“We think because we are both a health delivery system, a population-health management organization, and we have the kind of products and services that are typical of the health plan and the (third-party administrator) domain, we are in the position to work with employers,” said Juan Serrano, CHI's senior vice president of payer strategy operations. Third-party administrators manage health plan operations for large employers that finance their own health benefits.
CHI's aggressive push into health insurance further cements its place among the industry's aggressive risk-takers as health reform remakes markets. New incentives under Obamacare have sought to reduce avoidable hospital visits, which has squeezed health-system margins and accelerated health-system investment in primary and ambulatory care. More Americans are also buying health insurance thanks to the Affordable Care Act. Roughly 8 million customers entered the health-insurance exchanges created under the ACA, including 4.8 million uninsured, according a Kaiser Family Foundation estimate.
Insurance deals could mean new profits to offset pressure on hospital margins, said Liz Sweeney, a senior director and analyst for Standard & Poor's. Owning a health plan may also help the system capitalize on the growing number of U.S. insured.
But systems have failed before to make the leap from hospital operations to health-plan management, which requires underwriting expertise to maintain margins. “It's an open question as to whether or not they'll be successful at managing risk,” she said.
Another issue could be the temptation to run insurance operations in such a way that they benefit the hospitals financially while hurting the insurance plans' own bottom lines, leading to longer-term financial issues for the system as a whole.
CHI officials say the changes will position the company for contracts with employers and other health insurers with incentives to contain health spending and promote prevention and disease management.
“It's a lot about the portfolio,” said Kevin Lofton, Catholic Health Initiatives' CEO, during a recent interview.
Deals since 2012 have added health insurance companies to the health system in Washington and Arkansas. CHI, which operates hospitals and clinics across 70 U.S. communities, also added a home-care company to its holdings in 2010, with the $43 million acquisition of Consolidated Health Services, and is part-owner of two reference laboratory companies.
“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,” Lofton said.
State insurance commissioners have not yet granted Catholic Health Initiatives' license to market private health plans, Serrano said. He also declined to name the states identified by CHI as its first targets.