How Provider-Sponsored Plans Can Win in the Medicare Advantage Market

By Ozgur Adigozel and Nat Jackson

For health care systems, the benefits of entering the Medicare Advantage (MA) market—the private version of the US government’s Medicare program for the elderly—can be substantial. But the performance of those that have made the move thus far has been highly variable.

Some provider-sponsored plans, such as Kaiser Permanente, have become leading performers in their local markets. But many MA plans—both provider-sponsored and commercial—have struggled to gain scale and achieve profitability. A recent study in Health Affairs found that as the number of provider-sponsored plans in the MA market has grown in recent years, their collective market share has actually shrunk. Additional research found that close to half of provider-sponsored health plans studied had lost money in at least one of the previous three years.

So while entering the MA market provides significant opportunities—including new revenue sources and greater leverage with existing payers—reaching those goals can be challenging without the right approach.


For health systems, entering the MA market presents a path to higher growth and profit margins than their core health-care services market can provide—but success is not easy. To win, health plans must excel in three areas:

  • Acquiring and retaining members
  • Optimizing revenue per member through improved quality
  • Controlling cost per member

Succeeding in each of these areas poses a set of challenges. To acquire and retain members, for example, a plan must first design and price attractive products that are tailored to the needs and preferences of the local population. It then has to develop a robust sales and marketing strategy and raise awareness of the brand in order to sell those products. And that just gets the member in the door. Once the plan has enrolled a member, it must deliver a superior experience across the entire customer journey in order to keep that member from switching to a competitor.

Failing in just one of these areas could be devastating to a plan’s chances of success. It’s possible to get everything right but then enter the wrong geographic markets, for example, and end up losing money.

Furthermore, succeeding in any one of these areas often requires the complex coordination of multiple teams across an organization. In order to develop an attractive product offering, for instance, the product team has to determine which benefit package will appeal to members in the market, the medical-management team must determine the costs associated with the benefit package, the pricing team must determine the optimal price given those costs, and the risk adjustment team has to determine how much revenue the plan can expect at a given price level. If these processes aren’t all integrated, failure is almost assured.

On top of that, provider-sponsored plans must execute in all of these areas while also pursuing a fundamentally different business model—one in which incentives, at least in the short term, may sometimes come into conflict with those in their core provider business.

Proceeding in such a consistent and coordinated way isn’t easy. But the most successful commercial and provider-sponsored plans have been able to do just that by developing capabilities in six key areas.


Running an MA health plan successfully requires mastering operations across the front, middle, and back offices. However, there are three areas specific to MA in which success is especially critical: risk adjustment, star ratings, and compliance.

The best plans develop particularly deep expertise in each of these areas, even when they use outsourcing partners to perform some of the tasks. Furthermore, they employ a continuous improvement approach that requires managers to constantly ask how they can incrementally improve performance.

This often involves pursuing complex strategies that engage multiple stakeholders both inside and outside the organization. For example, to improve their star ratings, strategies can include pursuing better data integration with physicians in order to ensure members receive the right preventive care as well as adopting call center best practices from other industries in order to improve member experiences.


Provider-sponsored plans have a built-in advantage through their health system assets, but not all plans exploit that advantage. To make the most of those assets, plans must engage system providers in key areas, including HEDIS (Healthcare Effectiveness Data and Information Set) measures, which are a key component of star ratings; the development of clinical and medical-management pilots; and data sharing, which supports a more seamless member experience. In other words, to succeed as a provider-sponsored plan, organizations need to make the provider part count.

That’s especially true when it comes to primary care physicians. These providers are critical in successfully coordinating the care of seniors with multiple chronic conditions who account for a high percentage of medical costs in MA. And research also shows that primary care doctors build especially strong relationships with their senior patients, making engaging these physicians an important part of managing the overall member experience.


As an MA plan, there is always an argument for adding one more new product, medical management pilot, or analyst to further refine actuarial assumptions. But this added complexity also brings added costs.

A third characteristic of successful provider-sponsored plans is a relentless commitment to being a low-cost operator. That means establishing a high bar and employing an efficient process to assess new spending requests, such as the hiring of additional FTEs, as well as constantly scrutinizing your current cost structure—for example, by regularly bidding out vendor contracts.

By building a lean mindset into company DNA, the best plans ensure that they maximize plan investments and stay profitable no matter the market conditions.


Many health plans choose to combine operations across their different lines of business, allowing economies of scale that can lower costs in areas such as customer service. But a fourth key characteristic of successful provider-sponsored MA plans is having a focused MA business unit.

Although many aspects of running an MA plan are similar to those of running a commercial plan, there are also key differences. Some of these challenges are related to unique Centers for Medicare & Medicaid Services (CMS) regulations in the Medicare market. Others are related to dealing with a senior population that has different customer behavior and medical needs. The fact that the majority—82%—of MA plans are sold directly to consumers poses additional challenges.

Many of the most successful health plans recognize these challenges and choose to build dedicated MA business units. This approach allows them to optimize operations for the challenges of serving Medicare customers and meeting CMS regulations.


For MA plans to succeed, the member experience is crucial. It is not only key to driving membership retention—with top plans able to achieve retention rates of more than 95%-—but also crucial to star ratings and compliance.

To ensure that they succeed in these areas, the best plans put the member at the center of every decision they make. For example, if the operations department is making a cost-cutting change to increase automation in claims processing, it takes into account the potential impact on members of additional misprocessed claims. Further, customer service representatives are evaluated on the quality of their interactions, not just on how many calls they can make in an hour.

By making member-centricity a businesswide mindset, we have seen leading plans meaningfully differentiate themselves and win in the market—even against competitors with lower prices and greater scale.


Change is constant in the MA market. Over the past ten years, there has been significant evolution in how plans approach areas such as benefit design, network design, and medical management. In some cases, the evolution has come in response to changes in consumer preferences. In others, it has come in response to new regulations.

In this evolving market, we’ve observed that the best plans are constantly looking ahead. In medical management, for example, leading plans have been early adopters of cutting-edge strategies for reducing costs through analytics-driven approaches to post-acute and palliative care.

And this forward-looking mindset is likely to remain critical. For example, CMS makes annual changes to how quality scores are calculated. The plans that anticipate and plan for these changes are the ones that will be able to continue to improve their high-star ratings, while other plans scramble not to lose ground.


While there is a playbook for health systems to win in MA, it’s still not easy to execute. And as many health systems have learned, failing to execute for even one or two years can lead to significant financial losses.

One option available for health systems looking to enter the market—and increase their chances of success once they’re there—is to leverage support from a partner that provides MA outsourcing solutions. These partners allow plans to outsource end-to-end MA operations, from product development and pricing to medical management and claims processing. They also provide health systems with the ability to enter the health insurance business more quickly and to reap the benefits of greater scale that might otherwise be more challenging to achieve.

Although health plans cede some of the upside when they find a partner, outsourcing can significantly improve the likelihood of success while dramatically limiting the downside. And partnering allows health systems to continue to leverage unique advantages, such as a strong local brand and provider relationships.

The trends that have made entering the MA market attractive for health systems are likely to continue. As health systems consider entering the MA market to capitalize on these trends, they should assess their ability to develop the key capabilities necessary to succeed and follow one of two paths: develop the key capabilities internally, or find an experienced outsourcing services partner that has demonstrated those capabilities in other markets.