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Should My Health System Launch a Health Insurance Plan?
Here are a few things providers whose vision and strategy include launching a health plan should consider
In 1929 the stock market crashed and the US collapsed into the Great Depression. Coincidentally, it was also in 1929 that Baylor Hospital in Dallas Texas devised a plan that would provide access to health care services to patients and give patients the ability to pay for their care so the hospital could remain viable.
In the nine decades since Baylor Hospital helped create what is known today as Blue Cross, hospitals, physicians and other providers of health care services have regularly asked themselves the questions: Should we develop and own a health insurance plan? Should we take financial risk for care we provide? Should we partner with physicians and/or with a health insurer?
Since the passage of the Affordable Care Act (ACA) in 2010, hospital and physician executives have considered these questions with new motivation. Several have jumped in, but only a few health system-sponsored plans launched in the ACA era are nearing profitability. Others have deferred, waiting to see what develops, wanting to digest lessons from Medicare’s ACO program, direct contracts with employers, and ACO arrangements with commercial payers. The latter has been difficult to achieve even for risk-motivated providers, as many dominant commercial plans are reticent to enable providers to manage risk—and in the long run, create a direct competitor. This has provided new motivation for health systems and large physician groups to evaluate a provider-owned plan.
Today’s mantra is “we are moving from volume to value!” Though the words are fresh, the concepts and concerns are much the same, as are the risks and rewards. Having served in executive roles in provider owned health plans for nearly 40 years, 19 years at Kaiser Permanente, and 21 years at Sentara Health Care, I have observed multiple cycles of providers rushing into the health plan business followed by the rapid exit of providers who fail in managing risk. Here are a few “Be’s…” providers whose vision and strategy include launching a health plan should consider:
Be cautious, but not cowardly
Be courageous, but not careless
Be cognizant, but not cocky
These “Be’s…” need some explanation.
Commentary:
A five-year business plan that anticipates start-up costs, operating losses and regulatorily required “risk-based capital” will give executives an “eyes-wide-open” going-in perspective. A Board-approved business plan that is both conservative and credible will plan on operating losses for several years.
When the first members are enrolled in the new health insurance plan, the operating losses will begin. Yes, every start-up health plan will experience losses for a period of time. Detailed preparation and thoughtful execution will not eliminate losses in the early years, but they will hasten the march to profitability.
Commentary:
Getting the right people, and the right number of people on this bus is imperative. Expert people are available, but they are probably not current members of your team. Inexperienced talent and under staffing this strategic initiative will result in disaster.
The total value of your health insurance plan includes much more than bottom line performance. Provider sponsored plans can lead the market in customer satisfaction, quality of care metrics and “total cost of care.” Table stakes for operating a health plan include enrollment, billing, claims processing and financial systems. These systems can be purchased or partnered. However, to maximize value, wise investment in population health IT should be implemented as soon as possible. State of the art population health tools will enable providers to close gaps in care and improve both health outcomes and financial performance. Later on, investing in consumer-centric digital health applications will optimize the customer experience and offer value a provider sponsored plan can bring to the market in a unique manner.
Growing the membership as fast as possible is vital. Without substantial membership, providers will have little reason to focus on changing the model of care. Rapid membership growth can occur in a variety of ways, but the best way is to win contracts for large populations. Securing a Medicaid contract, enrolling the provider’s employees and winning two or three large group commercial accounts, and Medicare Advantage/CMS ACO depending on the players in the MA space in a given market are all good strategies for rapid growth. The sequencing of membership type is less important than the rate of growth.
Commentary:
Given the losses suffered by providers who took risk in 1990’s, and the spotty performance of provider sponsored health plans in today’s CMS ACOs and commercial offerings, you are probably thinking, why do I think we can do better? Being aware of other’s failures and successes will embolden Boards and CEOs to accept the risk because they recognize the rewards.
A few lessons to be learned from Kaiser include:
- The imperative of physician leadership and commitment
- The efficiency of integrated services
- The clarity of the connection between quality of care and the cost of care
Lessons to be learned from provider sponsored health plans, both those that have succeeded and those that have failed, include:
- The tolerance and patience for early losses
- The balance between integration and separation of the health plan and the providers
- The clarity of purpose and mission. Having a health plan to fill hospital beds is not a sustainable mission
Additional Considerations:
Beyond financial results, most provider sponsored health plans tout other benefits that speak to both the mission of the organization and the financial performance of the enterprise in total. Such benefits include, but are not limited to:
- Improved performance in quality, service and total cost of care
- Enhanced understanding of the consumer/customer
- Control of the premium dollar
Of these added benefits, perhaps the benefit derived from the control of the premium dollar is least intuitive and most important. Here is a simple way to think about this issue:
If XYZ Health Insurer brings in $100 of premium, they will pay a hospital about $40 for inpatient and outpatient services. If the hospital is well run, it will make 4% or $1.20 on the $40 of revenue.
However, if the hospital owns the health insurance plan, and the insurance plan is making a 2% margin on the premium of $100 ($2.00), then the enterprise will earn $3.20, 2% on the premium and 4% on the “inter-company” transfer between the owned health insurance company and the hospital. (NOTE: this is a simple example. The actual arrangements between the hospital, its owned health insurance plan, and the contract with the non-owned health insurance companies will determine the actual results, but the principle is demonstrated with the simple example.)
To be sure, the challenges in owning and operating a health insurance plan are both daunting and different from operating a hospital system. However, the rewards can be worth the effort.
One provider sponsor health insurance plan generated enough net income over a five-year period that the “dividend” to the sponsoring health care system was deployed by the system to build not just one new hospital, but three!
Nearly 90 years after Baylor created the first Blue Cross health insurance company, it merged with Scott & White Clinic, which owns a health insurance plan. Baylor Scott & White is well-positioned to thrive as a fully integrated delivery system. If your system is asking “Should we launch a health plan?” please reach out. I’d be happy to share more of the lessons I’ve learned in my decades as CEO of provider sponsored health plans and discuss your system’s opportunity.
More than a quarter of major health systems plan Medicare Advantage launch, though many lack confidence
Executives say the top reason for launching a Medicare Advantage plan is the opportunity to capture more value.
A new survey from Lumeris found that 27 percent of major U.S. health system executives intend to launch a Medicare Advantage plan in the next four years. Despite that, confidence among these same execs is lacking, with only 29 percent reporting they felt confident in their organization’s ability to make the launch successfully.
“These survey findings are consistent with our conversations with healthcare executives across the country who are feeling a sense of urgency around Medicare Advantage strategies, but also realize that this type of work is vastly different than traditional health system operations,” said Jeff Carroll, executive director of health plans at Lumeris, by statement.
In April, The Centers for Medicare and Medicaid Services announced it was releasing Medicare Advantage encounter data for the first time by request from the CMS Research Data Assistance Center. The MA encounter data, starting from 2015, provides detailed information about services to beneficiaries enrolled in a Medicare Advantage managed plan. It will give researchers insight into the care delivered under MA plans and will help them improve the Medicare program, CMS said. Annual updates are planned.
According to the 90 executives Lumeris surveyed from major health systems, the top reason for launching a Medicare Advantage plan is the opportunity to capture more value by controlling a greater portion of the premium dollar as compared to fee-for-service Medicare.
Other key drivers cited include market and regulatory trends supporting Medicare Advantage. In particular, shrinking Medicare margins could threaten the viability of hospitals and health systems as the senior population continues to grow and becomes a larger proportion of providers’ patient panels.
The respondents also recognized that launching a Medicare Advantage plan will be challenging due to the complexities of operating an insurance plan, which are far different than the capabilities required to successfully operate a health system.
They also shared concerns about the significant financial investment required and an overall lack of expertise in the health plan space. The majority of respondents, 59 percent, indicated they were likely to use outside resources to launch their plans — and that those resources are very likely to include a vendor partner that can mitigate operational risk.
“Launching and managing a Medicare Advantage plan requires skills beyond the core competencies of most health systems, which is one reason many provider-sponsored plans fail in the first few years,” Carroll said. “Through those failures, it has become clear that providers who select the right partners increase the likelihood for greater success in a shorter period of time.”
Kaiser’s operating income climbs to $1.1B in Q1
https://www.beckershospitalreview.com/finance/kaiser-s-operating-income-climbs-to-1-1b-in-q1.html
Oakland, Calif.-based Kaiser Permanente reported higher revenues and operating income for its nonprofit hospital and health plan units in the first quarter of 2018, according to recently released financial documents.
Kaiser saw revenues increase to $20.3 billion in the first quarter of this year. That’s up about 12 percent from revenues of $18.1 billion in the same period of 2017.
The boost was attributable in part to the system’s health plan unit. Since Dec. 31, Kaiser has added approximately 472,000 health plan members. As of March 31, Kaiser had about 12.2 million members.
Kaiser reported operating income of $1.1 billion in the first quarter of this year, up from $1.04 billion in the same period of 2017.
After factoring in nonoperating income, which declined year over year, Kaiser ended the first quarter of 2018 with net income of $1.4 billion. That’s compared to the same period of 2017, when the organization reported net income of $1.6 billion.
Geisinger reports net income increase despite issues with ACA health plan
Dive Brief:
- In a new financial report, Geisinger Health System reported a gain of nearly $200 million in net income to $324.9 million for the first half of fiscal year 2018 compared to the previous year, for an excess margin of 9%.
- Operating income for the first six months was up from $51.9 million a year ago to $61.2 million in the current fiscal year and net revenue increased 8.1% to $3.3 billion. However, Geisinger’s operating margin dropped from 3% for the first three months of the fiscal year to 1.8% through half the year.
- One area of concern for the integrated healthcare system was its Affordable Care Act (ACA) health plan. Geisinger Health Plan (GHP) struggled after the company didn’t get $11 million in cost-sharing reduction (CSR) payments following President Donald Trump’s decision to stop payments in October.
Dive Insight:
Geisinger’s net revenue growth is connected to an increase in net patient service revenue after the provision for bad debts of nearly 5% and an increase in premium revenue of 11%.
“Net patient service revenue benefited from the realization of growth plans centered on market share growth and the opportunistic capture of high-acuity, clinical service volumes. Premium revenue benefited primarily from rate increases,” Geisinger said in the report.
ACA marketplace volatility, namely the end of CSR payments, as well as higher utilization affected GHP. The company believes the higher utilization is connected to GHP members concerned they would lose coverage if Congress repealed the ACA. Despite Congress’ and the president’s threats and a few close votes, the repeal didn’t happen. But before that effort stalled, Geisinger said many members got healthcare services just in case.
“Similarly, provider tiering in benefit plan changes for self-insured employees were announced in the fall of 2017. These benefit changes caused certain employees to accelerate medical services through providers that fall under higher out-of-pocket tiers beginning Jan. 1, 2018. These one-time impacts, while negatively affecting second-quarter results, are expected to improve operating profits beginning in the third fiscal quarter,” Geisinger said in the report.
Geisinger expects to resolve the CSR non-payment issue this year after raising the average premium rate by 31% to help offset the loss of payments. GHP also gained more than 20,000 members in its exchange plans, a 39% increase, for 2018, which should help offset losses.
GHP had 559,643 members in its health plans through the first half, which was a 0.4% increase compared to a year ago.
Concerning utilization, Geisinger had an increase of 3.5% in discharges and 2.6% in discharges and observations/23-hour stays compared to a year ago. “This growth was attributable to success in expanding clinical programs. Based solely upon hospitals controlled for two years or more, Geisinger experienced a 2.9% increase in discharges when compared to the year-earlier period,” the report states.
However, percent of occupancy based on physically available beds dipped from 60.2% to 59.9%.
Meanwhile, outpatient visits were on the rise. Outpatient emergency room visits increased from nearly 174,000 the previous year to almost 181,000 in fiscal 2018. Clinic outpatient visits increased from 1.65 million to 1.77 million.
Geisinger is the latest nonprofit to offer updates about finances. Over the past week, other major nonprofits have released financial information, including:
All had positive notes in their reports. Cleveland Clinic and Mayo Clinic said operating income and revenue bounced back in 2017 after rough numbers in the previous year. UPMC said its clinical and insurance sides had strong performances as net income hit $1.3 billion. Profits for these companies have been scrutinized as critics question whether they are giving enough back to their communities as nonprofit organizations.
Cartoon – Got into it for the Insurance Plans
Kaiser Permanente plans $200M medical hub in N. Va.
Kaiser Permanente of the Mid-Atlantic States is seeking approval to build a $200 million medical facility in Woodbridge as a “hub” for its ongoing growth in Greater Washington.
According to an application filed with Prince William County, Kaiser officials propose a 270,000-square-foot, five-and-a-half story medical center on a 15-acre parcel the company already owns at 13285 Minnieville Road. The project would include 1,270 surface and structured parking spaces and a plan for future expansion of about 65,000 square feet.
Kaiser officials declined Tuesday to comment about the project, but the application says Kaiser wants to make it the health system’s sixth hub in the region to offer urgent and specialty care. The company has been aggressively growing its footprint across the region in recent months in an apparent bid to gain market share in the already highly competitive Northern Virginia health care business.
The Woodbridge space would include space for adult and pediatric care, women’s health services and pharmacy, lab, optometry and outpatient surgery. It will also include virtual visit technology, an MRI suite and consult rooms. The Kaiser hub model offers specialty care for issues that are too complex for a doctor’s office but do not require a multiple-day hospitalization.
“Kaiser plans to continue to expand throughout Maryland, Virginia and Washington D.C. based on the needs of the community and its growing membership base,” officials said in the application.
The company, an affiliate of health care giant Kaiser Permanente, is headquartered in Rockville. It has more than 710,000 members in Maryland, Virginia and D.C. and comprises Kaiser Foundation Health Plan of the Mid-Atlantic States Inc. and The Mid-Atlantic Permanente Medical Group PC, an independent medical group of more than 1,300 physicians.
Kaiser has partnerships with 11 area hospitals, including Virginia Hospital Center, Reston Hospital Center and Stafford Hospital, as well as Sibley Memorial Hospital and Children’s National Health System in the District, Suburban Hospital in Bethesda and Holy Cross Hospital in Silver Spring.
Kaiser officials said they plan to employ 185 people at the Woodbridge site, which would accommodate an additional 60 jobs following future expansion. They also expect the project would create 200 temporary construction jobs.
Kaiser officials said they will create a “health park” with recreational elements such as workout stations, trails, woodlands and “sensory nooks.”
Documents show Kaiser is working with HKS Architects Inc. Law firm Cooley LLP is listed as the authorized agent and Annandale-based Dewberry Consulting LLC is listed as the engineer.
The project is among of a blitz of real estate moves by the health care in giant in Greater Washington this year.
- In January, Kaiser Permanente of the Mid-Atlantic States announced it would lease 40,000 square feet at The Exchange at Potomac Yard.
- In April, Kaiser announced plans to open a 176,000-square-foot administrative and IT facility by the New Carrollton Metro station. The new building, located within a planned development from Urban Atlantic and Forest City, will have enough space for 850 employees, accommodating Kaiser’s growth in the region.
- Last month, Kaiser purchased a 60,000-square-foot building in Ashburn for $14.1 million with plans to expand an existing medical facility there.
- Kaiser recently acquired a 3.5-acre property in Bowie at 5400 Hillmeade Road for $2.9 million. Health system officials declined to comment on the purchase.
Kaiser officials said they have invested more than $446 million across the region between 2012 and 2016.
Why Geisinger’s health plan stays on the ACA exchange
Danville, Pa.-based Geisinger Health Plan has maintained a steady presence in Pennsylvania’s individual ACA exchange, despite other insurers leaving the state’s marketplace.
Over the last two years, a number of U.S. insurers decided to exit states’ ACA exchanges, citing financial losses as well as concerns regarding future stability of the individual market. Pennsylvania’s individual ACA exchange is no exception. Hartford, Conn.-based Aetna, for instance, pulled out of ACA exchanges for 2017 in 11 states, including Pennsylvania. Additionally, Minnetonka, Minn.-based UnitedHealthcare left ACA exchanges in Pennsylvania and nearly 30 other states for 2017.
Ultimately five insurers remained on Pennsylvania’s individual ACA exchange for 2017 and will remain in the market for 2018 — Geisinger Health Plan, Pittsburgh-based UPMC Health Plan, Harrisburg, Pa.-based Capital BlueCross, Philadelphia-based Independence Blue Cross and Pittsburgh-based Highmark.
Because some insurers left the state’s individual ACA exchange, Geisinger Health Plan experienced an increase in membership, says Kurt Wrobel, the plan’s CFO and chief actuary. The plan currently has 47,000 members, up from more than 30,000 in 2016. About 60 percent of the plan’s enrollment is individuals with Medicaid, Medicare or plans on the state’s individual ACA exchange.
Geisinger Health Plan also requested a rate increase for 2018 that it says is consistent with other insurers in the state. According to the Pennsylvania Department of Insurance, the five insurers that will continue selling on Pennsylvania’s individual ACA exchange for 2018 requested average statewide rate increases of 8.8 percent for individual plans.
Regarding Geisinger Health Plan’s choice to stay on the ACA exchange in Pennsylvania, Mr. Wrobel says it comes down to Geisinger’s commitment to the people of central Pennsylvania. “As a nonprofit, our primary stakeholders are the people, so with that we’re going to have a different calculation as far as our interest in staying in a program. While policy improvements are still needed, we’ve stayed in the program and we believe it’s workable as it stands now.”
One significant advantage Geisinger Health Plan has is its connection with Geisinger Health System. Geisinger Health Plan representatives said that connection allows it to develop programs such as care management programs for members, and many of the plan’s case managers work directly with physicians’ offices to provide more support and connectivity to members’ physicians.
“We think that’s a really clear differentiator. Within that, we have more robust care management systems and programs that allow us to control costs and improve outcomes, especially relative to traditional insurance companies,” Mr. Wrobel says.
As far as the future, the health plan will remain on Pennsylvania’s individual ACA exchange as long as it has a workable program.
Mr. Wrobel says Geisinger Health Plan wouldn’t rule out expanding to ACA marketplaces in other states at some point, but it’s not a high priority right now.
Overall, without the elimination of cost-sharing reductions, which help insurers subsidize the cost of coverage for low-income Americans, Mr. Wrobel believes Geisinger Health Plan could see greater stability moving forward.
“It’s our hope we can move beyond discussions, beyond all the financial issues with the program and really get to the meat of what we try to do as a health plan, which is provide cost-effective quality care,” he says. “I think we all look forward to the day when there’s sufficient stability — and that’s what we have in the Medicare and Medicaid program as well as the employer group program — where the focus is on that operational excellence of providing cost-effective quality care and we can move beyond these discussions about financial issues.”
Kaiser raises record $4.4 billion in white-hot hospital bond market
http://www.modernhealthcare.com/article/20170510/NEWS/170519985
Kaiser Permanente raised $4.4 billion through a series of three bond offerings this month.
That’s a record for the Oakland, Calif.-based health plan and hospital giant, which plans to use the proceeds to fuel expansion, said Chief Financial Officer Kathy Lancaster.
The aggregate interest rate on the A+-rated bonds was a stellar 3.8%.
Kaiser Permanente investors ordered four to five times as many of the A+-rated bonds as were available, Kaiser Treasurer Tom Meier said. Overall, the bond market is white-hot for hospital debt offerings.
Just this month, Community Health Systems grew a $700 million debt offering to $900 million. Competition for MetroHealth’s $945.7 million offering dropped the rate to under 5%.
MetroHealth, located just west of Cleveland, raised the money to finance the transformation of its main campus, including a new replacement hospital. Struggling CHS is refinancing debt that was expiring.
Corporate bond activity is expected to remain robust, even if the Federal Reserve raises interest rates a couple of quarter-point notches this year, according to an April debt report by Fitch Ratings.
Even with a quarter-point increase in March, Fed borrowing rates are still near a historic low at 1%. The government will only continue to raise interest rates if the economy is strong, said Fitch Managing Director Megan Neuburger.
What that means for hospitals is that higher interest rates would be offset by more patient volume since consumers might feel more financially comfortable getting elective and preventive care.
That’s the case even for troubled systems such as CHS with below-investment-grade debt ratings.
“The high-yield (bond) market is healthy,” Neuburger said.
Kaiser, the nation’s largest integrated health system with annual revenue of $71 billion, needs more hospital capacity, physician offices and technology enhancements after adding about 2.5 million new health plan members over the past three years, Lancaster said.
The recent acquisition of Group Health in Seattle and other organic growth has brought Kaiser’s enrollment to 11.7 million members.
Most of those enrollees will get their care at Kaiser’s 39 hospitals and hundreds of medical offices staffed by Permanente physicians contracted to Kaiser.
For Kaiser to meet its mission of convenient, affordable care, the system needs to keep investing in locations and technology that allows patients to select whether they come to a physician office or connect with its physicians through telemedicine or secure internet links, CEO Bernard Tyson told a Nashville Health Care Council luncheon audience last month.
Part of the reason this month’s offering was so big is that Kaiser had not gone to the debt markets since 2012, Lancaster said. Typically, it would do an offering every other year. But the need for capital and low interest rates urged Kaiser to put together the offering, Lancaster said.
Kaiser likes to operate with a debt-to-capitalization ratio of 20% to 30%, she said. The recent offering puts the system at 28%.
Interestingly, $1 billion of the $4.4 billion in bonds were designated as “green bonds” or those that appeal to funds and investors that look for environmentally or socially friendly organizations to invest in, Lancaster said.
Kaiser received that designation due to its new environmentally friendly hospital in San Diego that opened two weeks ago, she said.
MetroHealth reports that it had 122 banks, funds, firms and individuals put in orders for its hospital bonds.
“Not only is this an important validation of the success we’ve earned with our strategy, recent growth and operating performance improvements, it’s proof of the industry’s belief in MetroHealth and the path we’re taking,” said Dr. Akram Boutros, MetroHealth CEO.
The health system is using the proceeds to construct a new 12-story, 270-bed replacement hospital on its main campus as well as a new central utility plant and parking garage among other projects.
HENRY KOTULA 