Tuesday, March 31, 2015

Hospital system seeks risk. Insurers say no thanks.

Well, here's a twist in the usual story, from Modern Healthcare:

Since 2002, Dan Wolterman has served as president and CEO of Houston-based Memorial Hermann Healthcare System, Texas' largest not-for-profit health system, which provides care in southeast Texas through 16 hospitals and has $4.2 billion in net operating revenue.

MH: Do you expect to see Memorial Hermann take on additional financial risk under contracts?

Wolterman: We would love to take risk. The problem is this: Very efficient providers like Memorial Hermann with their doctors have been able to reduce inpatient admissions, hospital-acquired conditions and infections, and ancillary testing like MRIs and CT scans. With our total cost of care so low, we would love to go and take a risk contract. We would be much better off. We saved $58 million in the Medicare ACO. We received 50% of that from Medicare to divvy up between the physicians in our system. If they were all under a risk contract, we would have received all $58 million of that. But carriers simply do not wish to share it with us. They say, “We love how you all are providing care, the quality is outstanding and the cost controls are wonderful. You just keep doing what you're doing. You're making us lots of money. We'll stay under fee-for-service.”

So we felt that we needed to be more aggressive. A couple of years ago, we decided to start our own insurance company. It is a fledgling company today, but we are off the ground and we are now in the commercial and Medicare Advantage programs, and hope that will start the ball moving to where we can take risk.


Barry Carol said...

Starting their own insurance company is exactly the right response under the circumstances. The hospital system should be careful though as estimating actuarial risk isn’t so easy and requires a critical mass to get the full benefit of the law of large numbers. If people perceive the premium as attractive for the coverage offered, there is risk of adverse selection. Reinsurance is expensive as well unless the attachment point is very high.

Michael Kovner said...

Memorial Hermann’s Medicare ACO results are truly impressive. According to the MSSP Year 1 final results, they received the largest risk share bonus by achieving an 11.5% reduction in Medicare expenditures. Equally impressive were the results from the Winchester MA Community ACO which achieved an 18.6% reduction in the same time period with only 8,000 assigned beneficiaries, the largest percentage reduction of all the MSSP Year 1 participants. I’d be interested in learning more about how they achieved their savings in an expensive Eastern Massachusetts market.

Anonymous said...

Wolterman's quote 'a couple of years ago, we decided to start our own insurance company. It is a fledgling company today...'

That is quite a shading. M-H's insurance company was begun over a decade ago and has never really gotten traction in the market.

It has gotten rather trendy for hospitals to declare that owning an insurance company is core to their population health goals. The history has been that only a handful of the many hospital-based insurers that have begun have ever worked. Some have faded away, but many have quickly racked up huge losses. Partners' experience in Boston -- while clearly very expensive -- is directionally quite normal.

Successfully running a population risk program and successfully running an insurance company are not the same thing. While they share some skills in common, hospitals should be wary of the insurance industry vendors selling the 'you should be an insurer in order to be a successful ACO' story. The market data does not support that sales pitch. Partnering with one or more carriers has worked well, but think long and hard before actually becoming a carrier. Your money would likely be far better spent in actually improving patient care as risk-bearing comes your way.

Unknown said...

Michael Covner

Someone please correct me if I misunderstand how Medicare ACOs work but these are "savings" against a negotiated goal not "savings" the way you and I think of savings. If I am correct, the negotiators are impressive not the results.

Paul Levy said...

Good point!