Healthcare BusinessPAYVIDERS: Part 1: The Rising Success of the PAYVIDER Market

Blends across payer and provider organizations have given rise to the term “PAYVIDERS”. Today, “PAYVIDERS” form in two main ways:

1. Payers acquire healthcare providers turning providers into payers
2. Provider organizations start their own health plans with their employees. Hospitals are often the largest employer in a region, so this is a logical starting point into the payer world.

What has brought about this shift to a blended model? The need to overcome the onslaught of challenges brought on by value-based care, care coordination, and population health management demands. This is a daunting task, but success is being seen. Organizations such as Geisinger and Kaiser Permanente are flagship leaders of delivering well on this challenging care model.

This two-part series discusses the rise of PAYVIDERS and key winning strategies used to increase the popularity of Medicare advantage plans to meet the two objectives of healthcare: reduce cost and enhance quality.

What’s a PAYVIDER and is History Repeating Itself?

PAYVIDERS are created from both payer and provider organizations. Payers acquire providers and providers start health plans. Both groups are focused on similar goals of minimizing financial risk, increasing profit margin, providing measurably good care and retaining members. However, the concept isn’t new as it was introduced to the market in the early 1990s. While some saw success, such as Kaiser, PAYVIDERS largely failed due to high-financial risk, non-competitive prices, and soaring utilization costs.

Some say history is repeating itself, but today’s PAYVIDERS are showing incredible successes as they enter the market with a new game plan. This time around, they are more focused on a specific line of business, primarily Medicare Advantage (MA) and Managed Medicaid, to gain competitive advantages over traditional health plans.

Currently, there are an estimated 300 PAYVIDERS in the market acquiring an average of 50 percent of total MA plans.

Large healthcare provider systems that can achieve high operational efficiency and practice population health management may be able to offer competitive premiums and penetrate markets with significant market share for Provider-Sponsored Plans (PSPs). This means more PSPs will emerge as PAYVIDERS to support organic growth and ongoing industry consolidation. Key leaders in the PAYVIDER market include Geisinger Health System, Baylor Scott and White, Boston Medical Center, and UPMC, among others.

Additional Resource: What is the Medicare Flex Card for Seniors?

Why Focus on MA Plans?

One question investors routinely ask is, “Why are PAYVIDERS so focused on MA plans?” The short answer is in the reimbursement structure. Simply put, it allows a much higher return. This comes in the form of increased savings, bonuses and reduction of premium costs and enrollment of more beneficiaries. It must be proven that cost has gone down while maintaining quality, which CMS measures through CMS Star. CMS estimated that the Medicare Advantage average monthly premium will decrease by $1.91 in 2018, from an average of $31.91 in 2017 to $30 in 2018 (about 6 percent). Further, studies show that MA health plan revenues tripled from $69 billion in 2007 to $187 billion in 2016 and this value is expected to increase by 1.86 percent in 2019.

Current trends show the growing older population and their preference for MA plans will drive the market. Further, benefits offered by MA are enormous, such as a one-stop solution for customers with limited out-of-pocket costs, low or even zero-premium plans, and expanded coverage for dental, vision, and wellness programs.

Other key benefits offered to providers entering MA plans include additional sources of revenue from a growing potential of member premium amounts, availability of quality bonus, low entry barriers because large insurers don’t control local markets, and enhanced ability to manage costs and utilization through population health management programs. Additionally, entry of providers in MA plans will expand opportunities and outreach to build various strategies for direct-to-consumer marketing.

Today, 15 percent of the U.S. population is covered under the Medicare program, i.e. approximately 49 million Medicare beneficiaries are enrolled. Out of those 49 million beneficiaries, 20 million are enrolled in MA Plans. This number is expected to reach 38 million by 2025 due to the introduction of new rules to expand supplemental benefits and additional services by the Trump administration. Currently, more than 54 percent of MA plans are sponsored by providers and according to the research published by Memorial Hermann Health Plan, it’s estimated that more than 21 million people will be enrolled under a Provider Sponsored MA Plan by 2019-2020. Further, the National Medicare Advantage Penetration rate is 33 percent and is penetrating at different paces in different cities. Cities including Miami, Rochester, Pittsburgh, Portland and Buffalo all reported high Medicare Advantage Penetration Rates between 58 to 65 percent. The removal of the Medigap plans will continue to drive this trend. We’ll discuss more about this trend in the next article.

It’s clear that organizations are seeing the advantage in shifting to a PAYVIDER model both for returns in revenue and quality of care. In the next article, we’ll discuss the winning strategies required to be a successful PAYVIDER in this market.

Check Part-II, here.