Get Ready for Healthcare Conglomerates

Health plans once controlled access to healthcare services and sought to provide the lowest-cost care possible. It was called managed care, and a lot of patients and providers hated it. In the early period of managed care, many health plans were conglomerates, meaning that they owned large pieces of the care continuum, including hospitals and physician practices. Most of these companies divested themselves of the provider side of healthcare over the years for a variety of reasons. Humana, for one example, once owned many hospitals in addition to its health insurance services. Kaiser Permanente, however, is one notable exception that has retained the provider pieces.

The business case for such conglomerates now seems compelling, thanks to demonstration projects ongoing at CMS, such as the ACO projects or bundled payment initiatives. Many expect those projects—if they are successful at lowering costs—to lead to a new dominant way of paying for healthcare whereby each node in the chain will be expected to carry some risk. In fact, the few health systems that retained their health plans over a period of disadvantageous business climate are now well-positioned to be “accountable” to the continuum of care for their patients. Many of the top systems in the country, at least as touted by proponents of health reform, have their own health plans. Perhaps more are on the way.

“We’re starting to see the beginning stages of that with the accountable care organization,” Eric Parmenter, vice president and senior principal for the Health and Welfare Consulting Group of Woburn, MA-based HighRoads. “Many larger health systems are discussing whether they should own the insurance or claims paying function.”

While Parmenter says consolidation on the hospital side is ongoing now, future plans may include bringing the payment function in-house, as long as the health system has the large scale necessary to make such a bet pay off.

“It may happen, but it’s not getting the front page press unless it’s of a size and scope that may warrant that,” he says. “The vast majority of organizations are not the large multihospital chains.”

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