“We have to break people away from the choice habit that everyone has,”
said Marcus Merz, the chief executive of PreferredOne, an insurer in
Golden Valley, Minn., that is owned by two health systems and a
physician group. “We’re all trying to break away from this fixation on
open access and broad networks.” New York Times, May 13, 2014.
Whew, that doesn't sound a lot like the promises made during the debate on the Affordable Care Act:
No matter how we reform health care, we will keep this promise to the American people: If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you'll be able to keep your health care plan, period. No one will take it away, no matter what."
Let's put aside politics, though, and focus on what's happening.
Look at the corporate structure behind the statement above. The insurance plan is owned by providers. One way to make money in a changing marketplace is to be both the buyer and the seller, no? Look at some of the "success stories" often discussed in the media, like Kaiser Permanente and Geisinger. These and others control both sides of the transaction for a substantial segment of the population in their catchment area.
What will happen in markets like Boston where there is a dominant health care provider with dramatically higher costs than the rest of the market? Is it possible for insurance companies to create commercially viable limited networks comprising the lower costs doctors and hospitals? They may try, but the day may also come when that provider group, to save its position, will create the insurance entity that will be focus business towards itself. Once it does, it will be able to manipulate internal transfer pricing to optimize profitability. Here's the advertising pitch, hyperbole included:
"Now, the same health care system that has brought you the latest in medical advances brings you the latest medical advance, an insurance plan that guarantees access to the best hospitals and doctors in the world."
Whew, that doesn't sound a lot like the promises made during the debate on the Affordable Care Act:
No matter how we reform health care, we will keep this promise to the American people: If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you'll be able to keep your health care plan, period. No one will take it away, no matter what."
Let's put aside politics, though, and focus on what's happening.
Look at the corporate structure behind the statement above. The insurance plan is owned by providers. One way to make money in a changing marketplace is to be both the buyer and the seller, no? Look at some of the "success stories" often discussed in the media, like Kaiser Permanente and Geisinger. These and others control both sides of the transaction for a substantial segment of the population in their catchment area.
What will happen in markets like Boston where there is a dominant health care provider with dramatically higher costs than the rest of the market? Is it possible for insurance companies to create commercially viable limited networks comprising the lower costs doctors and hospitals? They may try, but the day may also come when that provider group, to save its position, will create the insurance entity that will be focus business towards itself. Once it does, it will be able to manipulate internal transfer pricing to optimize profitability. Here's the advertising pitch, hyperbole included:
"Now, the same health care system that has brought you the latest in medical advances brings you the latest medical advance, an insurance plan that guarantees access to the best hospitals and doctors in the world."
Maybe that's why they bought Neighborhood Health Plan . . .
ReplyDeleteThat's exactly the reason why Partners bought Neighborhood Health Plan and their insurance license. Mass regulators were asleep at the switch when they allowed that deal and Mass politicians will never take sides against Partners... they are simply too important to this area. That's why I still think they will eventually get South Shore into Partners.... even though they already get all of the tertiary care referred out of the South Shore system. I think they look at the 10-12% administrative premium that the local HMOs take off the top as WAY too much for the function they perform which is basically to pay claims. They really don't do much else and have even transferred financial risk back on to the providers via these Accountable Care Organizations which is just a reinvent of full risk capitation which patients and doctors rejected some years back. I guess Tufts NEMC is in the insurance game with Minuteman Health but by all accounts consumers have not flocked to that plan and I would guess membership is very low. Also, other than Partners and BIDMC (along with Children's specific to Pediatrics) what networks have the deep pockets to take massive financial risk? At some point you may see a whole network get tanked by taking on more risk then they could afford and can not keep the medical dollars within their systems... so they lose on the global risk budget, run deficits AND pay for care to be delivered at networks like Partners. This could get very ugly for the losing systems.
ReplyDeleteThe transfer price issue is a very important one as more hospital systems attempt to provide health insurance as well. In the case of Partners, I wonder how their costs stack up against their competitors. Even if their transfer price is below what they actually collect from other insurers, they presumably can’t set their internal transfer price below their fully allocated costs, including capital costs and sustain their business model.
ReplyDeleteI think price and quality transparency tools could be helpful here. Other insurers could offer their members reference price reimbursement for surgical procedures, cancer treatment, outpatient services, etc. and quantify those prices for members as a percentage of the regional Medicare rate paid to academic medical centers. Let Partners then explain to patients why it demands, expects, and thinks it deserves significantly more than the insurers’ reference prices.
If hospital systems think they can price insurance plans accurately in an environment where medical underwriting is no longer allowed, they are welcome to try.
I think Barry makes an important point about hospitals' inexperience in pricing insurance. The existing insurance companies are having a hard enough time now that underwriting is forbidden, and messing that up could lead to some big failures.
ReplyDeleteI think medical underwriting is inherently unfair, with the possible exception of behavioral issues such as smoking, and if current insurance models cannot survive without it, then hopefully some new payment models will evolve from the blood on the floor.
nonlocal MD.
Nonlocal,
ReplyDeleteWhile hospitals currently lack expertise in pricing health insurance, they can buy it. That’s part of the reason why some are buying small insurance companies. Also, UnitedHealth Group suggested to me that if the trend takes hold, it could open up business opportunities for its Optum segment to help provide that expertise to hospital systems.
Second, I should have noted that before the ACA, five states, including Massachusetts, already operated under community rating which means they couldn’t take health status into account in setting rates but they could take age into account. That said there is more overhead to running an insurance company than just paying claims. There is the cost of actuarial expertise needed to set rates appropriately, marketing and advertising to let people know that you’re in the insurance business and, even with exchanges, brokerage commissions to pay for individuals and groups that want to access that expertise.
Finally, Medicare Part D includes something called risk corridors. This means that when insurers incur claims of a certain percentage above premiums collected, the government steps in and covers 80% of losses above that level. Conversely, if claims are lower than a certain level, insurers rebate a comparable percentage of the unexpected profits back to the government. Some Part D plans are experiencing significant losses this year as a result of higher than expected claims from the new hepatitis C drug, Sovaldi, and government risk corridor payments are kicking in to help cover them.
The ACA includes a similar provision which I think continues indefinitely. It also includes risk adjustment payments and reinsurance that are in place for the first three years and are paid for by a surcharge on insurance premiums. Those provisions are there to protect insurers until they gain several years of experience with community rating by which time they are expected to be able to set rates without those protections.
I think we can expect to see more hospitals enter the insurance business and insurers will provide more clinical services including primary care, behavioral health, and pharmacy benefit management.
Thanks, as always, Barry, for great insights.
ReplyDeleteSouthcoast is already doing this as well, under the "Northstar" brand (great branding, right? /s) and partnering with HPI. Will be very interesting to see how the NHP/Partners partnership shakes out. In the other direction, Cambridge Health Alliance sold Network Health a few years ago to THP (2011? 2012?).
ReplyDeleteDoes anyone have any thoughts about FCHP selling to Tufts? I've heard it whispered in the past few years but have heard nothing substantial.