CHI's Payer Business Unit Generating Value

Prominence Health, a business unit of Catholic Health Initiatives, gives the non-profit hospital operator a key to unlocking value in provider-initiated insurance enterprises.

When you are trying to make big strides, it helps to have a large footprint.

Catholic Health Initiatives, an Englewood, CO-based nonprofit health system, operates 105 hospitals in 19 states. CHI has a three-pronged health insurance strategy: a payer business unit called Prominence Health; Medicare Advantage health plans offerings in six states; and commercial health insurance products and services offered through a partner in Arkansas.

Juan Serrano, senior vice president of payer strategy and operations at CHI, told me last week that the sprawling faith-based health system's payer business unit has been able to leverage several advantages. Parts of the transcript of our conversation have been edited for brevity and clarity.

HLM: How would you characterize the maturation process at Prominence Health? Is it past the start-up phase?

Serrano: We regard our health plan and corporate health business as in operational- and growth-phase: We are fully operational across all health plan segments. We are entering new markets and launching new employer-focused solutions, and our sales and marketing channels are actively developing our growth channels.

HLM: From a big picture and organizational view, what kind of impact has Prominence Health had on CHI? For example, has CHI been able to make gains in population health management?

Serrano: Our Prominence Health insurance, network, and population health management capabilities are advancing our health system's ability to negotiate, operate, and manage a growing portfolio of customer populations, from the Medicare Shared Savings Program and bundled payments, to value-based relationships with most major health insurers, and risk-based arrangements aligned with CHI's objectives to improve the health of our communities through active participation in each person's health and wellbeing.

HLM: Among providers, health systems seem most interested in launching their own health insurance business units. What risk-bearing advantages does CHI have over smaller provider organizations?

Serrano: Having a distribution channel for healthcare services accelerates population [health] management. We also have [Medicare Advantage] membership scale. It can take three to five years to build up, and you typically need 15,000 to 20,000 members. By spreading Medicare Advantage over six markets now and 12 markets eventually, we can quickly reach scale. You need infrastructure for health plan operation: IT, operating a call center, operating a claims center. You need to have all those functions in place. The reserve funding and the marketing function may be the largest economic barrier. You have to come up with the financing resources to market Medicare Advantage health plans.

HLM: "Unlocking value" has become a catch phrase in healthcare industry vertical integration. How is CHI integrating health insurance into the organization in a way that maximizes value creation?

Serrano: We have actively transitioned our business model from a hospital-centric organization to a health system organization. CHI is well-positioned with an effective provider network. We are organizing our providers into more capable networks to build and improve population health management.

HLM: CHI acquired a commercial carrier in Arkansas. Is the health system planning to sell more commercial health insurance?

Serrano: Probably a dozen of our states are attractive from a Medicare Advantage perspective. For commercial licenses, we are looking across our entire footprint. QualChoice in Arkansas is the only place where we are operating an insurance license today.

Part of that market is third-party administration [of group insurance plans]. We are expanding our administration of commercial insurance to other markets. There are 20,000 members who are part of the CHI health system's insurance coverage in Nebraska. We're being thoughtful of where we want to offer insurance products. We want to be confident. [The Patient Protection and Affordable Care Act] is impacting insurance pricing. We want a clear line of sight on how insurance products are going to fit into our portfolio from an economic perspective.

HLM: To maximize the benefits of having in-house health insurance products, is it important for an integrated health system to close gaps in the continuum of care?

Serrano: We have been both employing physicians and affiliating with physicians. Our physicians have a mission to provide care where it is needed, not necessarily in a CHI hospital. Our goal is to be "clinically integrated." It's a more pluralistic approach to providing care in the community.

HLM: In the US healthcare industry, there is a natural and historical tension between providers and payers. How has that tension played out at CHI with the health system's new payer business unit, Prominence Health?

Serrano: The payer unit has the same goal, providing care, but with the added goal of discouraging unnecessary spending such as avoidable hospitalizations. Then there's arguing over pricing and the fee schedule.

We came at the tension from two directions. First, there was a realization the tension is going to happen anyway. We embrace the tension. Second, it's about partnership and sharing. It's not about the health system getting more money from the payer. It's also not about the payer getting more money from the health system. Rather, it's about creating value.

We saw the benefits as outweighing the risks of working with a competing business model. It's a partnership within the same family of companies. [Developing payer capabilities] allows us to factually inform the health system about what does work and what does not work. For us, operating a health plan is about realizing the synergy benefits.

HLM: Is CHI trailblazing health system vertical integration?

Serrano: There are some aspects of what we're doing that are truly innovative; but 20 or 30 years ago, you had HMOs and other forms of managed care. Some aspects of what we're doing have been tried before. What we have been doing is making sure our business model avoids the pitfalls that came before.

The health plan has to be operated effectively. There has to be sufficient funding, underwriting resources, and an effective network of care. Much of the innovation is focused on new models of care, doctor compensation, and managing the patient experience in a way that is significant for the consumer. In healthcare, consumer engagement has really lagged. We're doubling down on how to improve the consumer experience.

HLM: Regulators require health plans to carry hefty reserves. Have reserve requirements for Prominence Health squeezed CHI's ability to invest in other areas?

Serrano: We certainly have those conversations. We benefit from having a very strong balance sheet. Parking cash in reserves—you restrict your use of cash when you put it in reserves. Having the capacity to move cash into reserves is a characteristic of CHI. It creates a long-term dynamic. The way the economics are intended to work reflects the global impact on CHI, with growth of market share and a synergistic dynamic.

The key is unlocking the value between these two organizations. Over the long term, we will more than offset the parking of CHI cash in reserves. We have multiple health plans in multiple markets. We have a collective family of offerings. Over time, the health plans will repay CHI.