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Is Your Local Health Plan Afraid of You?

By Dr. Martin Lustick

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Health plans with a dominant local market share face the ongoing strategic challenge of maintaining that position.  

Providers with a clear understanding of health plan concerns can use that knowledge to achieve their own goals. Here are three things health plans fear:

  1. New entrants. Dominant health plans face the constant risk of another plan entering their geography.  They understand that providers may be willing to accept lower reimbursement from a health plan with a tiny market share as the marginal cost of accepting a few more patients is negligible. Lower prices combined with tiny market share, enable new entrants to offer lower premiums than the dominant player at minimal risk to themselves. The established plan will likely make significant concessions to a provider that is positioned to help a new entrant in return for their “loyalty.”
  2. Third-party vendors. Many health plans make their profit on large employer groups through “buy-up” programs. They sell their basic administrative services at or below cost, then make a profit with offerings such as wellness, enhanced utilization management, pharmacy management, and care management. Increasingly, management service organizations (MSOs) and other third-party vendors have been marketing these capabilities directly to employers, offering more attractive buy-ups than the health plans. As providers develop capability and capacity in these functions, they are particularly well positioned to offer those programs directly to large employers.  Health plans holding these accounts will likely use both carrots and sticks to try to prevent this from happening.
  3. Disintermediation. As providers mature in their ability to manage populations and bear risk, they become a more direct threat to health plans. If they can show employer groups how they can meet the needs of employees with improved outcomes and lower costs, the group may be open to a limited or tiered network that channels people to that provider.  This puts pressure on health plans to create products with customized networks.  The biggest threat to the health plan, though, is the potential for a provider group to bring in an administrative silent partner and offer a limited network plan without them.  

As leaders understand the strategy and priorities of health plans in their geography, they can use their own evolving population health capabilities to ensure their contracts with plans reflect their full value. In return for long term commitments that reassure health plans of continued collaboration, providers can expect plans to provide the financial, operational, and data/analytic support needed to successfully transition to value-based care.


Dr. Martin Lustick

Senior Vice President, NextGen® Advisors

Dr. Martin Lustick is a principal and senior vice president with NextGen Healthcare focused on supporting provider organizations in their successful transition from volume to value-based care…

Dr. Martin Lustick is a principal and senior vice president with NextGen Healthcare focused on supporting provider organizations in their successful transition from volume to value-based care.

Dr. Lustick earned a BA in History from Cornell and an MD from Columbia. After completing his pediatric residency at Children’s Hospital National Medical Center in Washington, DC, he was in clinical practice for 17 years with Kaiser Permanente of the Mid-Atlantic States. While there, Dr. Lustick held various management and leadership roles, including chief operating officer for the 800-physician medical group. He oversaw development of their hospitalist program, population health capability, and open access delivery model.

Dr. Lustick then served as chief medical officer for ThompsonHealth—a small health system in Canandaigua, NY—where he provided clinical oversight for hospital, SNF, nursing home, IT, and out-patient physician practices.

In 2005, Dr. Lustick assumed the role of SVP & CMO for Excellus BCBS which covers 1.6 million lives comprised of Medicare, Commercial, and Medicaid. In his 13+ year tenure there he led a variety of strategic initiatives, including a patient-centered medical home program which served as the foundation for the plan’s value-based payment strategy. He also led the implementation of an automated authorization program for care management services, development of a clinical quality improvement strategy, and creation of innovative programs in management of low back pain, screening and prevention, opioid addiction, and chronic disease management.

Dr. Lustick has also been very active in the community, serving on boards and committees confronting issues such as: healthcare capacity planning, Health Information Exchange, mental health, substance use disorders, social determinants of health, and childhood obesity.

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