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THE NEW HEALTH CARE | NYT NOW
When Hospital Systems Buy Health Insurers
MAY 25, 2014
Austin Frakt
@afrakt
Another hospital system wants to buy another health insurance company,
and consumers may well wonder what this trend could mean for them.
As reported last week in Modern Healthcare, the St. Louis-based
Ascension Health, the countrys largest nonprofit hospital system, is in
talks to acquire an unnamed insurance company that operates in 18
states.
Weve seen this before. One of New Yorks largest hospital networks
recently began offering its own health plan. Several other hospital systems,
like Californias Sutter Health and Catholic Health Initiatives, which
operates in 17 states, among others, have entered the insurance business.
More typically, health insurance and health care delivery have been
separate businesses adversaries, even in negotiating over prices. Why
are the two sides getting cozy?
5/25/2014 When Hospital Systems Buy Health Insurers - NYTimes.com
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There are several reasons hospitals might want to be in the insurance
business, or more closely aligned with insurers. By acting in cooperation, a
unified organization might be able to better design incentives for higher-
quality care. Or, by combining similar functions like human resources or
tech support, the organization might cut costs. A joint provider-insurer
may also be better able to adapt to and make more money from new
Medicare payment models in the Affordable Care Act. Eventually, an
organization that combines the functions of health care provision and
health care insurance might have a leg up in the market, putting
competitors at a disadvantage or driving them out. With less competition,
of course, an organization would be in a good position to raise premiums.
Wary of threats to competition and the effects on consumers and
patients, health economists and antitrust regulators are watching these
market dynamics with a concerned eye.
Last year, with Steve Pizer of Northeastern University and Roger
Feldman of the University of Minnesota, in the journal Health Services
Research, I published a study that directly related hospital-insurer
integration with quality and premiums. We found that insurance plans
offered by hospitals charge higher premiums. We also found that such
plans are rated to have higher quality by consumers but that about 70
percent of the additional premium was not attributable to higher quality.
We found no evidence that integration is associated with more generous
health plan benefits.
To my knowledge, ours is the only study to directly relate hospital-
provided insurance with plan quality and premiums. This is in large part
because this is a challenging area to investigate. There is no research-ready
database of where and when hospitals and insurers unite. We had to
collect such data and build our own database. Moreover, historical data on
most insurers health care products are scattered and incomplete, if they
exist at all. For this reason, we studied the private Medicare plan market
(Medicare Advantage) for which such data are readily available.
More work needs to be done in this area. Our study showed that
5/25/2014 When Hospital Systems Buy Health Insurers - NYTimes.com
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integration between hospitals and plans might not be good for consumers,
but it is just one study and was based on only one year of data. Additional
data collection and analysis would be challenging and costly, but worth
the investment given its importance to the future of health care quality and
costs.
Austin Frakt is a health economist with several governmental and academic affiliations. He blogs at
The Incidental Economist, and you can follow him on Twitter at @afrakt.
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