored parent organizations offered 403 Medicare

Advantage plans in 41 states.

• In a few geographies, provider sponsored Medicare Advantages plans have been successful. These POPs:– Have enrolled the vast majority of Medicare Advantage members– Account for more than 10 percent of all local Medicare recipients (most of whom are in traditional

fee for service Medicare);

• Source: http://medcitynews.com/2016/02/provider-sponsored-plans/, Accessed April 9, 2016• Source: http://managedhealthcareexecutive.modernmedicine.com/managed-healthcare-executive/news/don-t-underrate-power-provider-sponsored-ma-plans,

Accessed April 9, 2016


http://medcitynews.com/2016/02/provider-sponsored-plans/

http://medcitynews.com/2016/02/provider-sponsored-plans/

POPs – Why develop one?

Better manage healthcare costs and clinical outcomes by:• Aligning payment incentives across the continuum of care based on

quality-of-care measures • Physician employment supports this goal.

• Developing best practices across the continuum of care based upon data from POP and providers

Providers develop POPs to drive profitability and improve outcomes


New source of revenue:• Insurance premiums

• POPs provide narrow-network options on public and private exchanges.

• Care delivery reimbursement from a “captive” patient population.• May be especially important in areas where narrow provider

networks are becoming common.• Increased ACO incentive compensation and other government subsidies

(e.g., 340B payments) due to reduced leakage.• Opportunity to defend provider reimbursement rates in markets

dominated by one health plan.

Market factors are supporting the development of POPs

• CMS movement towards advanced incentive-based compensation and value-driven care.– CMS publicly establishes goal of 20%, 30%, 50% of total Medicare spending in "Alternative

Payment Models" (Category 3 & 4) by YE2014, 2016, 2018, respectively.• Category 3 = episodic / bundled payments• Category 4 = risk-sharing ACOs

• Infrastructure is increasingly available in the market.– Integrated IT systems already implemented and being enhanced.– Big data provides actionable insights.– Joint venture partners provide access to capital, expertise and infrastructure services.

• Environmental and cultural shits align incentives and facilitate beneficial physician and hospital partnerships.– Physician employment by IDNs is increasingly common.– Better understanding of each other’s needs and motivations than in the 1980s and 1990s.– Studies demonstrating that incentive-based compensation can best be achieved through

cooperation.


Market factors are supporting the development of POPs (continued)

• Large health plan consolidations (e.g., Aetna/Humana) are likely to create underserved markets. – Markets with limited lives available.– Markets with lower profit margins.– Markets requiring special expertise.

• The public exchanges create opportunities to reach these underserved markets.


Large insurance companies are developing joint ventures with delivery systems to create POPs

• Examples:– Aetna and Anthem are actively developing JV-based POPs (e.g., N. Virginia and California).– Passport Health Plan and Evolent Health (a population health management firm) have

developed a Medicaid Center of Excellence.

• Large insurers provide capital, infrastructure (e.g., IT systems, member service centers), national provider networks and expertise.– Expertise is related to plan design, risk management, regulatory compliance, marketing and

analytics.


Enhance ROI on infrastructure

• POPs’ lives utilize large insurer’s infrastructure.

• Creates economies of scale.

POPs can serve markets large insurers cannot profitably reach

• Large insurers best serve large groups.

• POPs can profitably serve individuals and small groups.

Why are large insurers creating competitors (i.e., POPs)?

Earn return on capital investment

POPs Case Studies

Some POPs have had success in growing covered lives

• North Shore-LIJ CareConnect Insurance Company, Inc., the first provider-owned commercial health plan in New York state– CareConnect launched in 2013 Took time to take off.– Enrollment grew from 27,000 to 91,000 in four months (October 2015 – January 2016) through

acquisition and organic growth.

• Indiana University Health grew Indiana University Health Plans grew to more than 200,000 covered lives from 2009 and 2016.– Started with just a Medicare Advantage plan.– Now provides benefits to 200,000 members across:

• Medicare Advantage• Public insurance exchanges• Managed Medicaid• Commercial market segments.


Why Wisconsin is dominated by POPs

• In Wisconsin, Dean Health Plan, Security Health Plan, Unity Health Insurance, Children's Community Health Plan and several others POPs cover 32% of the insured population.

• Reasons for success– Commercial payers historically do not seek to insure vulnerable, costly patients in urban areas.

• Milwaukee’s Children's Hospital of Wisconsin steps in and now covers 137,000 Medicaid lives.

– Private health plans do not sufficiently cover rural areas, of which Wisconsin has many.

– POPs persevered through the challenges of the 1990s and 2000s.

– Provider systems managed the tension between their own health plan and the third-party standalone payers in their market.

– Two broad partnerships help POPs address capital requirements, the need for broad provider networks and regulatory compliance: • AboutHealth and Integrated Health Network. AboutHealth. Each includes eight health systems

and 48 to 40 hospitals. • http://www.modernhealthcare.com/article/20151209/NEWS/151209857, Accessed April 9, 2016


http://www.modernhealthcare.com/article/20151209/NEWS/151209857



POPs can be complex and risky to develop

• An interview with the CEO of Allegian Health Plan illustrates the complexity of POPs.– Formed in the 1990s by Valley Baptist Medical Center (Texas) and serving San Antonio, El Paso

and and two smaller markets.

– “Setting up a POP is not as routine as gearing up for a new product line.” Setting up a POP “sends providers into complex and unfamiliar areas well outside their care delivery expertise.”

– “You used to be on the receiving end of everything. Now you have to get in front of it [i.e. population health management]. That’s a different set of activities than providers historically are accustomed to.”

– “The health plan can’t be regarded mainly as a vehicle for bringing premium dollars to the health system, because it has to succeed in its own business if it’s to help the health system succeed.”


POPs can experience financial challenges

• Illinois’ CountyCare (POP) is a “loss-leader” for the delivery system.– During the first six months of fiscal 2014, CountyCare lost about $21.9 million. – The Cook County Health System gained $137.2 million due to a greater census.– How long can Cook County Health System sustain these losses?

• Catholic Health Initiatives (sponsored by Prominence Health)– As of January 2015, $134M loss in Q1 2015 due to competition from other plans

• Set to reduce workforce by ~2%– As of April 2016, stop offering most of POPs’ lines of business

• Piedmont Healthcare and Wellstar Health System (two Georgia-based IDNs) closed their POP in late 2015 for financial and capital reasons.– Extensive loss on insurance premiums since start-up in 2013.– Reasons for failure:

• Lack of capital to cover losses on insurance premium.• Cost of regulatory compliance, especially for Medicare Advantage, more than expected.• 50,000 covered lives not enough scale.


Source: Crain’s Chicago Business, Accessed February 5, 2016“Piedmont, WellStar cutting back on health plan” Georgia Health News, September 25, 2015 (www.georgiahealthnews.com), Accessed April 11, 2016

The insurance business “is a tough business in all facets,’’ said Graham Thompson of the Georgia Association of Health Plans, an industry trade group. “It’s complicated.”

http://www.georgiahealthnews.com/

POPs and Pharmacy Management

MedSpan Research conducted a proprietary study regarding POPs and pharmaceutical management

• Objective: Assess coordination of pharmaceutical utilization and management across the POP and delivery system.

• Respondents: 20 hospital-based pharmacy directors

• Methodology: Internet survey


The point of contact for relationship management with the POP and delivery system will vary by organization

Same exec70%

Different exec 30%

Pharmacy Leadership POP and Delivery System

(n=20)


Same exec70%

Different exec 30%

PT Committee Leadership POP and Delivery System

(n=20)

Same exec75%

Different exec 25%

Contracting Leadership POP and Delivery System

(n=20)

Identical leadership for formulary management and contracting enhances systems’ purchasing power for drugs multi-product drugs and drugs used both inpatient and outpatient

The approach to relationship management with the POP and delivery system will vary by organization


Sepa-rate

forms. 65%

Delivery sys-tem needs dominate

25%

POP needs dom-inate10%

Formulary Coordination* between POP and Delivery System

(n=20)

*For drugs covered and managed by both the POP and delivery system.

1 2 3 4 5 6 7SignificantlySomewhatNot at all

Degree to which POPs Encourage Development of Clinical Pathways across Continuum of Care**

(n=20)

5% 35% 30% 25% 5%

** Today, almost all responding IDNs use clinical pathways. Half of responding IDNs have clinical pathways addressing both inpatient and outpatient care.

Opportunity for drug companies to influence positioning of their drugs used

both inpatient and outpatient

Enhances POP negotiation leverage compared to today’s ins for drugs used

both inpatient and outpatient

The Future of POPs

The interest in the POPs market is significant


2013 20180%

50%

100%

34%

55%

Percentage of Hospitals with an Equity Stake in a POP, 2013 - 2018

CAGR10%

Source: http://www.healthleadersmedia.com/health-plans/1-5-health-systems-become-payers-2018#AHA Data Viewer

Approximately 75% of POPs are owned by an IDN with the rest directly owned by a hospital.

Number of POPs owned by IDNs increased from 107 to 260 from 2013 to 2016..• Greater rate than predicted

in the chart.

http://www.healthleadersmedia.com/health-plans/1-5-health-systems-become-payers-2018

http://www.healthleadersmedia.com/health-plans/1-5-health-systems-become-payers-2018

While there is interest, the experience of the 1980s and 1990s and the complexity of starting a health plan leads to uncertainty and caution

Yes27%

No9%

Unsure64%

Does your organization plan to offer a POP within the next 3 years?

(n=11)


From the MedSpan Research study:

Of the health systems that do not currently offer a POP, most pharmacy executives

are unsure of future plans.

Some new POPs will succeed. Which ones?


Critical success factors

Humility

Willing to work withexperts

Scale

Through:• Alliances with other delivery systems

(e.g., Wisconsin)• JVs with insurers

Enhances ROI

Generates negotiation clout

Access to capital

Product development

Start-up losses

Risk related to MLR*

Differentiated branding and

value propositionProvider brand name

Provider market share

Consumer preference for lower cost than choice among providers

Access to underserved

marketsRural areas

Individuals

Small groups

Medicaid

Access to expertise

Regulatory compliance

Risk management

Managing patient flow across continuumof care

Managing differing provider and POP incentives

Managing relationship with other payers

Implications for Pharmaceutical Companies

POPs are likely to play a role in the future healthcare system

• Compared to the 1980s and 1990s, market conditions and resources are more favorable for the success of POPs.– Therefore, some of the POPs currently forming are likely to eventually cover a significant

number of lives.

• Drug companies should monitor the successes and failures of POPs.– Today, focus your monitoring efforts on the top 20 POPs as they are the only POPs with a

sizable number of covered lives. – Identify the new POPs that most closely align with the critical factors for success and monitor

their progress.• Begin to develop relationships with those POPs as their number of lives increases.


A drug company’s strategy should vary by the level of control the system exerts over drug purchasing

For drugs appropriate for use in outpatient settings only– POPs present new contracting opportunities.

For drugs appropriate for use in both inpatient and outpatient settings• Drug companies should base their contracting and relationship management

strategy on whether the delivery system and health plan: • Have the same executive overseeing pharmacy policy and contracting for both organizations.• Coordinate formulary management across the delivery system.• Utilize clinical pathways to prescribing patterns across the continuum of care.

For drugs administered only in the physician’s office• Drug companies should base their contracting and relationship management

strategy on the degree to which the delivery system and health plan: – Utilizes centralized purchasing and distribution versus allowing physicians to purchase directly

from wholesalers.– Centrally control or just influence which brands a physician can purchase.– Coordinate brand preferences in coverage policies, purchasing preferences and clinical

pathways.


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| April 29, 2016 | MedSpan Research | 35

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Thank you

Slide 42

Robert KaminskyPresident10 Executive Court, Suite 1South Barrington, IL [email protected]

| April 29, 2016 | MedSpan Research |

mailto:[email protected]

2016 04 29 medspan research - pops white paper final

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