As national health insurers push more risk to hospital systems and medical groups, many hospital administrators become more interested in establishing their own health insurance companies

New modes of provider reimbursement—such as bundled payments and budgeted payments—are motivating hospitals and health systems to reconsider their existing relationships with health insurers. Hospital administrators want to control the dollars they save by improving patient care, instead of allowing insurance companies to capture that money.

To accomplish these goals, more and more hospitals and health systems across the country are making one of three moves:

• Funding their own health plans;
• Partnering with health insurance companies; or,
• Buying health insurance companies.

As this trend gathers momentum, it will put the medical laboratories of hospitals in a much better position to regain access to patients. It can be expected that hospital administrators will include their own clinical laboratories and anatomic pathology providers in their own health insurance provider networks.

One health system in Dayton, Ohio, has entered the insurance business by acquiring an insurer. Premier Health purchased an insurance company in 2014 in order to control costs. The healthcare organization self-insures its 17,000-plus employees and their families. It’s not, however, out to compete with the big national players, said Michael Maiberger, FACHE, CEO of the five-hospital health plan. He was quoted in a story published by Modern Healthcare this spring.

“For us, the insurance business is just a vehicle to cover as many lives as we can in our service area with our population health initiatives,” Maiberger explained.

Premier Health even expanded its health insurance offering this year by covering more than 7,000 Medicare Advantage subscribers, as well as 2,000 individuals and families who came to the insurance plan via the federal insurance exchange in Ohio.

Michael J. Maiberger, FACHE, is Chief Value Officer/Chief Executive Officer at Premier Health Plans. He believes that providers who opt to self-insure are on “a five- to seven-year journey until [they’re] really going to see profitability,” he stated in the Modern Healthcare article. (Photo copyright Modern Healthcare.)

Michael J. Maiberger, FACHE, is Chief Value Officer/Chief Executive Officer at Premier Health Plans. He believes that providers who opt to self-insure are on “a five- to seven-year journey until [they’re] really going to see profitability,” he stated in the Modern Healthcare article. (Photo copyright Modern Healthcare.)

Could It Mean Decreased Revenues for Specialists Such as Pathology Groups?

Premier Health’s actions were prompted in part by pressure from insurance companies that wanted the health system to assume financial risk for the healthcare costs of its employees. As this trend of providers accepting more risk moves forward, there could be an industry-wide incentive to order fewer medical laboratory tests for patients. There could also be fewer fee-for-service payments going to specialized providers, such as contracted/independent clinical laboratories and anatomic pathology groups.

This also may be true with capitated plans, in which providers receive a lump sum annually to care for patients, regardless of the complexity or level of their care. It could mean that executives operating independent medical laboratory companies may need to rethink how they do business with health insurance plans that are owned and operated by hospitals and health systems.

But there could be salvation elsewhere. Although many hospitals are admitting fewer inpatients these days, other large healthcare systems are investing in outpatient facilities, which require clinical laboratory testing services.

What’s Driving the Payer-Turned-Player Trend?

According to consultants, the trend to self-insure, partner with insurance companies, or buy them outright is driven by several things, including:

  • The pressure on hospital institutions and medical groups to assume greater amounts of the financial risk;
  • The aging boomer generation and the higher costs for their care;
  • Healthcare reform;
  • Pressures to keep costs down;
  • The movement toward population health management; and,
  • Fewer inpatients and more outpatients.

How Large Is the Provider-owned Insurance Trend and How Fast Is It Spreading?

A 2013 survey of more than 100 hospitals and health systems conducted by the Advisory Board Co. and reported in HealthLeaders Media, noted that:

  • One in three institutions responded that they already own health plans.
  • One in five said they plan to launch a health insurance plan by 2018.

According to the American Hospital Association (AHA), in 2013, 698 hospitals had equity in a Health Maintenance Organization (HMO), which is an 11% increase from 2012. This number includes many hospitals within the same health system, so the number of provider-sponsored plans is probably closer to 90, according to consulting firm Navigant Healthcare.

Advantages of a Hospital Also Being the Payer

When hospitals and health systems operate health insurance plans, they can do several things that help control costs, writes health economist Austin Frakt in the New York Times. They can:

• Design incentives for providing better quality care;
• Combine functions and departments to cut costs;
• Increase income from new Medicare payment models;
• Increase competitive advantage; and,
• Raise premiums.

On that last point, Frakt co-authored the 2013 study “Plan–Provider Integration, Premiums, and Quality in the Medicare Advantage Market,” which was published in the journal Health Services Research. The researchers found that “insurance plans offered by hospitals charge higher premiums . . . [and] that such plans are rated to have higher quality by consumers.” However, “about 70 percent of the additional premium was not attributable to higher quality.”

While this is the only study “to directly relate hospital-provided insurance with plan quality and premiums,” because there was no existing database, Frakt wrote, “(our) study showed that integration between hospitals and plans might not be good for consumers, but it is just one study and was based on only one year of data.”

How Are Provider-Owned Insurance Companies Doing?

The ratings agency A.M. Best Company analyzed 150 provider-owned plans. Modern Healthcare’s reporter, Bob Herman, reported their results:

  • Provider-owned plans are doing as well as other health insurers with a 3.2% average profit margin in 2013. However, that’s down from 4.5% in 2010;
  • Premiums collected by provider-owned plans rose faster in 2013 (5.5%) than at publicly traded insurers (2.4%), Blue Cross and Blue Shield plans (2.5%), and others in the industry (3.2%);
  • Provider-owned plans cover less than 10% of the entire privately insured market, but membership is growing;
  • Total enrollment jumped to 19.1 million people in 2013, a 4% increase from 2012 and a higher growth rate than for other types of plans; and,
  • In 2013, Medicare beneficiary membership in provider-owned plans rose 8.2%, and Medicaid beneficiary membership grew 15.3% compared with 2012.

Future and Possible Pitfalls of Hospitals Owning Health Insurance Companies

Some experts predict that by 2018, one in five health systems also will be payers, but others say the trend is not without risks.

Once hospitals “get into product design and pricing and all of the nuanced areas, you can get into trouble reasonably quickly,” said Greg Maddrey, a director at the Chartis Group, a Chicago-based consulting firm.

Plans must avoid attracting too many sick subscribers, warns Modern Healthcare’s Herman. And hospitals and health systems should avoid antagonizing competing insurance companies. Since this is difficult to do, providers might take a lesson from University of California San Francisco Medical Center and create a partnership with insurers instead. Experts urge hospitals to not repeat the mistakes of the 1990s, when many hospitals and health systems assumed full risk and suffered big losses.

Further, if this trend of hospitals and health systems continues to gain traction, this may turn out to be an important benefit for the clinical laboratories and pathology groups currently serving these institutions. Not only would these labs have full access to patients enrolled in these health plans—in contrast to be excluded from the narrow provider networks of the national payers—but they would also have the opportunity to leverage the value of the lab data they generate from inpatient, outpatient, and outreach testing activities.

—E’Louise Ondash

Related Information:

More Health Systems Launch Insurance Plans Despite Caveats

When Hospital Systems Buy Health Insurers

1 in 5 Health Systems to Become Payers by 2018

New York’s Leading Health Systems Differ on Growth Strategy

The Death of Fee-For-Service in Healthcare

Trend of Hospitals Re-entering the Health Insurance Market May Benefit Hospital Laboratories