The Blurring Line Between Hospitals and Insurers

An article from Modern Healthcare today on hospitals getting into the insurance business caught my eye. This follows a slew of recent articles documenting the trend, including from Kaiser Health News last August and the WSJ last December, but perhaps surfacing as early as 2010.

10% of community hospitals already own their own insurance plan, and 20% of top 100 hospital leaders in 2011 said they planned to own one soon, according to the WSJ report. The hospitals and health systems that have launched their own plan within the last few months include North Shore-Long Island Jewish in NY, Sutter Health and MemorialCare in CA, and a collaboration between Piedmont and Wellstar in GA. More recently, Florida Hospital announced plans to offer an insurance product by 2014, and in New Mexico, Christus St. Vincent’s CEO just announced the possibility of launching a health plan yesterday. Here’s a map:

There are a number of possible rationales for health systems to get in the insurance business, including:

  1. The logical extension of the “vertical integration” game to its ultimate end goal. As a hospital, if you already control your pre-acute (e.g. primary care docs, physician groups) and post-acute (e.g. nursing homes, home health) providers, why not manage the financing of health care as well?
  2. More control over population health. For some systems, especially those already part of or eyeing Accountable Care Organizations, being able to incentivize patients through benefit design to seek preventive care and be more health-conscious can negate higher treatment costs down the road.
  3. More visibility into data. Traditionally, insurers have had access to all of the claims data, while hospitals have been left in the dark.
  4. Concern about the future of hospitals as a viable business model. With margins deteriorating and payers doing everything they can to keep patients out of the hospital, why not jump ship and capture the “premium dollar” back from the insurers? (Especially if you can–deviously–capture all of the healthiest patients.)

“[Providers who depend solely on fee-for-service revenue] will eventually have a slow death.” -Michael J. Dowling, CEO, North Shore-Long Island Jewish Hospital (Source: WSJ)

That said, getting into the insurance business is not something that is easily done. Health systems have tried it before and failed. The challenges are multifold, and include:

  1. High fixed costs. Starting an insurance company ain’t cheap.
  2. Competing against the same insurers that you’ll likely still have to contract with, at least for some patients. That’s awkward.
  3. Managing risk. Hospitals historically have sucked at it. Without the scale and expertise, a few high-cost patients could bankrupt your entire business.
  4. Jumping through numerous regulatory hoops, including attending a class and passing a test, obtaining a license, purchasing insurance for your insurance company, and other requirements. Here’s a brief list.

It’ll be interesting to see if more health systems jump on the bandwagon as the year progresses, especially with the new Health Insurance Exchanges–I mean, “marketplaces”–slated to come online in 2014, potentially offering a new opportunity for market entry.

Next up: insurers buying up hospitals.

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(My List of) 2013 Health Care Trends to Watch

Welcome to 2013! Apologies for the long hiatus since last October; I got hit with crunch time at work, then the flu, and then went on a week-long road trip to the south.

Being super nerdy at the CDC.

Being super nerdy at the CDC.

However, with the project finished, the flu defeated, and myself filled with more fatty fried foods than I’d care to think about, I thought it would be appropriate to kick off 2013 with an overview of the biggest health care trends to watch for in the upcoming year. I know, every health news outlet is doing it–but for those who don’t subscribe to Modern Healthcare and Kaiser Health News, here is what I hope to be a pithy, reader-friendly list. Enjoy!

  1. The impending (?) roll out of health insurance exchanges. Mandated by the Affordable Care Act, state-wide exchanges are slated to begin enrollment this October. What is a health insurance exchange? Imagine Amazon.com, except for health plans, where individuals without health insurance (or whose companies drop their health insurance because the penalties aren’t high enough) can go to buy their own insurance. Want a living example? Visit the Massachusetts Health Connector site, which has been up and running since 2006. The Department of Health and Human Services conditionally approved 8 more states last Thursday, bringing the total to 19 plus DC. Key questions include how many employers will actually leave their employees to the exchanges (one survey suggests, none); how insurers will react to capture this new market segment; and perhaps most importantly, whether the fed can actually roll out well-functioning exchanges in the 25+ states that have opted for federal exchanges by the October deadline.
  2. More posturing and debate about Medicaid expansion. The ACA had initially required all states to expand eligibility of Medicaid to all adults under 65 at or below 133% of the federal poverty line (with the fed covering 90-100% of the cost). Thanks to a surprise Supreme Court ruling, that expansion is now optional. Check out this cool map I’m shameless posting from my company showing where the states stand on the expansion decision. More news stories come out every day, with Idaho’s governor rejecting expansion this Monday, New Mexico accepting expansion today, and Florida’s governor brandishing exorbitant costs of expansion–even when his own experts tell him the numbers are wrong.
  3. Possible Medicare overhauls? The fiscal cliff fiasco and the last-minute deal in Congress didn’t save us from disaster–it just created Fiscal Cliff 2.0 in February and March, during which automatic 2% spending cuts are scheduled to hit again unless Congress can strike another deal. The fact that we’ve already played the tax-increase card has some analysts predicting the end of Medicare and other entitlements, which will have to be cut to escape our deficit crisis. Not so, say others, who think that Medicare and Social Security are still too sacred to be touched. In any case, Pres. Obama has expressed a willingness to consider changes to Medicare to address its unsustainable cost to the government, and may even try to use it to find common ground with conservatives.
  4. Continued transition to “value-based payment”. For those unfamiliar with health care jargon, that basically means shifting from a world in which providers are paid for volume of services to one in which they are paid for based on the quality of care they provide (you think we’d have figured that out sooner, go figure). Much of this shift is being accelerated by various ACA programs. CMS kicked off its Value-Based Payment program last October (here’s a great overview by Kaiser Health News), which is already rewarding and penalizing hospitals (apparently those here in DC are doing the worst), and beginning this October will be adding patient mortality to the mix of incentive measures. CMS is also accelerating its Accountable Care Organization program, in which groups of providers can band together into systems that can be awarded savings for providing cost-effective, high-quality care. Starting with only 32 “pioneer” ACOs in December 2011, recent research indicates 328 ACOs as of November 2012, with CMS expected to announce the 2013 participants soon just announcing 106 new ACOs today (updated Jan. 10).
  5. …And due to the surging interest in ACOs and population health management, hospitals are responding with continued consolidation, building of physician networks, and partnering with post-acute and other providers. Scale is once again the name of the game. Expect a slew of anti-trust cases to follow.
  6. Finally, often under-reported by the mainstream media, expect further developments in health IT. Continuing growth of electronic health records, app-enabled consumer tech, and cybersecurity breaches, oh my! Take a look at some of the biggest trends here.