How Provider-Sponsored Health Plans Drive Enterprisewide Medicare Advantage Sustainability

Integrated delivery systems can achieve greater margin performance and market differentiation by aligning their PSHP to enterprise strategies.

Medicare Advantage (MA) has proven financially challenging for healthcare providers, especially for those with provider-sponsored health plans (PSHPs). This has led many providers with PSHPs to question the sustainability of the MA line of business, as well as their plan ownership.

A Guidehouse analysis reveals that while PSHPs can be critical to making MA more sustainable for the parent organization and their integrated delivery system (IDS), they are commonly misaligned to the wholistic enterprise strategy—and that undermines optimal margin performance and differentiation.

Learn how, under the right conditions, PSHPs can play a pivotal role in an IDS’s journey to short- and long-term sustainability and differentiation.


The Economic Imbalance of Medicare Advantage

MA is the fastest-growing business line in the country, expanding by an average of 8% per year since 2013. More than half of all Medicare-eligibles nationally have chosen an MA plan.

While this growth run has shown that a public market can privatize quickly, there are reasons to be both bullish and bearish on MA heading into the second half of 2024. Both stances give ample reason for providers to develop an aligned system and plan strategy.




For providers faced with the urgency of financial stability among a tumultuous economic environment, improving sustainable performance on MA contracts and reimbursement is a primary concern. Provider MA margin realization under contracts with payers commonly underperforms compared to traditional Medicare fee-for-service margins. This is driven by such issues as negotiated rates, frequency of denials and prior authorizations, continuity of care challenges, and rising administrative costs to support the business line.

By not only applying these pressures on providers but also encroaching on traditional care delivery margins through payer-owned or -affiliated assets, vertically integrated national plans are further disrupting provider profitability in the business line.

As a result, providers have deployed various strategies to mitigate these challenges, such as contract renegotiations and terminations, value-based partnerships, and prioritizing their own PSHP growth.


PSHPs in a Challenging Medicare Advantage Market

Leveraging a PSHP to drive MA profitability for the system can present significant opportunity. But current PSHP market share, quality, and financial performance trends indicate that many are not properly oriented to capitalize on that opportunity.

While PSHPs have long held material MA market share and favorable quality ratings, they’ve lost ground thanks to the rise of vertically integrated nationals, increases in preferred provider contracting relationships with payers, and evolving quality expectations.

According to a Guidehouse analysis, 37 of the 100 largest MA insurers in the US are considered PSHPs. Their market share is roughly 13% of all MA enrollees for a total of about 4 million enrollees.

A few of these PSHPs have seen their individual market share increase—but as a group, they’ve watched their overall market share deteriorate. The lowest five-year compound annual growth rate (CAGR) has averaged about 4% compared to the market’s growth of 8%.

From a representative sampling of 31 out of 37 identified PSHPs, excluding Kaiser given their unique model, the average MA medical loss ratio (MLR) estimates were roughly 92% in 2022 compared to 85% for national plans. Regardless of what’s causing these MLR levels, they indicate hampered business line sustainability compared to what’s possible.


Medicare Advantage Growth and Performance: PSHP Sample and Nationals



Guidehouse analysis based on National Association of Insurance Commissioners regulatory filings.

Star Ratings from the Centers for Medicare & Medicaid Services (CMS)—a previous differentiating factor of PSHPs compared to the nationals—have also deteriorated over the past two years. PSHPs together dropped from the highest weighted average Star Rating of 4.5 to 4.2, while nationals dropped from 4.4 to 4.2.


Growth and Performance Trends

These trends indicate that in many cases, PSHPs are losing market share to large vertically integrated nationals, carrying higher MLR numbers than necessary, and no longer exceeding the market’s average quality levels. All of these factors contribute to the financial headwinds that IDSs face in the MA business line. But research shows that PSHPs actually have much more potential in delivering MA growth, margin, and market position for IDSs than what their performance in today’s market suggests.


Supporting Enterprise Medicare Advantage Sustainability

When looking more closely at IDS performance based on standardized financial performance of the care delivery asset and the health plan asset, we can segment the market into four broad categories:

  • Quadrant I, Margin Drivers: IDSs with care delivery and health plan assets that both generate positive financial results in the form of margin
  • Quadrant II, System Performers: IDSs with care delivery assets that generate positive financial results but health plan assets that do not
  • Quadrant III, Margin Seekers: IDSs with care delivery and health plan assets that both generate negative financial results
  • Quadrant IV, Plan Performers: IDSs with health plan assets that generate positive financial results but care delivery assets that do not


Integrated Delivery System Financial Performance



System metrics (Y-axis): NPSR, OP. Margin; Plan Metrics (X-Axis): Net Premium Revenue, Net OP. Margin and MLR; these metrics were used to combine plan and system metrics using a z-score methodology.


Improving Medicare Advantage Margin Across Care Delivery and Plan Assets

Research proves that PSHPs can drive more value to the enterprise by serving as a diversified revenue source, a population health chassis, and a competitive hedge against national vertically integrated plans, among other factors.

So why are IDSs struggling to fully realize the potential of owning their own MA health plans? Too often they orient their enterprise strategy toward the care delivery assets and forgo health plan profitability as a result; an example of this is obtaining favorable rates at the expense of higher MLR.

A smarter long-term strategy? Investing in the sustainable growth and profitability of their PSHP’s operations and integration into their health system’s care delivery practices to yield balanced enterprise margin. This lets them compete more effectively with national vertically integrated plans, which have less reason to collaborate on unit reimbursement levels and are disrupting care delivery margins through their own delivery assets and site-of-service navigation strategies.


What a Successful Approach Looks Like

Leading IDSs and those making the shift toward greater margin balance between care delivery and plan assets tend to focus on the following elements.

Creativity in fair-market pricing: Successful IDSs are not afraid to partner with their care delivery and PSHP contracting teams on creative payment and collections strategies instead of trying to negotiate. This requires:

  • A “system-thinking” approach at the executive level
  • Collaboration-based managed care contracting
  • Operational harmony among the care delivery’s revenue cycle function, the enterprise’s care management function, and the PSHP’s utilization management function

Margin share with the physician network: Striving for the right balance between care delivery rates and product pricing doesn’t stop at the system or plan level. Participating physician networks such as an IDS’s clinically integrated network must participate in the strategy—and then ultimately share in the business line margin. Going beyond unit rates, quality bonuses, and shared savings to developing strategies for sharing margin demonstrates to physician networks the viability of a win-win solution as aligned lives grow among the enterprise.

Collaboration on clinical and quality programs: It’s critical to prioritize initiatives that improve clinical outcomes, address gaps in care, manage utilization, and zero in on key populations requiring focused attention. Redesigning the care model to focus resources is imperative to achieving desired financial and clinical outcomes for both the PSHP and the care delivery assets.

PSHP collaboration on common pain points across the care delivery continuum is another key to addressing operational challenges such as acute length-of-stay issues due to prior authorization delays and reducing the administrative burden too often felt by providers in non-affiliated payer relationships.

Investments in access: Delivering appropriate access is not simply a factor of network size; network cohesiveness and effectiveness as defined by the consumer also matters. Attracting physicians with the highest quality, efficiency, and experience scores within the local market and providing enablement tools to control total costs of care can help improve performance of both employed and aligned physicians.

Access also involves more than just adding new clinics. It means increasing the capacity of current clinics to drive greater access for more patients at the time they need an appointment, as well as striving for seamless care transitions to better manage the overall healthcare experience and consumer spend. Tools that easily flag the right provider help meet those goals by making the consumer journey easier while improving the network’s total cost of care performance. And a network’s reach can be deepened by overlaying virtual primary care and specialty network participants.

“Systemness” as an executive priority: Establishing cross-company alignment at the executive level allows IDSs to shed traditional executive incentive models that focus on either the success of an individual care delivery or health plan profit-and-loss statement. Instead, effective IDSs create operating models that embody care delivery and PSHP margin alignment through leading-edge governance, decision-making, and financial and operational targets.


Leveling the Playing Field

It’s clear that providers and health systems alike need to reimagine the potential a PSHP can offer to help them ably compete with nationals and disruptors while still meeting their clinical mission. With the right guidance, they can take the next steps toward optimal alignment between PSHP and enterprise strategy.


Eric Meinkow, Partner

Dennis Butts, Jr., Partner

Kurt Eicher, Director

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