Mounting health plan losses have hospital systems on edge
Hospital companies have been losing money left and right since they started a trend a few years ago to own and operate their own
health plans. Those financial failures will be highlighted as the new quarterly earnings season kicks off. Tenet Healthcare Corp. and Catholic Health Initiatives are still trying to sell their health plans after racking up big losses on them in the past year.
Healthcare executives had hoped the strategy of integrating hospitals, doctors and other care settings with insurance under one roof would lower spending and improve care coordination—a strategy hospitals tested a couple decades ago, but it ultimately failed for those who had little experience in the insurance industry.
CHI, one of the largest not-for-profit health systems in the country, lost $100 million on its insurance business in fiscal 2016, while Tenet announced in February that it lost $37 million on its health plan in earnings before interest, taxes, depreciation and amortization. Both CHI of Englewood, Colo., and Dallas-based Tenet have vowed to exit the health plan business if they can’t find buyers for their struggling units. CHI’s insurance division, QualChoice Health, has hemorrhaged money since its inception. QualChoice sells Medicare Advantage plans and commercial plans to employers in six states.
Partners HealthCare System, the parent of Massachusetts General Hospital, announced in December that it lost $100 million-plus on its health plan in fiscal 2016 but was sticking to it. Partners’ Neighborhood Health plan was heavily responsible for swinging the system’s operating income from a $106.5 million gain in fiscal 2015. Phoenix-based Banner Health is also trying to right its health plans. The 28-hospital not-for-profit saw operating losses in its insurance operations widen to $153.8 million in 2016, compared with an operating loss of $38.7 million in 2015. Banner is cutting administrative costs, refining benefit plans and focusing on reducing hospitalizations, said Chuck Lehn, executive vice president of strategic growth.