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Leading Academic Medical Center Develops Provider-Sponsored Health Plan

Background and Challenge

Facing an increasingly challenging post-Affordable Care Act (ACA) environment and reimbursement pressure, a world-renowned academic medical center was evaluating a range of strategic options, including whether to vertically integrate and become a health insurance payer. The hospital system was currently at capacity, had recently purchased a number of medical groups in its footprint, and wanted to analyze the process, benefits, and risks of creating a Medicare Advantage provider-sponsored health plan. Given L.E.K.’s extensive experience in advising managed care clients, the hospital engaged L.E.K. to assess the provider-sponsored health plan opportunity and develop a market entry plan.

Approach and Recommendations

The L.E.K. team collaborated with the hospital system’s leadership to analyze their specific situation, develop a detailed business case and implementation plan, and provide ongoing implementation support. Key elements included:

  • Outline of market and competitor dynamics in each county and a clear strategic and economic case for market entry
  • Assistance with the regulatory processes
  • Clear economic cases and strategic rationales for products (HMO, PPO, Special Needs Plan (SNP)) and  benefit structures developed by L.E.K.’s partner actuarial consultants
  • Holistic provider network development strategy to establish a cost-competitive provider network meeting regulatory network adequacy requirements
  • Operating plan with deliberate decision points on buy versus outsource versus partner for each of the mission-critical, Medicare Advantage health plan functions
  • Financial pro forma for the business with key drivers, contingencies, and scenarios
  • Marketing and sales plan to differentiate its offering from competing plans in the marketplace

Results

The board of directors approved management’s recommendation to move forward with the creation of a Medicare Advantage HMO product. Following the original strategic engagement, L.E.K. continued to assist the hospital’s leadership with the development of the health plan organization and operations, including: state insurance licensure approval, submission of the CMS Medicare Advantage application, development of an adequate provider network, identification and contracting of outsourced vendors, hiring and development of critical internal capabilities, and other strategic and operational readiness support.