CHI seeks in­te­gra­tion in all di­rec­tions, in­clud­ing in­sur­ance

Among not-for-profit health­care de­liv­ery sys­tems, Englewood, Colo.-based Catholic Health Ini­tia­tives stands out for its si­mul­ta­ne­ous pur­suit of hor­i­zon­tal and ver­ti­cal in­te­gra­tion— ex­pand­ing its pres­ence in some mar­kets, while tak­ing on new busi­ness lines

Modern Healthcare - - Q&A -

Mod­ern Health­care: You ac­quired St. Luke’s Med­i­cal Cen­ter in Hous­ton. You’ve uni­fied your pres­ence and merged with some or­ga­ni­za­tions in Ken­tucky. What are you look­ing for with these merg­ers?

Kevin Lofton: It is all about scale within a re­gion, within a mar­ket. The mar­ket might be de­fined as one city. It might be a larger re­gion. And in some cases it’s the en­tire state. We need to make sure that all of our lo­cal min­istries have crit­i­cal mass suf­fi­cient to make sure that they are a player in that lo­cal en­vi­ron­ment. Some of those are wholly owned by CHI. Some of those are in part­ner­ship. We feel that if you are not suf­fi­ciently po­si­tioned from a re­gional per­spec­tive, then at the end of the day it is go­ing to be very hard to play in the pop­u­la­tion-health man­age­ment arena that we are mov­ing to­ward.

MH: Are there some mar­kets where you have his­tor­i­cally had a pres­ence where you are a third- or fourth-tier player and might con­sider get­ting rid of those as­sets?

Lofton: We have done that as well, prob­a­bly more than any other sys­tem in the coun­try. The two most re­cent were St. Joseph Med­i­cal Cen­ter in Tow­son, Md., and also St. Mary’s Hospi­tal in Pierre, S.D. Mary­land has con­sol­i­dated down to three sys­tems ba­si­cally—Johns Hop­kins, Univer­sity of Mary­land and Med­Star. We had a sin­gle hospi­tal, a very nice sub­ur­ban lo­ca­tion with ex­cel­lent out­comes.

But the long-term im­pact was that we saw that we re­ally could not grow there, and so we felt that the best thing for the fu­ture of the hospi­tal would be to se­cure a place for them in a larger or­ga­ni­za­tional struc­ture. In that case, we trans­ferred own­er­ship to the Univer­sity of Mary­land Med­i­cal Sys­tem.

MH: What are the chal­lenges in in­te­grat­ing ac­quired hos­pi­tals, and how is it go­ing with your most re­cent ac­qui­si­tion in Hous­ton?

Lofton: St. Luke’s in to­tal rev­enue is about $1.3 bil­lion. It’s a six-hospi­tal sys­tem, which in many places would be a lot. But in Hous­ton, that is only an 8% mar­ket share. So, we knew go­ing in that we would also have to grow, both in Hous­ton and in the re­gion. We think this will help all of those en­ti­ties be­cause they can go to the mar­ket as one or­ga­ni­za­tion.

The in­te­gra­tion is go­ing well. We had a big an­nounce­ment in Jan­uary where we for­mal­ized agree­ments with the Texas Heart In­sti­tute and with the Bay­lor Col­lege of Medicine. We think that is very im­por­tant. Bay­lor has an in­vested stake now in our Texas Med­i­cal Cen­ter, the main St. Luke’s Hospi­tal. So its teach­ing pro­grams are aligned with us and over­all we are mov­ing in lock­step. We think that those kinds of align­ments are go­ing to po­si­tion St. Luke’s to be a ma­jor health­care de­liv­erer in the fu­ture.

MH: You, along with some sys­tems around the coun­try, have got­ten into the in­sur­ance game. What is your strat­egy in ex­pand­ing your pres­ence in in­sur­ance?

Lofton: It’s a lot about the port­fo­lio. At CHI his­tor­i­cally, when you thought about health­care, the hos­pi­tals were the ma­jor com­po­nent and ev­ery­thing was hospi­tal-cen­tric. (Now) we are look­ing at ev­ery­thing from a con­tin­uum of health­care, and the fact that our role in the fu­ture will be to keep people healthy. In or­der to do that, we have di­ver­si­fied in a num­ber of ar­eas. We ac­quired a home-care com­pany. We have an

“We are look­ing at ev­ery­thing from a con­tin­uum of health­care and the fact that our role in the fu­ture will be to keep people healthy.”

in­vested stake in a ref­er­ence lab com­pany, as two ex­am­ples. More re­cently, we ac­quired QualChoice, a commercial health plan out of Lit­tle Rock. We pre­vi­ously had an in­vested stake in a Medi­care Ad­van­tage Plan. It re­ally is just more tools in a tool­kit. We want to look for CHI to move up­stream. We are not say­ing we are go­ing to com­pete in ev­ery mar­ket as a health plan. That’s re­ally not fea­si­ble. We op­er­ate in over 70 com­mu­ni­ties in 18 states. But what it does say is that in cer­tain mar­kets, it will be ben­e­fi­cial to us to have a health plan as part of what we can bring to the mar­ket. You are go­ing to con­tinue to see more di­rect con­tract­ing with com­pa­nies, and in that case, you re­ally would then be us­ing the in­sur­ance com­pany for third-party ad­min­is­tra­tion. We now have ca­pa­bil­i­ties in that area to do that. We also look at our own work­force. We have 90,000 em­ploy­ees. We are self­in­sured, but yet we pay Blue Cross to be the third-party ad­min­is­tra­tor.

So we will con­tinue to look to have great re­la­tion­ships with the pay­ers in all of the mar­kets that we are in, but at the same time, when it is ap­pro­pri­ate or needed, we would be able to in­tro­duce our own plan. We cur­rently are pro­cess­ing to have li­cen­sures ap­proved in five states.

MH: Do you fore­see us­ing in­sur­ance to de­velop a fully in­te­grated de­liv­ery sys­tem along the lines of a Kaiser Per­ma­nente or Geisinger?

Lofton: We have es­tab­lished that in ev­ery one of the mar­kets we are in, we will ei­ther lead and de­velop a clin­i­cally in­te­grated net­work (CIN), or be­come part of one. The key thing is you don’t have to own ev­ery­thing.

So, if you take Ta­coma, Fran­cis­can Health Sys­tem is CHI’s af­fil­i­ate up there. We have es­tab­lished a CIN. We have 500 em­ployed physi­cians in the Fran­cis­can Med­i­cal Group but now, through the CIN struc­ture, we have an­other 500 physi­cians that have signed up to be part of our in­te­grated net­work. So we can go to face the mar­ket now with 1,000 physi­cians at mul­ti­ple hospi­tal sites. We don’t have the in­sur­ance prod­uct, but com­mer­cially we do have a Medi­care Ad­van­tage plan up there.

MH: But is the idea to in­tro­duce an in­sur­ance prod­uct at some point?

Lofton: We don’t think that we would have to have an in­sur­ance prod­uct in ev­ery mar­ket. In some mar­kets, we are go­ing to have great re­la­tion­ships with the cur­rent pay­ers. The key is to switch the model from vol­ume pay­ment to value pay­ment. If we could work those things out with the cur­rent pay­ers in the mar­kets we are in, to me, that is the best of both worlds, be­cause we both ben­e­fit from keep­ing people healthy.

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