Mark E. Lutes, Chair of the firm’s Board of Directors and a Member of the Firm in the Health Care and Life Sciences practice, in the firm’s Washington, DC, office, was featured in MCOL ThoughtLeaders and discussed the question: “What lessons from failures of a number of recent Health Cooperative plans are important to consider for new provider owned or venture capital backed health plans under development?”
Following is an excerpt:
One lesson to be drawn is one that has been learned time and time again — health plan development and operation is “not for the faint of heart.” While there are currently interesting opportunities for provider sponsored plans in government payor markets, they are not to be attempted without access to sufficient capital to get the new plan through the years necessary to get to scale.
Health plan costs (principally claims expense) are difficult to manage even during commercial underwriting cycles (or phases in government program rate setting) when there is play in the premium. If one endeavors to underwrite a population of unknown and highly variable risk characteristics at the scale of a start up, the endeavor is fraught with danger. Prudent players do not “jump in head first” but learn the characteristics of the population that will enroll and adopt their pricing accordingly.