Hospitals Back in Insurance Biz: Good News or Bad News?

By Gregg A. Masters, MPH

I awoke this morning to read the following headline:

Hospitals Look To Become Insurers, As Well As Providers Of Care

To wit, I ‘tweeted’:

OK, it’s reallly ‘deja vu’ all over again! ‘Hospitals Look To Become Insurers, As Well As Providers Of Care’

For complete original article, click here.

Mind you this is both a context and content appropriate knee jerk thought for those with an event horizon beyond the 24 hours ‘news’ cycle. Yet, upon further consideration, it may not be that simple.

Let me explain. Some of us battle weary ‘pioneers’ (you know, per Elliott Fisher, MD at ACO Summit 2012: ‘pioneers take the arrows, but settlers get the land’ types) who executed the business models associated with HMO, IPA, PPO, POS, and eventually PHO rollouts (including their management companies/MSOs) beginning in earnest in the 80s, morphing into the 90s before crashing at or about the millenium, have seen this dance before.

BREAKING: It failed, and failed miserably, with some exceptions. Lets put aside the mature integrated delivery systems who walked the talk then and continue to model best in class integrated or more recently dubbed ‘accountable care’ for the rest of us and just focus on mainstream medicine and the typical community hospital as epicenter.

Back then the ‘big four’ proprietary (vs. voluntary) hospital systems where: Hospital Corporation of America (HCA), National Medicare Enterprises (NME), and American Medical International (AMI), and Humana. Not to be left out, the nonprofit hospital braintrust eyeing the competitive threat these amassing for profit systems represented, turned to their leading trade group, the Voluntary Hospitals of America (VHA).

Thus, all four drank the strategic ‘kool-aid’ fed in part to them by the best and brightest consultants and entered the insurance space. HCA joint ventured with The Equitable to form ‘Equicor’, NME fielded ‘AVmed’, while AMI really stretched the boundaries of creative thought by branding ‘AMICARE’, while Humana fielded Humana Health Plans. [NOTE: I advised AMI NOT to enter the insurance business with their own branded product, later joining the company once they divested (a $350 million charge to discontinued operations) their ill advised misadventure as Regional Director of Managed Care for 21 California Hospitals.] While VHA partnered with Aetna to form “Partners National Health Plans’ aka ‘PARTNERS’.

Thus, the race was on. Senior hospital executives rarely able to deliver on the upside promise of scale in the hospital business, i.e., better care, lower overhead cost, best management practices via ‘corporate colleges’, group purchasing, reduced clinical variation, and greater accessibility to the populations served, chose to up the ante and leap the grand canyon of the hospital business (one they had yet to materially improve) and enter the unfamiliar and potentially cannibalizing business of insurance.

The record is clear. The group as a whole failed, and failed miserably. What’s changed? And how might we view this ‘extravasation‘ differently? I will explore what might be different this time, and perhaps present another way of framing the value proposition of bridging these two very different different businesses in the next post.