PROVIDER-SPONSORED MEDICARE ADVANTAGE PLANS: BRINGING CARE AND COVERAGE TOGETHER

The transition to value-based care has broken down traditional silos that separate payors, providers, suppliers and other health care industry participants. This imperative has been driven by the need to contain spiraling costs, address health equity, and ensure access to high-quality, integrated care. As the lines between payors and providers continue to blur, augmented by the rapid adoption of digital health modalities and other advances in care delivery and consumerism, many provider organizations have taken a fresh look at their traditional structures, revenue streams, care delivery models and third-party relationships to develop new strategies for serving their patients and communities while ensuring financial sustainability.

Chief among these considerations is the need to deliver and manage care for the growing Medicare-eligible population, an increasing proportion of which is seeking benefits through the Medicare Part C (Medicare Advantage or MA) program. Senior populations often include high-cost utilizers of health care services, particularly where multiple chronic conditions are present. At the same time, Medicare reimbursement rates and challenging payor negotiations increase pressure on provider organizations, often resulting in significant losses. One strategy that an increasing number of provider organizations are considering involves establishing a provider-sponsored Medicare Advantage plan.

There are four principal drivers of this strategy: better alignment of care and coverage for the benefit of communities and patients served by the provider organization; ensuring financial sustainability; implementing population health and value-based care initiatives to deliver higher-quality, cost-effective care to seniors; and pursuing a more integrated market strategy. However, building or buying a Medicare Advantage plan is a strategy that presents significant financial, operational and regulatory challenges. Such plans are highly regulated, capital-intensive enterprises that require significant commitment of resources and personnel with experience typically not found within the provider setting. Inherent conflicts of interest also exist when a provider sponsors a payor entity, which can be managed but require robust legal and compliance oversight.

The first step in establishing a provider-sponsored Medicare Advantage plan is to determine whether to build or buy. The more likely path is to build, since the few Medicare Advantage plans that come up for sale may carry significant financial solvency and regulatory risks that would require additional resources and appetite for risk that provider organizations often do not possess. When establishing a new plan, a provider organization must create a new legal entity and determine how it will be governed, taking into account conflicts of interest guardrails, antitrust rules, state licensure and Centers for Medicare & Medicaid Services (CMS) regulations, and fraud and abuse laws, among other issues. Governance and management can be particularly challenging areas to shape when senior leadership from the sponsoring provider organization participates in operating the new MA plan.

Medicare Advantage plans require state licensure in order to qualify for a contract with CMS. The state licensure process typically takes nine to 18 months and requires significant investment of personnel and financial resources. Timing is a key consideration because the CMS approval and contracting process follows a very specific schedule – commencing in November with filing a Notice of Intent to Apply, through application submission in February, tentative approval or denial in April/May, bid submission in June, contracting in late summer, and open enrollment in fall, prior to a Jan. 1 launch in the following year. If an applicant misses the CMS April deadline for submitting its state insurance license, it will not be awarded a contract and will be delayed at least another year and a half before it can bring its plan to market.

The state licensure process is arduous and complex. Often, licensure regulations require interpretation or knowledge of how a particular state currently evaluates applications. This can be influenced by market dynamics, regulatory priorities, political considerations and other factors that reward local knowledge. Key considerations for licensure include risk-based capital requirements, administrative capacity and third-party relationships, and network development. Many states impose financial solvency standards for new applicants that exceed statutory minimums, and providers wishing to establish new plans must ensure they have experienced financial, actuarial and legal support to navigate this lengthy and technical process.

In parallel to the state licensure process, MA plan applicants must follow the strict timeline CMS imposes for the contracting process. For MA plans, CMS evaluates network adequacy, rather than the state licensing authority. In essence, this bifurcation of the typical state insurance licensure process adds complexity. Often, states still will require submission of the provider network to ensure the plan can demonstrate that it has achieved a viable network with signed contracts that comply with state licensing regulations. For example, in California, provider contracts must be submitted to the state and must comply with Knox-Keene Act requirements despite the fact that CMS retains regulatory authority over network adequacy for MA plans. The CMS application process also includes components – such as a separate Medicare Part D (prescription drug) application and Model of Care for Special Needs Plans addressing chronic conditions or35 dual-eligible populations – that add to the complexity and administrative burden on the provider organization seeking to establish a plan.

There are many good reasons for provider organizations to consider establishing a Medicare Advantage plan, but it is imperative to undertake a thorough assessment of financial, governance, operational and compliance readiness before proceeding. It should be viewed as part of an overall long-term strategy for the organization, driven by a commitment to value-based care and better integration of care and coverage for seniors in the communities served, rather than simply as a revenue-generating alternative or new business line. Most providers are not well-equipped to enter the insurance risk business and should take seriously the enterprise commitment required to be successful in establishing an MA plan.

Paul A. Carr-Rollitt is a partner at Manatt, Phelps & Phillips, LLP.