Dignity Health is preparing to apply for a California health insurance license that will allow the San Francisco-based health system to accept the full financial risk for patients' medical care.
In January, the system formed Dignity Health Provider Resources, a not-for-profit that will seek a limited Knox-Keene license. Such a license is required in California for health systems to enter into contracts with financial risk for the full spectrum of a patient's care.
Dignity “will assume full financial risk for professional, hospital and other covered services” under contracts with California health plans, the system said in records provided to its lenders. Dignity “has not previously assumed full risk in this manner.”
Dignity Health declined to comment.
The license will not allow Dignity to market a health plan but will allow the system to accept full risk under contracts with insurers. Lloyd Dean, CEO of Dignity Health, has previously said the system would not create its own insurance company. “I think that's ill-conceived,” Dean said. “I think it's ultimately not going to be successful.”
Dignity operates hospitals across three states—Arizona, California and Nevada—but its officials have expressed bigger ambitions. It acquired U.S. HealthWorks, a 20-state operator of urgent-care and occupational health services, in August 2012.
The system is one of a growing number of hospital operators to aggressively expand into business models that allow hospitals to accept greater financial risk for the cost of care.
The strategy is increasingly common as Medicare, Medicaid and private health plans introduce incentives that can boost or erode hospitals' and medical groups' revenue based on their ability to manage the cost of patients' care. Medicare officials and major providers and insurers recently pledged to increase incentives.
Ascension Health, the nation's largest not-for-profit health system, has a pending deal to acquire Michigan insurer U.S. Health and Life Insurance Co. for $50 million. The insurer is licensed in 20 states and the District of Columbia and reported 2014 revenue of $80 million. Other hospital operators—Catholic Health Initiatives, Partners HealthCare, North Shore-Long Island Jewish Health System and Sutter Health—have launched or expanded insurance operations recently, with some early financial struggles.
Risk contracts are widely considered one way to blunt growth in U.S. health spending by giving hospitals and medical groups incentives to provide more efficient care. Such contracts are also worrying to some because providers could withhold treatment or avoid costly patients to save money. Risk contracts also often tie financial awards to performance on quality measures.
Hospitals and doctors that hold down spending against a target can keep some or all of what they save—depending on how much financial risk they agree to.
Dignity Health's move to accept full risk is more aggressive than the system's existing contracts and more aggressive than most of the types of agreements generally referred to as value-based.
Under typical accountable care contacts, for example, the financial risk is minimal. Global budgets are the riskiest agreements.
Follow Melanie Evans on Twitter: @MHmevans