Hospitals Continue to Create Their Own Health Plans

As the old expression goes, “history has a way of repeating itself”. In the 1980’s and 1990’s, “managed care” became the buzzword as hospital-based health systems, with such venerable names as Kaiser Permanente, Geisinger Health and Intermountain Healthcare, began to create their own health plans. These plans were for the most part a hybrid of health insurance plans and HMO’s. While these hospital-based health systems were successful, and still exist today, there were many more that were not due to their inability to withstand the financial risks associated with managed care.

During the last few years, hospitals have again started to enter the health insurance arena. An example of this close to home is North Shore-LIJ Health System, which started enrolling individuals, families and businesses in its own health plan, North Shore-LIJ CareConnect Insurance Company, in October 2013.

While it is still too early to tell how successful hospitals will be in creating and operating their own health plans, it seems that their likelihood of success will be greater than in the past. There are many reasons for this, including the transition from fee-for-service to value-based payment models; consolidation amongst providers (physicians, hospitals and ancillary service providers); the move to population health management; and last but not least, the impetus that the Affordable Care Act (ACA) continues to provide.

With hospitals taking the lead in health care delivery and payment reform, they may also be best positioned to take on the financial risks associated with creating their own health plans. Understanding that hospitals, like all providers, are under pressure from established health plans to reduce costs, this is also a motivating factor in starting their own health plans; effectively taking out the “middle man”.

As hospitals also become payers, how this will impact physicians is still uncertain. Will hospital health plans further reduce reimbursements to independent physicians, understanding that a reduction in amounts paid by a hospital-based insurance plan for physicians’ services might equate to greater profitability for the hospital? Will physicians view this as a further loss of operational and financial control, perhaps accelerating the urgency for independent physicians to sell to a hospital? Or will by-passing third party commercial carriers simply help align the key initiatives of health care reform, improving the quality of care while reducing costs? So while the jury is still out, what is becoming evident is that health care continues to evolve in ways that are both similar and, at the same time, very much different than in years past.