Hospital, Insurer Crossover Rising

Ramanathan Raju, M.D., chief executive officer of the Cook County Health and Hospitals System in Chicago, recently announced he would like the organization to get into the insurance business. 

Cook County’s move is just one more of an increasing number of large hospital systems that are dipping their toes into the payer sector. 

The health system has joined with the state of Illinois to operate a Medicaid program beginning this month for uninsured adults in the county. 

Unlike typical Medicaid plans, beneficiaries will be required to receive services from the health system and a small select group of outside providers through a medical home. 

And according to a recent report in Crain’s Chicago Business, Raju wants to expand the program. Within five years, he said they would like to offer the resultant insurance products to commercial enrollees through Illinois’s state health insurance exchange, which begins taking enrollees in October and will be fully operational at the start of 2014. 

This isn’t the first large health system to move in this direction. Many others outside of the Midwest – like New York City Health & Hospitals Corp. where Raju used to work, Geisinger Health System in Pennsylvania, Kaiser Permanente in California and Group Health Cooperative in Seattle – all have been successful in creating insurance products that bring beneficiaries into their system. 

And there have been a variety of attempted or consummated deals in the past couple of years that seems to be accelerating this trend.

The most high-profile of these transactions has been  insurer Highmark to purchase the five-hospital West Penn Allegheny Health System in Pennsylvania. However, legal issues and other obstacles has stalled that deal that for more than a year.

The move toward these payer-provider mashup is being driven in part by the Patient Protection and Affordable Care Act. Although the healthcare reform law will put millions of more Americans into Medicaid and commercial health plans in the coming years, providers are also facing more financial penalties for providing subpar care.

As a result, industry observers believe that providers have to be more nimble in terms of healthcare delivery. Fusing them with payers can help achieve those goals.

“The care needs to be better coordinated, less fragmented, and more efficient,” said Daniel M. Grauman, chief executive officer of DGA Partners in New York.

Frank Williams, chief executive officer of Evolent Health, a management services organization in Arlington, Va., observed that this is a major trend that the CEO of nearly every hospital system is at least considering. 

“They are thinking of moving toward population health and launching their own plans … because of the economic pressure on the traditional hospital business,” Williams said. 

He said some may look at arrangements such as having an agreement with a payer or starting with their own employees. 

Williams added that there are a few specific things that can make it successful: a strong brand, a large physician network and good infrastructure in place that includes electronic medical records. 

One motivation for becoming an insurer is to change the way providers care for patients, Williams said.

“Patients with chronic conditions need to be taken care of in a different way than fee-for-service, so this is an opportunity for them to develop programs and focus on readmissions risk and identify ways to identify gaps in care and behavioral change programs,” he said. 

By insuring as well as treating patients, the hospitals have a greater say in how providers are paid and have the statistics on their patient population – it will be easier for them to know if patients are getting the care they need or taking medications that are prescribed. 

“This way, care management is not done from 30,000 feet,” he said. “If you look at the Geisingers and (Intermountain Health Cares), they are some of the highest rated health plans in the country because … when incentives between the insurer, physician and hospital are more aligned, they provide better care.”

Revenue is another factor. 

Williams said it can be risky to start a health plan, but it can also be lucrative if done correctly. The University of Pittsburgh Medical Center has about $10 billion in annual revenue. Of that, about $4 billion of that comes from its health plan, he observed. 

Tom Traylor, vice president of federal, state and local programs for Boston Medical Center, said the hospital’s insurance plan has been profitable and has helped support the system. 

The BMC plan began as a local program in 1997 and moved statewide; it currently has 260,000 enrollees. 

Traylor noted that it has been helpful in providing data to the organization, bringing in revenue and negotiating “preferred rates” for their physicians. But the purpose of the plan now is to help them move forward in the changing health climate. 

“For us, we are looking for the ACO opportunity and believe having a health plan is a big asset to move our delivery system along that way.”