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 systems,” Michaels says.
Yet not all systems plan to compete head-to-head with traditional insurance companies.
MemorialCare Health System, based in the Southern California city of Fountain Valley, plans to concentrate initially on Medi-Cal beneficiaries, the state's Medicaid population, as well as participate in the California Children's Service demonstration project, which focuses on pediatric patients with ongoing medical conditions. Later it will look at other options such as the dual-eligible population and Medicare Advantage, says Barry Arbuckle, MemorialCare's president and CEO.
“It's hard for me to imagine competing with the scale of Blue Cross in California,” he says. “They're a machine. It's not in our near-term plans.”
Sutter, after a three-decade hiatus, hopes to re-enter the insurance space. MemorialCare, whose flagship facility is 420-bed Long Beach Memorial Medical Center, had two licenses to operate managed-care plans in the 1980s but ultimately sold them, predicting that the capitation trend of HMOs would be a passing fad.