1 in 5 Health Systems to Become Payers by 2018

Cost and reimbursement pressures, the explosion of boomers in the hospital patient mix, and the movement toward population health are spurring health systems to launch their own health insurance plans.

Health systems are increasingly taking on new roles and becoming health insurers. Spurred by healthcare reform, the creation of health insurance exchanges, and a shift to population health, health systems are assessing the opportunities of becoming a payer against the risk of taking that step in the ever evolving healthcare industry.

A growing number of health systems are deciding that it is worth the risk. In a June survey of more than 100 hospitals and health system across the country, 34% responded that they already own health plans. Another 21% said they plan to launch a health insurance plan by 2018, according to the Advisory Board Co., a Washington, D.C.-based research and consulting firm.

Among the health systems launching health plans:

• Boston-based Tufts Medical Center and its physician group, as well as Vanguard Health System received regulatory approval this week to launch Minuteman Health, which will be offered on the Massachusetts health exchange, the Commonwealth Connector.
• Catholic Health Partners, a Cincinnati-based health system, will launch an insurance plan on the Ohio HIX on Oct. 1.
• North Shore-Long Island Jewish Health System, a Long-Island, NY-based hospital system has received state approval to offer its health plan called CareConnect on the state health insurance exchange beginning Oct. 1.
• Piedmont Healthcare and WellStar Health System, two powerful Atlanta-based health systems, are developing a health plan that will offer commercial and Medicare Advantage products in 2014.

"There's an economic piece to this that is really creating urgency to change the way organizations care for patients and ultimately [change] the way they are paid," says Frank Williams, CEO of Evolent Health, an Arlington, VA-based firm that helps hospitals and health systems work through the pros and cons of becoming a provider-payer.

Evolent is working with 15 health systems and several of them are looking at creating their own health plan. As primary drivers of the trend, Williams cites cost and reimbursement pressures, the explosion of boomers in the hospital patient mix, and the movement toward population health.

He says with the focus on population health hospitals and health systems now have a much broader view of their place in the healthcare delivery system. They look beyond their own walls to their affiliated physicians, as well as their outpatient and home health resources. They are exploring how to bring these entities together in a more seamless way to deliver a better product to the market in terms of cost and quality.  

"Once you begin to move in that direction, how do you get paid? Health systems are stepping back and asking how [they] can get paid effectively to get a return from this effort," says Williams. "Some are deciding that it makes sense to offer their own product to the market."

He says most providers taking this step are not looking to "sign on General Electric and cover their employees worldwide." Small employer groups are particularly appealing because their coverage decisions are based on the local healthcare network where their employees get most of their care. 

For providers the health insurance business model is often a narrow network—typically comprising their own hospitals and affiliated physicians—that can be closely managed to control cost, quality, and coordination.

However, a marketplace reality is that scale is important. "If you're going to make this investment, you need enough revenue to support the effort," states Williams.

To offer effective health insurance coverage requires that a network include enough facilities and physicians to provide access and member convenience. While a provider may have a good strong footprint in a particular geographic areas, to have a viable product may require a broader coverage area. That probably means taking on a partner.

As a case in point, Williams offers the alliance between Piedmont Healthcare and WellStar Health System. Piedmont is strong in Atlanta's southern suburbs, but really needed a broader geographic coverage to offer a competitive insurance product. WellStar, with its presence in Atlanta's west and northwest suburbs, fits the bill. The two plan to offer commercial and Medicare insurance next year.

But jumping into the health insurance game is not a parlor game. Williams notes that decades ago hospitals and health systems lost a lot of money trying to take on capitation and broader risk.  

Also, shifting from provider to provider-payer is a huge cultural change that involves thinking beyond managing facilities and capacity to a more holistic approach to patient care. "It's a different mindset," says Williams.