Feasibility Studies

Two of the most common questions plans ask are: “Where should we be offering products?” and “What products should we be offering?” A feasibility study can really help make that picture clearer. For plans looking to either expand or become a health plan in 2021, this should be done as early in the process as possible.

Some of the top reasons to conduct a feasibility study include:

  • Getting a more complete understanding of whether service areas are financially viable, show membership growth potential, or both
  • Getting an understanding of how existing operations and performance can impact revenue and margins and vice versa
  • Getting an understanding of the sensitivity of various factors that have a large impact on margin

When looking at service areas, benchmarks and factors that play into the maximization of benchmarks are very important. How are benchmark rates trending from year to year? Does the pre-Affordable Care Act (ACA) rate limit growth? Do pre-ACA rates limit the amount of bonus for new plans and plans that achieve the 5% bonus? Do any areas qualify for the double bonus? Is there any upcoming legislation that may impact payment rates?

For membership potential, a thorough study of the markets being considered must occur. How many health plans and products are available? What is the growth in the number of beneficiaries joining Medicare Advantage (MA) plans? How much of the population is aging in? What types of plans are growing membership? Do I have existing populations through individual commercial or group pIans to whom I can market? Can I co-brand with a provider group or hospital system?

Your existing operations and performance can also play a large role. What kind of “lift” will it take to build my network? Are there any risk arrangements? Will I need a new Centers for Medicare & Medicaid Services (CMS) contract? What amount of effort will it take with my existing systems to add a new service area or product? How is medical management on my current population? Will my Star Ratings positively or negatively impact the benchmarks used? If I’m not already in MA, what kind of lift will it take, and what will it cost?

Completing a feasibility study and conducting a sensitivity analyses can really help plans make these decisions. For new plans, it is important to know just how sensitive certain factors can be. These factors include provider contracting and expected improvement in contracting rates, utilization management relative to Fee for Service and how much improvement there will be from year to year, risk adjustment trends, Star Ratings, administrative costs and trends, and membership. CMS expects plans to have a positive margin by the fifth year of business. Conducting the feasibility study and sensitivity analyses can help plans understand what has to go right in order achieve a positive margin.

At Gorman Health Group, we have provided expertise to government-sponsored plans in conducting feasibility studies. We have extensive experience in the bid process as well as forecasting. Feel free to reach out and discuss how we can assist you in developing a feasibility study for any markets and products in which you may be interested.

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