What hospitals must know about getting into the payer game

Amid an era of "merger-mania" among major U.S. health payers, many hospitals and health systems want to get into the payer business themselves to prevent the consolidations from having a negative impact on their local markets, according to Reuters.

While large health systems such as Kaiser Permanente in California and Geisinger Health System in Pennsylvania got into the insurance game decades ago, the Affordable Care Act opened the door for local providers to self-insure as well. It also created an opportunity for systems that have acquired individual doctor practices and skilled nursing facilities to add another service line to their broad range of services, according to the article.

Launching a health plan is easier than it once was, but it remains a complex process that involves obtaining a state license and meeting the requirements for capital reserves. That restricts it to hospitals with resources to spare. To spread the risk appropriately, new health plans should have at least 10,000 enrollees, Ray Herschman, president of xG Health Solutions, an offshoot from Geisinger that helps other systems launch plans, told Reuters.

Large and medium nonprofit providers have shown particular interest in expanding into the payer business, according to a recent report from Moody's Investors Service, with recent newcomers including Ascension Health, Catholic Health Initiatives and Memorial Hermann Healthcare System.

"The trend of not-for-profit hospital systems launching or acquiring health insurance plans will likely be limited to larger systems that have the resources to absorb the costs and risks associated with taking on an entirely new business," the report states, echoing the Reuters article.

Even those with the required resources, however, should bear in mind the hazards associated with the insurance business, the report adds, as heavy startup costs and ongoing expenses typically result in a major cash flow dropoff for nonprofit systems. The No. 1 challenge for hospital systems-turned-payers, Moody's states, is lack of expertise among leadership, such as best practices for marketing, customer service and state-by-state compliance.

To learn more:
- read the Reuter's article
- here's the Moody's report (registration required)