As ACO movement gathers momentum, hospitals and health systems see opportunities in providing health insurance

Hospitals and health systems are getting back into the health insurance business. Not only is this seen as an opportunity created by the development of accountable-care organizations (ACOs), but it may help the clinical laboratories of these same hospitals that serve office-based physicians in their communities.

This trend is another result of the Obamacare legislation. Some hospital systems are seizing an opportunity to expand their roles and grow revenue by once again getting into the health insurance business. Some experts believe this trend is likely to create more competition among insurers.

It may also accelerate the shift away from fee-for-service reimbursement to a global or bundled payment structure. As this occurs, medical laboratories will need to develop services that offer greater value to physicians and patients.

Hospital-owned Health Insurance Plans May Slow Healthcare Spending

One factor causing hospitals to enter the insurance market is demand by employers and government health policymakers to slow healthcare spending, according to a story published by Modern Healthcare.

A reporter at the Wall Street Journal (WSJ) sees it a bit differently. In a WSJ article, reporter Anna Wilde Mathews observed that hospitals are launching their own insurance plans to help offset costs under the Affordable Care Act’s Medicaid expansion and to compensate for declining reimbursement rates under Medicare. Another benefit is that hospitals that own their own health insurance plan can better track all of a patient’s medical history.

The WSJ also pointed out that most hospital plans will be health maintenance organizations (HMOs). While HMOs have long been stigmatized by limited choice of providers and poor access to care, hospitals believe patients will accept the narrower options in exchange for lower premiums and a promise of better care.

Hospitals Announce Plans to Offer Health Insurance Plans

It is a growing list of hospitals and health systems that are taking the plunge and establishing their own health insurance companies. Here are examples of  those private hospital systems and medical centers that recently announced plans to take this leap.

Catholic Health Initiatives

Englewood, Colo.-based Catholic Health Initiatives (CHI) operates 72 hospitals in 17 states. It recently acquired a majority stake in Washington state insurer Southpath Health for $24 million and has hired a half-dozen former insurance executives, noted Modern Healthcare.

One big health system taking steps to participate in offering health insurance is Catholic Health Initiatives, based in Denver, Colorado. Pictured above is Executive Vice President Michael T. Rowan. He has told the press that CHI will continue to work with private health insurers, but will move forward to build its own insurance offerings by the acquisition of private insurers. (Photo copyright Catholic Healthcare Initiatives.)

One big health system taking steps to participate in offering health insurance is Catholic Health Initiatives, based in Denver, Colorado. Pictured above is Executive Vice President Michael T. Rowan. He has told the press that CHI will continue to work with private health insurers, but will move forward to build its own insurance offerings by the acquisition of private insurers. (Photo copyright Catholic Healthcare Initiatives.)

CHI officials said the system is planning to build insurance capacity to offer coverage to employers. System Executive Vice President and COO Michael T. Rowan said that CHI will continue to work with private insurers. However, it will increasingly become a competitor, as CHI intends to continue acquiring private insurers, he admitted. He also predicted that employers will contract directly with health systems to reduce health care costs.

Detroit Medical Center

Crain’s Detroit Business published a story about the details of a $6-million deal by Detroit Medical Center and its nonprofit parent, Nashville-based Vanguard Health Systems, Inc., to purchase ProCare Health Plan, Inc., a Detroit-based health maintenance organization that covers Medicaid beneficiaries in Wayne County.

Partners HealthCare System

Massachusetts’ largest hospital and physician network, Partners HealthCare System, Inc., acquired Neighborhood Health Plan, a Boston-based nonprofit that insures more than 240,000 mostly low-income residents across the state, according to a report posted by Boston.com. No money exchanged hands, but Partners is providing grants to more than 50 community health centers affiliated with Neighborhood Health. It will collaborate with Neighborhood Health to deliver better, more efficient medical care to these centers as a way to gain a foothold in the insurance business.

Steward Health Care System

Another Massachusetts hospital system, Steward Health Care System, has been buying up community hospitals for more than a year and now plans to roll out a health insurance product called Steward Community Choice, This was reported in a story  published by the Washington Post.

The health plan, which will be administered by Tuffs Health Plans, a not-for-profit HMO, will target small businesses throughout the state. It will offer employers health plans with premiums 20% to 30% lower than other providers.

Pictured is the new logo for Massachusetts Steward Health System’s new insurance plan, Steward Community Choice™ Steward has been buying up community hospitals statewide and is now rolling out an insurance plan targeted at small businesses, which will be administered by Tuffs Health Plans.

Pictured is the new logo for Massachusetts Steward Health System’s new insurance plan, Steward Community Choice™ Steward has been buying up community hospitals statewide and is now rolling out an insurance plan targeted at small businesses, which will be administered by Tuffs Health Plans.

Cooper University Health Care

Cooper University Health Care, the clinical campus of Cooper Medical School of Rowan University in Camden, New Jersey, has partnered with AmeriHealth New Jersey, a subsidiary of Philadelphia-based Independence Blue Cross (IBXG:OTC US), to develop a series of co-branded health insurance products for employers and consumers. This was reported by the Philadelphia Business Journal.

AmeriHealth New Jersey is one of five plans in the state participating in the CMS Innovation Center’s Comprehensive Primary Care Initiative, a demonstration project in which private insurers, Medicare and Medicaid programs are paying providers per-month, per-patient fees to compensate them for coordinating care. Cooper’s network of more than 500 medical specialists and primary care physicians will provide coordinated patient care in the Southern New Jersey region.

Piedmont Healthcare and WellStar Health System

Piedmont Healthcare and WellStar Health System, two of Atlanta’s largest healthcare providers, announced a plan to establish a jointly owned insurance plan that will market coverage to employers and Medicare recipients. It will launch in early 2014, reported WSJ. They may also offer coverage on the health insurance exchange, the online marketplace mandated by the Affordable Care Act of 2010.

Can Hospital-owned Health Insurance Plans Successd?

Deborah Chollet, a Mathematica Policy Research senior fellow, told the WSJ that hospitals’ entry into the insurance market is a natural evolution toward more integrated delivery systems. Hospitals may also be responding to consolidation among insurers, she said.

Chollet noted, however, that this is a “culture shift” for hospitals that presents risk. “It really is a change in how healthcare is perceived all the way up and down the line,” she said, contending that success will require aggressive use of information technology and new incentives for physicians and hospitals that promote prevention and primary care.

Should hospitals and health systems succeed with their re-entry into the health insurance business, this will be a favorable development for clinical laboratories owned by these institutions. Such labs are positioned to provide inpatient, outpatient, and outreach testing to the same patients served by the health insurance plan. As well, they can fully integrate their laboratory informatics systems to those of the parent hospital and its health insurance company.

In the coming days of “big health data,” this should be a point of strong leverage for clinical labs and pathologists who direct the medical laboratory testing activities at these labs.

—Patricia Kirk

Related Information:

Cutting out the middleman

Cooper, AmeriHealth NJ hope to add Partners

Why hospitals are becoming insurers: Cost control, revenue generation

How CHI is building and buying its own insurance Plan

When the hospital becomes the health insurer

Hospital systems to form their own insurance company

Hospital Systems Branch Out as Insurers