Business and governments continue to exert pressure on insurance companies and health-care providers to reduce the costs of health insurance and increase efficiency while preserving the quality of care. This has resulted in the development of unique payment practices, many of which attempt to shift the financial risk of care to the provider. After all, some argue, who better than the provider to better manage the cost of care?
This realignment of incentives may make sense. There is an increasingly popular line of thinking that relying solely on the fee-for-service model is perilous for health-care providers, and that the best way to approach demands for cost reduction and the uncertainty of health-care reform is head on — to align yourself with the right allies and develop a clear business plan, which may include strategies previously viewed as unorthodox.
While many providers view health-care reform with skepticism and reluctance toward change, truly entrepreneurial providers and industry trendsetters will see the opportunity in the changes, and a chance to capitalize on shifts in the insurance and health-care markets while improving patient care. As hospital systems grow their geographical footprints and acquire other hospitals, medical practices and ancillary service centers, and as physician groups consolidate into multispecialty or supergroups or become affiliated with hospitals, many lenders are looking toward the next option for increasing efficiency and providing seamless care to patients: managing the cost of care.
Providers are keenly aware of the portion of administrative costs in their practices and hospitals attributed to managed care and the fluctuations in fees charged for services brought about by the current system. However, participants must make sure to structure these incentivizing and risk-transferring arrangements in a manner consistent with both health-care and insurance laws. Amidst intensifying regulatory reforms on the national and state levels, will providers step up and bear risk, and potentially reap the reward? Will providers’ venture capital partners help alleviate the downside, or are they just interested in the potential for a successful initial public offering?
Health-care providers do not need to immediately run out and file charter documents to develop a fully regulated insurance company in order to take advantage of the changes in the reimbursement landscape. There are contractual arrangements that share financial risk and incentivize increased quality and efficiency of care, while still maintaining the traditional boundaries of a provider-insurer relationship. The provider remains responsible for the delivery of care, while the carrier continues to handle administrative and claims duties, including the following:
performance-based contracts which reward providers with higher reimbursements for meeting preset quality metrics;
bundled payment plans that deliver payments to physicians and facilities to provide health-care services over a specified period of time;
episodic payment plans, which provide payments to physicians and facilities to treat specific episodes of illnesses, diseases or dysfunctions; and
capitation contracts, in which providers are paid one lump sum to treat a patient without regard to the number or nature of services rendered.
An option for larger hospital systems that do not want to incur the costs and risks associated with developing their own health plans, for example, is to enter into partnerships with insurance carriers to develop their own unique insurance products or other reimbursement arrangements based on the health-care centers and physicians within the systems’ networks.
Another model is to enter into contractual arrangements that assist in the management of care delivery and assume a portion of the financial risk. These organizations include the accountable care organizations (ACO) that form an integral part of the Patient Protection and Affordable Care Act, and the New Jersey state-regulated organized delivery systems (ODS). An ACO is one or more networks of health-care providers, which may include hospitals, outpatient clinics, primary care physicians and specialists, who work together to coordinate care and accept collective responsibility for its cost and quality. In New Jersey, an ODS is generally defined by statute and regulation as a legal entity that contracts with a carrier for the purpose of providing or arranging for the provision of health-care services to those persons covered under the carrier’s health benefits plan, but which is not a licensed health-care facility or other health-care provider. Providers may also enter into the arena of risk-shifting arrangements by developing an affiliated ACO or ODS on their own or with partners. Many of the larger hospital systems in New Jersey have at least contemplated, if not already completed or taken substantial steps toward, developing their own ACO or ODS.
For those providers bold enough (and with the financial wherewithal to satisfy capital reserve requirements), it may make sense to develop your own health plan. Benefits include: setting fees and reimbursement rates (with the assistance of an actuary and in compliance with the law); establishing claims-handling and payment policies, or outsourcing the same to a subcontractor with input into the process; determining the extent of the network of providers; and developing plan offerings and options for patients. An additional benefit to developing a provider’s own health plan is obtaining direct access to the full range of patient data across all health-care services sought or accessed by patients that insurance companies typically possess. Increased patient data can help lead to better coordination and delivery of patient care, earlier detection of medical issues, and avoiding duplicative procedures or the more intensive and costly treatments that a delay in diagnosis or treatment may cause.
A health-care provider’s selection from the potential forms of companies, plans or organizations for use as a health insurance vehicle will be based in part on the target population of covered persons. New entrants may wish to begin by providing coverage to employees of a provider’s affiliated companies. In such a case, multiple employer welfare arrangements (referred to as MEWAs) and captive insurance companies may be the most suitable options. MEWAs are regulated by federal ERISA laws and New Jersey regulations, requiring filings with both federal and state agencies, but impose less burdensome funding and reporting requirements, as compared to insurance companies licensed by the state of New Jersey. However, if a provider views its health plan as a product to be offered to the greater population, MEWAs may not be a sound option due to statutory restrictions. Captive insurance companies also have less burdensome regulations to comply with than independent licensed insurance companies, but again are generally limited to offering coverage to employees of affiliated companies.
If the goal is to offer health insurance coverage and gain access to a wider population, forming a traditional insurance company licensed by the state may be the most viable option. Of course, greater access to the public brings additional regulations to comply with. In order to form and operate a company providing health insurance coverage within the state of New Jersey, incorporators must navigate through a detailed application process and adhere to a heavy regulatory scheme governing initial capitalization, minimal capital reserves, surplus and a deposit of securities held on behalf of policyholders. They must also comply with periodic reporting requirements and updates to changes in business plans and policy terms and conditions. They must be able to provide prompt payment of claims, coverage for emergency and hospital services, and distributions of dividends and compensation of officers and directors. Incorporators must also address the disposition of stock by certain shareholders.
Another consideration is the forthcoming impact of the implementation and effects of the Affordable Care Act, particularly the number of additional consumers seeking health insurance coverage and the impact of the exchanges on competition and marketing in the insurance industry. The regulatory landscape changes even further if the company you develop offers health insurance plus other types of insurance coverage, as opposed to solely health insurance benefits, or if the company would offer health insurance benefits to individuals that may not be employed by affiliates.
But you don’t have to go it alone. In fact, several hospitals and physician group combinations have teamed up to develop their own health plans and insurance products. Benefits include sharing start-up costs and ongoing overhead, increasing the diversity of services and provider options to patients, while still encouraging them to stay in-network, and exposure to an additional patient base.
The foregoing description of risk-sharing arrangements is simply a review of several arrangements and products currently being utilized in the marketplace and is not an exclusive list. Moreover, references to legal requirements are by no means a substitution for full legal analysis. Regardless of which paths or arrangements providers elect, it is always wise to engage the right team of capable professionals to assist with navigating the regulatory and financial framework associated with each option, including selecting appropriately experienced consultants, attorneys, actuarial services and accountants. •