Not-for-profit integrated health systems continued to make money in 2015, but the margins were a lot tighter than the year before, according to a Modern Healthcare analysis of financial filings. In some instances, their operational surpluses were slashed by half or more.
These systems—which combine hospitals, doctors and health insurance operations under one umbrella—have become more common since the Affordable Care Act was enacted.
The law encourages more risk-taking from providers, and there's no greater risk than handling the entire insurance premium. But recent financial results show that the payoff won't be immediate.
Many delivery systems that stumbled in 2015 had either just started their own health plans or acquired one.
“We have seen some of the hospital systems new to insurance have really stubbed their toe,” said Jim LeBuhn, a senior director at Fitch Ratings who tracks not-for-profit hospitals. “And that is partly because they are just new to it, and they don't have as diversified a book of business.”
Several other factors have played into the declining finances, even for more established integrated health systems. The ACA's Medicaid expansion provided a large, positive jolt starting in 2014, but became less of a factor in 2015. High utilization on the exchanges and the decline in fully insured commercial plans, typically the most profitable segment for insurers, have continued as well.
Newer payer-provider systems include UnityPoint Health, based in West Des Moines, Iowa. UnityPoint posted a 1.7% operating margin on $3.89 billion in revenue in 2015, compared with a 3% operating margin on $3.7 billion in revenue in 2014. UnityPoint executives said in their financial filings that “high levels of insured medical claims expenses” contributed to the weaker numbers.
Northwell Health in Great Neck, N.Y., posted a 1% operating margin on $8.72 billion in revenue in 2015, down from the already tight 1.2% margin from 2014. Northwell launched its insurance arm a little more than two years ago, but executives aren't worried about the results so far.
“Having an insurance base has great potential, but it's a long-term play,” Northwell CEO Michael Dowling told Modern Healthcare last year. “I look upon this as a five-year play before you're going to see any substantial results.”