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 Among the country's largest insurers, Aetna Inc struck a deal to buy
Humana Inc, while Anthem Inc agreed to acquire Cigna Corp. Both
transactions are expected to draw months of scrutiny by U.S.
antitrust regulators and Congress.
Hospital and physician groups say the mega-mergers announced this
past summer could drive up premiums and limit choices for consumers.
Insurers, however, say the combinations will give them more leverage
to negotiate discounts for medical care.
According to interviews with more than a dozen hospital executives
and industry consultants, some hospitals are concerned about the
impact of this consolidation in their local markets, and are
considering offering their own insurance plans.
"Providers are starting to realize, we don't know how exactly it is
going to unfold, but we need to control our own destiny,” said Frank
Williams, chief executive of Evolent Health Inc, which helps
hospitals set up insurance plans.
Plans offered by large healthcare systems such as Kaiser Permanente
based in California and Geisinger Health System in Pennsylvania have
been around for decades.
But new private insurance exchanges created under President Barack
Obama's healthcare law have made it easier for a local hospital to
offer a health plan and compete with the large national carriers.
Many hospital systems have also been buying up individual doctor
practices, as well as rehabilitation and skilled nursing facilities,
which give them a broader network of services.
Among for-profit hospital operators, Tenet Healthcare Corp operates
six health plans with about 100,000 members.
Tenet entered the business two years ago when it acquired Vanguard
Health Systems and is expanding its offerings, but would not provide
details. HCA Holdings Inc and Community Health Systems Inc do not
offer health plans.
In a December survey of 45 large healthcare systems by Advisory
Board Co, one-third said they already offered an insurance plan.
Among the remaining respondents, three-quarters said they had either
made the decision to start one in the next three years or were
considering it.
Williams said Evolent Health has seen a surge in interest from
hospitals in the last few months. Other consultants with hospital
clients also reported an uptick in inquiries.
COMPLEX ENTRY PROCESS
Launching a health plan involves obtaining a state license and
meeting capital reserve requirements, which narrows the pool of
hospitals to those with ample resources.
Hospitals need a large enough network of doctors to attract
consumers, and they would also take on the risk of setting monthly
premium rates sufficiently high to account for the needs of their
sickest patients. That includes arrangements with other providers
should a patient require a specialist outside of a hospital's own
system.
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A new health plan should aim for an enrollment of at least 100,000
to spread the risk, said Ray Herschman, president of xG Health
Solutions, a Geisinger spinoff launched two years ago to help other
hospitals develop insurance plans.
Many health systems prefer to start small, at first insuring only
their own employees or focusing on a single product, such as
Medicare Advantage plans for the elderly, before expanding into
other markets.
Hospitals are also keenly aware of past failures. Some that started
health plans in the 1990s struggled with a consumer backlash against
restrictive health maintenance organizations, ultimately selling off
their businesses to other insurers.
Yet the chance to gain market share and cut expenses by eliminating
the insurer as middleman is attracting hospitals again, particularly
if the top five U.S. health insurers consolidate into three players.
"It certainly is going to give providers reason to be nervous about
sitting across the table from a payer that is going to use that size
and scale in their negotiations," said Steven Glass, the Chief
Financial Officer of the Cleveland Clinic. Cleveland Clinic has made
no decision to start its own insurance plan, but is keeping the
option on the table, Glass said.
Long Island, New York-based North Shore-LIJ Health System's
insurance business, CareConnect, has grown quickly since early 2014
when it began issuing policies to individuals, families and small
businesses.
It has more than doubled to 28,000 members, entered the large
employer market and built a network of providers through
partnerships with hospitals across New York City. Its premium
revenue in the first half of 2015 more than tripled from the
year-ago period to $95.3 million.
"There is a long runway ahead as to the impact these various mergers
will have. If the market changes and there is further consolidation,
it's another tool in the toolbox," said CareConnect CEO Alan Murray.
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