Hosted by the Health Plan Alliance, I was joined by Ken Barrette, Managing Director of Health Care at Alvarez and Marsal, and Marshall Votta, Operating Partner at Nautic Partners, to discuss the unique opportunities that provider-owned health plans are seeing in becoming players in the tech-enabled provider space as plans are shedding their historic roles of risk bearer and aggregator to embrace value-based care and make the necessary investments and innovation needed to succeed in that world.

The panel noted that virtually every major commercial insurer has an active venture investment arm, and many plans now attribute close to 50% of their revenue to non-traditional premium-based insurance products including care management, data analytics, risk management consulting, and outright provider ownership or management.

But both challenges and opportunities abound on the provider-side for plans.

Opportunities include: Rich with data, plans are in a unique position to predict and guide outcomes, care delivery and care navigation to the lowest most cost effective setting for an affiliated provider. Plans in many cases have the large national or regional platform of infrastructure to roll out a new delivery model across a broad network to make an offering attractive to members. Plans understand what payers will be looking for in terms of provider delivery and quality clinical care metrics. Plans have access to capital and can provide valuable strategic insight into provider-side acquisitions at the same time as quickly integrating a provider into their network.

Challenges include: Plans may find themselves absorbing losses on early stage growth (but promising) tech companies, hiring adequate human capital to monitor investments and, if needed, management for them; balancing minority and majority control positions with professional investors who may have different financial and liquidity objectives and governance styles; addressing conflicts between parent providers and newly-acquired providers that may compete with or negatively impact a parent of a plan; building adequate firewalls to inhibit the flow of confidential information addressed by antitrust laws; and finally, of course, being sensitive to fraud and abuse implications of referrals generated by vertical integration.

Given these opportunities and challenges—how best to invest? Buy, build, or partner? Selecting an area in which a plan has substantive need (and perhaps plan side expertise) as an initial matter is optimal to target opportunities that fit the need. Greater investment entails greater ability to influence a target but of course entails greater financial risk. Operating a provider also entails a fundamentally new skill set and need for new management from a plan. Many plans have taken an approach of either making minority direct investments in targets to learn an area or invest in a series of opportunities as a limited partner in a health care venture capital (VC) or private equity (PE) fund. Managing winners and losers across a broad portfolio of assets entails a unique skill set that may not be typically housed in risk bearing entities; therefore, many plans hire in this talent or outsource it to VC and PE funds.

However plans decide, one thing is certain: digital health investment is here to stay, is part of the new health care playbook for all players, and must be included in any plan strategy whatever the investment format. Simply contracting to shift risk to providers alone will not be sufficient. Total funding in digital health through Q3 has already surpassed all of ’20, a big year in itself, at $3.1Billion. Behavioral Health and home care lead the way in that number but new disruptive models continue to roll out in the risk allocation space, evidenced by several new models for provider /plan risk sharing. Plans will increasingly look to vertically diversify as technology and value-based care combine with consumerism in a new age for health care.