Providers and Payers Make Good Bedfellows

As health systems across the country look for ways to adapt to a changing marketplace and a wave of federally driven reform efforts, Sanford Health is enjoying the benefits of a strategic leap it took nearly two decades ago.

The evolution of provider-payer relationships is one of the great mysteries of healthcare reform efforts in the United States. Built on mutual need, these two parties have evolved from politely tolerating each other to something that lately has more closely resembled a Punch and Judy show.

But these relationships continue to evolve. What was once unthinkable is now trending upward. Some health systems are launching their own health plans while others are considering partnering with payers to offer in-house health plans.

Ruth Krystopolski knows what they are facing. And the South Dakota-based health plan executive knows what they stand to gain. "The health plan became a central depository," Krystopolski, president of Sanford Health Plan in Sioux Falls, told me last week. "It collected [valuable] information from a variety of sources."

Sanford Health began offering insurance through its partner health plan in 1998, starting in the health system's established market in Iowa, South Dakota and Minnesota, says Krystopolski, who helped craft the plan.

In addition to acting on the realization that it would be "good to have the information others had on us," she said Sanford Health determined that there was an unmet need in the marketplace—many workers throughout the region had limited options for health insurance.

"We wanted to understand what the employees in our market wanted," Krystopolski said of the research her team conducted before launching the plan. "It was really to respond to the needs of the market and get the information."

The result has been the creation of a partnership between Sanford Health and Sanford Health Plan that aligns with the needs of patients. "We are able to co-manage," the health plan president said. "We have a shared responsibility for a patient… We know they belong to us from the day they enroll and we reach out to them."

Together They're Stronger
The coupling of a health system and a health plan can help providers be more responsive to patients. "Learning what [patients'] needs are has made us more thoughtful," Krystopolski told me.

And having an in-house health plan has helped Sanford Health achieve several healthcare reform goals in recent years, in part because it brings flexibility to help adapt to change, Krystopolski said. "Because we are the payer and the provider, the lines… allow you more room to be creative," she said, citing the health plan's ability to work closely with Sanford physicians if there are complications billing an office visit.

The health plan helped Sanford Health stay ahead of the healthcare reform curve on quality reporting, continuous improvement projects, and comparisons of provider performance. "We had insight into some of the transparency reforms because we had been doing it for a while," she said.

And having the health plan has helped Sanford Health extend access to healthcare services in its market, she said, noting that the petroleum industry boom in the Dakotas has led to a transient segment of the population with few health insurance policy options. "It helps us understand where we might have access challenges," Krystopolski said. "We typically hear of it first at the health plan."

Sanford Health Plan has grown with its partner health system, to about $500 million in 2013 claims since its inception 17 years ago. Krystopolski says selecting good partners has been a key factor in the health plan's success.

State Regulators as Collaborators
While the health plan has an actuary on staff, Sanford Plan works with the Seattle-based consulting firm Milliman to conduct audits and help develop rates through modeling services. Sanford Health Plan has also had a partnership with Epic to develop an electronic medical records system that connects the health system and the health plan. "The technology is so much better than it was," Krystopolski said, recalling the early days of the health plan when patients would file paper claims. "But I believe we are only at the beginning."

Sanford Health had at least one advantage over current health systems considering the formation of a health plan: a supportive and relatively simple regulatory environment. Krystopolski says state insurance regulators have played a key role in the growth of Sanford Health Plan, contrasting state rules with often burdensome new federal regulations. "They have helped guide us and helped us do the things we had to do to establish regulatory compliance," she said of state officials. "They've been a key collaborator and partner."

As health system executives look for business models that will strengthen their capacity to face industry changes yet to be seen, in-house health plans appear to be a fine companion.

Join our webcast featuring Alan J. Murray, President & CEO, North Shore-LIJ CareConnect as hospital leaders outline the strategic transition from provider to payer, and new opportunities for controlling costs, managing risk, and maximizing reimbursements. March 28, 2014, 1:00–2:30 p.m. ET. Register today.