Hospital health plans heighten tensions with insurers

Kevin Lofton, CEO of Catholic Health Initiatives, says his health system's entry into the insurance market has complicated its negotiations with insurers.

The big not-for-profit hospital operator got a license to operate a health plan in Nebraska. It also holds insurance licenses in six other states. Last fall, Blue Cross and Blue Shield of Nebraska, that state's largest insurer, canceled CHI's provider contract. “We don't know for sure it's because we entered the market and got a license approved, but the fact is we're in a pretty rough, intense negotiation with them in terms of the network,” he said.

In markets across the U.S., health systems and medical groups increasingly are competing against insurers to enroll employer groups and individual consumers in their health plans. Providers are eyeing the insurance market because they are entering global budget contracts and figure they might as well capture savings for themselves from their more efficient care delivery. But launching their own plans may also strain negotiations with insurers over rates and networks, said Lofton and other health system leaders at the annual meeting of the American College of Health Care Executives in Chicago.

“You know, it really shouldn't,” Lofton said.

A Nebraska Blues spokeswoman declined an interview request. The insurer previously said the CHI contract was cancelled because of high costs at CHI's Alegent Creighton Health. “While other providers have worked with us to reduce or hold the line on costs, Alegent Creighton providers, in particular, cost significantly more than others in Omaha—and they continue to ask for annual increases,” Lee Handke, a senior vice president for the insurer, said in a news release last year.

Revenue loss from that Nebraska contract dispute contributed to CHI's $121.6 million operating loss in the quarter that ended Sept. 30, 2014. That loss prompted the system to cut 1,500 jobs and accelerate plans to reduce operating expenses.

Leaders of other systems also say health systems' entry into the insurance business has increased tensions with insurers. “They're not happy with Memorial Hermann being in the insurance business,” said Dan Wolterman, CEO of the 12-hospital system Memorial Hermann Healthcare System based in Houston. “It's a fledgling upstart company today. But we're off the ground. And we're now in the commercial and Medicare Advantage programs and hope that will start the ball moving to where we can take risk.”

A number of major health systems, including Ascension Health, the largest U.S. not-for-profit system, have acquired health plans or insurance licenses or intend to do so. But the strategy is not limited to multi-state hospital operators. Regional health systems such as North Shore-Long Island Jewish Health System, based in Great Neck, N.Y., and even some medical groups are pursuing the strategy. Crystal Run Healthcare, a 300-physician medical group in Middletown, N.Y., received a health plan license but has not yet enrolled members.

Some system executives acknowledge that they want to operate their own plans in order to keep the savings they generate from their efficiency efforts. “There will be no more money in the system than there is now,” said Dr. Gregory Spencer, chief medical officer at Crystal Run. “But you've got the opportunity now to get that arbitrage.”

Not all health systems are eager to enter health insurance markets. “My goal is not to be an insurance company,” Dr. Steven Safyer, CEO of Montefiore Health System in New York, recently said in an interview. But if insurers pressure his system to accept unfairly low payments, Montefiore has sought regulatory approval to create an insurance company. “If I had to, I'd do it,” he said.