Hospitals Tackle Risks and Rewards of Insurance Business

March 1, 2013

by Deborah Borfitz

Deborah BorfitzIn light of the Affordable Care Act and mounting pressure to reduce costs, most health systems are now either actively engaged in the health plan business or contemplating how to make their entry. In fact, they will be hard pressed to survive without taking on some level of risk for a significant part of their business. Organizations that are too small and haven’t the balance sheet or infrastructure to do so will likely merge with a larger system. Even the most powerful market leaders with the liberty to play purely as care providers are unlikely to pass up potentially high risk-related revenues.

So says William Eggbeer, managing director in the Washington, DC, office of health care consulting firm BDC Advisors. Nearly all health systems self-insure employee health and are thus already in the insurance business “in a limited way,” Eggbeer notes. As they develop networks of owned or aligned physicians, they can start to manage the costs of those employee plans “as a way to get more comfortable being in that busi­ness,” he adds.

Of course, some health systems held on to their health plans when managed care fell out of favor in the late 1990s and now feel fortunate to have kept them. That list would include Norfolk, VA-based Sentara Healthcare and Salt Lake City-based Intermountain Healthcare, both of which have multi-product plans. “In many cases, [insurance products] are significant contributors to the profitability of systems,” Eggbeer says. The plans also help position the organization for “population health and the value-based reimbursement world we’ve come back to,” he observes.

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