One of the nation's largest not-for-profit hospital operators is building its own insurance arm to sell health plans directly to employers.
Catholic Health Initiatives, which operates more than six dozen hospitals in 17 states, has hired a half-dozen former insurance executives and acquired the majority stake in a Washington insurer under a push to prepare for coming changes to hospital and physician reimbursement structures. The changes will increase providers' financial risk in ways that policymakers hope will create new incentives to eliminate waste and improve overall healthcare quality.
The Englewood, Colo.-based system is not alone in jumping into the insurance game. The Detroit Medical Center and Partners HealthCare recently acquired insurers. Two Georgia health systems last December announced plans to launch an insurer within a year. Piedmont Healthcare and WellStar Health System said the newly created insurer would cover their combined 35,000 workers and dependents, and enrollment was projected to grow to 160,000 in five years.
Demands from employers and policymakers to slow health spending are driving healthcare systems' push into insurance. New initiatives that save money by eliminating waste, improving quality and promoting health require access to data captured by insurers, industry executives and experts say. That data can identify how often and what care patients receive—or don't—and help providers identify possible targets to bolster care. Competition and consolidation among insurers may also be behind the deals.
CHI—which last year reported 6 million physician visits, 1.3 million emergency room visits and 1.7 million days of hospital care—is building its insurance operations and its capacity to enter into contracts with private insurers for riskier incentive-based contracts that will match the scale of its clinical operations across the country, said Michael Rowan, chief operating officer for the health system.
CHI won’t entirely cut out insurers. “We see ourselves in the future, in some cases, working as we do now with insurance companies,” Rowan said. But the system will continue to acquire health insurers, and in some markets will position itself to compete for employers’ business with a full benefit package and a network of providers inside and outside the hospital.
Deborah Chollet, a Mathematica Policy Research senior fellow, called hospitals’ entry into the insurance market a natural evolution toward more integrated delivery systems. It follows a wave of physician hiring in recent years. Hospitals may also be responding to consolidation among insurers, she said.
But hospitals’ broadening business model isn’t without risk. “It’s a culture shift for them,” Chollet said, one that will require more aggressive use of information technology and new incentives for physicians and hospitals that promote prevention and primary care instead of relying on high-volume delivery of acute and specialty care. “It certainly isn’t impossible, but it’s not something that happens overnight,” she said. “It really is a change in how healthcare is perceived all the way up and down the line.”
CHI’s push is part of a broader strategy to expand its reach and control over healthcare delivery beyond the hospital. In 2010, the system acquired a Cincinnati home health company with 30 locations in three states. Continued hiring has brought the total number of CHI’s employed physicians to roughly 3,000. The health system, which totaled $10.9 billion in revenue last year, wants to generate roughly two-thirds of its revenue from operations other than hospitals in coming years.
Just as hospitals have acquired insurers, health insurers have moved to acquire providers. UnitedHealth Group purchased the independent practice association Monarch HealthCare early last year. Insurer Humana purchased Concentra, an occupational and urgent care clinic company, for $780 million in December 2010.
Earlier this month, CHI closed on its acquisition of the Washington state insurer Soundpath Health for $24 million after the health system bid unsuccessfully to contract directly with Boeing to provide local workplace health benefits. Boeing spokesman Joseph Tedino said the company does not comment on negotiations or proposals. “In the normal course of business, Boeing continues to look for opportunities to improve the quality and control the cost of the healthcare benefits provided to our employees and their dependents,” he said.
The insurer claimed 9% of the Medicare Advantage market in the nine Washington counties where it operated as of last October. Catholic Health Initiatives plans to continue building its Washington state clinical network and insurance capabilities should “any employer in that community” seek to contract directly with the system, Rowan said.
Rowan anticipates employers will continue to move in the direction of contracting directly with health systems as they seek to reduce their healthcare costs. Even though CHI plans to slash $2 billion from its overall cost structure over the next four years, it will continue investing in its new insurance arm. “We think markets can turn in a hurry,” he said.