Spe­cial Report: Health sys­tems adding in­surance plans

Once again, hospi­tal sys­tems see value in adding health plans to their or­ga­ni­za­tions

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One of the last­ing rip­ple ef­fects of health­care re­form has been the drive to­ward con­sol­i­da­tion—with health sys­tems in­creas­ingly look­ing to take more con­trol over the en­tire spec­trum of care. But as health­care providers have been chal­lenged to work around new pay­ment models, many are find­ing that be­ing truly “in­te­grated” means more than just adding well­ness cen­ters and post-acute-care ser­vices.

Providers are re­al­iz­ing that to stay com­pet­i­tive, they need to have a hand not only in health­care de­liv­ery, but also health­care fi­nanc­ing. And many sys­tems are find­ing that the best way to do so is through launch­ing their own in­surance plans.

It’s a strat­egy they’ve used be­fore. Health sys­tems en­tered the in­surance mar­ket in the 1980s and ’90s as a re­sponse to pres­sures from HMOs.

“It’s coming back, but it’s coming back in a slightly dif­fer­ent form,” says Jon Kings­dale, di­rec­tor at Wakely Con­sult­ing Group.

In­stead of in­surance com­pa­nies tak­ing the lead on new pay­ment sys­tems such as ac­count­able care or­ga­ni­za­tions, “the health sys­tem is kind of on top, if you will.”

Yet whether sys­tems will be suc­cess­ful in op­er­at­ing their own health plans is still an open ques­tion—cer­tainly many providers opted to get out of the in­surance mar­ket as quickly as they en­tered it in the early years of HMOs. But new tech­nolo­gies and shift­ing pri­or­i­ties un­der health­care re­form mean that sys­tems are will­ing to take an­other look at their op­tions.

In the past, “the po­ten­tial con­flict was greater than it was to­day,” says Joel Michaels, who leads the health in­dus­try ad­vi­sory prac­tice at law firm McDermott, Will & Emery. He adds that there was ten­sion be­tween “pro­vid­ing the ser­vice and polic­ing the ser­vice.”

“In to­day’s en­vi­ron­ment, I think hos­pi­tals are more for­ward-think­ing,” he says. “There are a num­ber of things that are chang­ing in how hos­pi­tals re­late to health in­sur­ers.”

Sut­ter Health, Sacra­mento, Calif., is one of the sys­tems that op­er­ated its own health plan in the late-1980s and early 1990s, be­fore it be­came a “man­age­ment dis­trac­tion” and was sold for a big profit. Now it wants to get back in.

“It was a dif­fer­ent world back then,” says Peter An­der­son, Sut­ter’s se­nior vice pres­i­dent of strat­egy and busi­ness devel­op­ment. Now with 24 hos­pi­tals and 5,184 staffed beds, the sys­tem also op­er­ates med­i­cal groups, out­pa­tient clin­ics, long-term-care cen­ters and hospice and home health ser­vices. “We’re quite a bit big­ger and we’ve filled a lot of holes in our ge­og­ra­phy.”

Last Au­gust, the sys­tem ap­plied for a state li­cense to op­er­ate its own health plan in the North­ern Cal­i­for­nia mar­ket; it ex­pects to re­ceive ap­proval in March with open en­roll­ment as early as the fourth quar­ter. It plans to fo­cus pri­mar­ily on com­mer­cial ben­e­fi­cia­ries.

“We do have some good name recog­ni­tion,” An­der­son says. “That re­duces the bar­ri­ers to en­try.”

Pied­mont Health­care, At­lanta, and part­ner Wel­lS­tar Health Sys­tem, Marietta, Ga., also ex­pect name recog­ni­tion to help at­tract en­rollees when their joint health plan is launched next year. The sys­tems ex­pect to list their plan on the state’s health in­surance ex­change as one av­enue for gen­er­at­ing cus­tomers.

“You def­i­nitely start with your own name as a vis­i­ble brand,” says Reynold Jen­nings, Wel­lS­tar’s pres­i­dent and CEO.

Michaels, of McDermott, Will & Emery, notes that the sys­tems most likely to be suc­cess­ful in the in­surance mar­ket are those that are dom­i­nant in their re­gions and can at­tract a large enough num­ber of pa­tients to share risk across the cov­ered pop­u­la­tion. “The crit­i­cal mass is go­ing to be im­por­tant,” he says.

In a more frag­mented mar­ket, pa­tients also ex­pect to have the free­dom to choose from dif­fer­ent providers, which can make it harder for sys­tems to be an ex­clu­sive provider or­ga­ni­za­tion.

Holly Meidl, man­ag­ing di­rec­tor and health­care prac­tice leader at Marsh, a New York-based in­surance bro­ker­age and risk-ad­vi­sory firm, notes that un­like two decades ago, sys­tems also con­trol sig­nif­i­cantly more pieces of the health­care de­liv­ery process—point­ing, for ex­am­ple, to the in­creased ac­tiv­ity around ac­quir­ing physi­cian groups. “Own­ing more parts of this chain al­lows them to suc­ceed,” she says.

The Pa­tient Pro­tec­tion and Af­ford­able Care Act—the key im­pe­tus be­hind the drive to­ward new pay­ment models—has also lev­eled the play­ing field for hos­pi­tals through the cre­ation of health in­surance ex­changes.

“It’s an­other mar­ket­ing av­enue and a way to put them­selves out there as a choice,” Meidl says. “And they have the brand recog­ni­tion.”

Health sys­tems and in­sur­ers are al­ready col­lab­o­rat­ing in a num­ber of ways, from form­ing ACOs to set­ting up joint ven­tures to launch new in­surance plans. Michaels notes that in­sur­ers are of­ten the ones ap­proach­ing hos­pi­tals with a will­ing­ness to ex­plore new in­surance prod­ucts, from an HMO-type model to a “su­per-pre­ferred” provider or­ga­ni­za­tion.

“What you may find down the road is in­sur­ers com­pet­ing with health­care de­liv­ery

Me­mo­ri­alCare, par­ent of 383-bed Miller Chil­dren’s Hospi­tal, Long Beach, Calif., is among sys­tems that have re­cently added a health plan.

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