pg43_column-jim-reinertsenCan a health system without an insurance arm succeed in today’s marketplace?

As a leader of a newly consolidated system, you face an interesting strategic question: Now that you’ve managed to gather your various hospitals, physician practices, and other healthcare delivery components into some kind of an organization, what are you going to do with it? In all too many instances, the answer has been “Use our market clout to get better contracts with insurers.” Of course, this is not what’s written down in the mission statement or strategic plan, but it’s been a prevailing pattern for a decade or so.

But let’s assume for a moment that you’re really serious about your new mission, which includes noble statements about improved quality and lower costs for the community. And let’s assume further that your new health system is actually capable of improving care outcomes, taking waste out of work, redesigning services to be truly patient-centered, and reducing excess capacity and overuse of expensive services. (This is a very big assumption about your capabilities, especially the “reducing excess capacity and overuse” part. We’re talking about your revenues here.) But let’s suspend skepticism, and assume that you’re both serious and capable of the mission. 

Are you set up to succeed? If “every system is perfectly designed to produce the results it gets,” is your new health system designed and structured to be clinically and financially successful in your mission as an integrated, accountable care organization?

What’s Missing? 

I am not sure. And the reason I’m not sure is because it is very likely that your newly consolidated organization doesn’t include an insurer. You don’t own a share of the health insurance premium. 

This isn’t a new problem. The old version of the problem was perfectly framed by a CMO of a large care system, who told me, “My team has worked hard, and dramatically reduced readmissions for congestive heart failure to our system. The net result of our work was that Blue Cross reduced its costs (our revenues) by $3 million, and I got a brass plaque. Oh, and I also got an invitation to their annual golf tournament.” 

Many integrated systems are now entering into shared savings, bundled payment, and “accountable care” contracts with insurers, hoping to be financially rewarded for improving quality and reducing costs. But even under these new arrangements, you are going to be highly dependent on insurers that own and control the claims database, which you need to learn where your cost-reduction opportunities are, and to calculate and audit financial savings. 

More importantly, if your care system truly reduces costs for your community, you will be reducing your own rate of revenue growth, but you will have no say in the setting of insurance premium rates. This new version of the CMO’s problem appears to me to be a situation in which you will be doing the hard work and taking a lot of the financial risk—but an insurer will be holding all of the important cards, and telling you whether you succeeded or not. That’s a sucker’s game.

What Would You Add? 

Which raises an even more interesting question: “If you could add one more organization to your current system, what would it be?” Most hospital-based systems would add yet another hospital or a major physician practice. I would suggest that you study the example of Partners in Boston, Park Nicollet in Minneapolis, and many other forward-looking organizations, and consider partnering with or acquiring an insurer—unless, of course, you are just planning to use your consolidated system to negotiate better rates.


James L. Reinertsen, MD, is CEO, The Reinertsen Group.

Publication Date: Wednesday, November 06, 2013