United States: Payor/Provider Convergence: Joint Venture Health Plans

Background

Health Plans and health care providers are getting into each other's business. This payor/provider convergence has taken different forms. Health systems have ventured into the health insurance business by acquiring or starting their own health plans and by establishing joint ventures with payors, to jointly own and operate a health plan. Health plans have also moved into the health care provider business by acquiring hospitals, surgery centers, medical groups, and other providers. This blog post examines one aspect of this Payor/Provider Convergence – payor/provider joint ventures to operate health plans.

A recent study by McKinsey & Company recites that as of 2015 "13% of all US health systems offer health plans in one or more markets – commercial, Medicare Advantage (MA), or managed Medicaid," with provider-led plans representing a higher percentage (23%) of the Medicaid Market. Consistent with this trend, there have been a number of joint ventures announced between health systems and health plans. Many of these result in a health plan being owned on a 50/50 basis by a larger health insurer and the health system, though there are other percentage ownership arrangements. These joint ventures may utilize narrow provider networks featuring the health system's providers as the core of the provider network. The health care media has reported a number of such joint ventures between larger health plans and health care systems in various markets across the country.

What is driving this is activity?

There are a number of reasons leading to this joint venture activity. With the Affordable Care Act and new alternative payment models as a catalyst, health systems are keenly focused on the provision of efficient services and are increasingly assuming accountability for the cost and quality of their services. These value-based programs require health systems to obtain data to analyze the care provided and to manage that care. Such programs have also led health systems to develop and use technology and infrastructure to quickly analyze data and incorporate such data into the provision of care. Such developments have given providers confidence that they can succeed in a managed care environment where they are at risk for some or all of the cost of care. With such data and focus, health systems believe having a role in managed care operations and the opportunity to share in the health plan's portion of the health care dollar are appropriate next steps.

The expected issuance of more and different alternative payment programs and increasing population health financial arrangements, encourage health systems to act. Health systems also view participation in ownership as a way to share in the premium or administrative fee dollars earned by health plans. This helps them diversify their business into an area they are beginning to understand and for which they are already taking some of the health care risk.

Health systems also seek a role in shaping the network for the health plan. Through narrow networks which feature the health system's providers exclusively or in the top tier, health systems hope to drive increased patient volume to the health system. With a role in governance of a health plan, the health system also sees it as advantageous to target the markets it enters and the larger employers with whom it seeks to contract for services.

A joint venture with an existing health plan or health insurer that has experience and the tools to operate the back office functions of a health plan both reduces the risk and speeds the time to market as compared to a health system starting or acquiring its own health plan. Many health systems have a history of trying unsuccessfully to own and operate a health plan on their own. A joint venture provides an opportunity to share the risk and also brings an experienced and successful partner to the arrangement.

Health plans also see positive opportunities in partnering with health systems. Joint ventures can create marketing advantages for a health plan by aligning with a health system that has earned loyalty from patients in certain markets through the care provided over the years. Health plans also envision that sharing the operations and bottom line with a health system will incentivize the health system even more to provide efficient care, to eliminate any unnecessary services or waste, and to be accountable for cost of care provided.

Certain health plans also view such joint ventures as an opportunity to help jump start the health plan's efforts to expand into a new market, with a strong network of the health system's providers. Health plans may also anticipate that the health system will furnish it with favorable pricing to allow it to compete effectively for new insurance or self-funded employer business.

What are the more significant issues in structuring such arrangements?

Such joint venture health plans present a myriad of challenging issues, both legal and business. The issues include the normal issues present in any joint venture between separate businesses as well as ones caused by the positions each has in health care.

  • Percentage ownership/governance – Will the parties agree to a 50/50 arrangement or will one party's need for financial and accounting consolidation or for control require such party to own a majority of the interests and exercise control? If one party needs control for financial consolidation, how may such control be balanced through other aspects of the arrangement protecting the other party without jeopardizing control required for consolidation?
  • Investment – What will each party contribute and how will non-cash contributions be valued? Will the level of the contributions trigger the need for a Hart-Scott-Rodino filing under the rules applicable to joint ventures?
  • Decision-making – What decisions may be made by the officers, by the governing board, or by the joint venture parties? Are there certain decisions that require both parties to approve? How should reserve powers be structured?
  • Application of Copperweld – From an Antitrust perspective, will the entity be sufficiently controlled by one of the venturers to obtain Cooperweld protection or will it be an independent entity for antitrust purposes? If the later, there will be need for strict Antitrust guidelines to ensure joint venture is separate from and does not engage in improper activities with either venturer.
  • Services – Will the joint venture provide its own services or will it acquire some services from the venture parties? What price will be paid for the services and which ones, from an insurance regulatory perspective under state's insurance holding company act, must "fair and reasonable" to the health plan, generally considered to be at "cost?" What role will both or one of the venturers have in services such as marketing plans, care management, underwriting/pricing, network development, etc.?
  • Leadership – Will the executive officers be representatives of one of the parties or be hired separately by the joint venture to be independent from each venturer?
  • Markets Served – In what markets will the joint venture operate? Is the market limited to the service area of the health system venturer? Is there overlap with a market served by the health plan venturer's existing health plan offerings? If so, how are potential conflict issues resolved?
  • Provider Network – Who decides who is included in the provider network? Are the products limited to narrow network offerings? Does the health system venturer have a role in network make-up? How is provider pricing determined and how is the health system screened from pricing of any competitor providers included in the network?
  • Exit Rights – What rights does each party have to exit or terminate the joint venture? What are the triggers for such rights and does each venturer have the right to buy-out the other under certain circumstances?
  • Non-Compete/Exclusivity – Is the joint venture's health plan the exclusive payor offering of each venturer in a certain geography? What, if any, limits are there on the health system in other health insurance participation?
  • Side-by-Side Selling – If there is no exclusivity, how does the joint venture compete for business with products offered by the health plan venturer? How are the offerings coordinated if they can be coordinated in compliance with the Antitrust laws?
  • Conflicting Goals – Will the potentially different goals of the joint venture, the health plan, and the health system be reconciled?
  • Cannibalizing Existing Business – If the health system provides favorable pricing for a narrow network offering, what protections does the health system have that the venture will not market to customers already utilizing the health system's services albeit at a lower price point through the joint venture? Without such protections, the health system may just be seeing the same business but at a lower price point.

****

The increasing popularity of health system/health plan convergence in the form of a joint venture health plan, presents opportunities but also requires a careful identification and resolution of a number of issues for them to succeed and to realize each party's goals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Fisher Phillips LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Fisher Phillips LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions