Covid 19

Hospitals with health plans have gotten a financial boost during the pandemic

July 24, 2020 4:56 pm
  • Provider-sponsored health plans have given a boost to health systems suffering steep losses amid the COVID-19 pandemic.
  • Even smaller health plans have bolstered the finances of hospitals.
  • Longstanding obstacles remain for providers to succeed with health plans.

Hospitals and health systems that operate health plans received an unexpected bonus during the financial turmoil of the COVID-19 pandemic, industry watchers say.

Provider-sponsored health plans are “acting like the perfect hedge,” said Kevin Holloran, senior director with Fitch Ratings.

During the pandemic, health plans — both provider-sponsored and commercial — are still getting paid premiums, “but people are not using [benefits] quite as much,” Holloran said, with many governors having ordered a pause of elective procedures during the height of the spring outbreak to conserve capacity and supplies for COVID-19 patients.

Slashing healthcare services allowed the cash flow and cash reserves of health plans to reach “an all-time high,” he said during a call with investors.

“That’s at the exact same time that hospitals were taking a hit on their revenues,” Holloran said. “If you were one of those organizations that had both arms, both levers to play with, you saw that act as a perfect hedge. And they are not having nearly as much financial trouble as organizations that are strictly hospitals.”

UnitedHealth Group Inc. earned $6.64 billion in the second quarter of 2020, which was nearly half of what it earned for all of 2019, according to published reports.

Meanwhile, hospitals were projected to lose $202.6 billion from March through June, according to a June report by the American Hospital Association.

The positive effects for health systems with provider-sponsored plans were confirmed by the Alliance for Community Health Plans (ACHP), which represents health systems with provider-sponsored health plans.

“ACHP members provide stability for patients and providers through their integrated and aligned model,” Ceci Connolly, president and CEO of ACHP, said in a written statement. “Value-based, capitated payment arrangements have helped sustain providers and maintain continuity of care, giving patients the confidence they need during this crisis [and] proving [to be] a more durable, affordable and successful healthcare system we should adopt moving forward.”

Smaller hospitals could be in jeopardy

Provider-sponsored health plans generally are operated by relatively large health systems. The financial losses experienced by providers during the pandemic could spur more mergers and acquisitions involving smaller hospitals, Holloran said.

For small hospitals, “There’s only so much you can cut and there’s only so much you can do with your revenue stream,” Holloran said. “Versus a larger system that has a little bit more ability to cut and defer. They also have a little bit more … diversified revenue stream. We’ll always be a little worried about [small] hospitals to some level.”

Smaller hospitals may benefit from sponsoring health plans that are more limited in scale.

Black River Memorial Hospital, in Black River Falls, Wis., operates a health plan for its employees. That plan provided a financial boost, even as elective procedures were suspended for two months.

“Just like [with other health plans], no one has been going to the doctor, nobody had been seeking healthcare, so we’ve had a really large savings to our health plan so far this year,” said Matthew Streeter, FHFMA, the CFO of the hospital.

However, he is bracing for a possible surge in claims next year due to pent-up demand, as are many commercial health plans.

Health plans have not always been a boon

Historically, health plans have been an operational challenge for many hospitals and health systems that launched them.

A 2019 Moody’s Investor Service report (subscription required) noted that over the past two decades, multiple systems have entered the health plan business through startups or acquisitions, “with varying degrees of success.”

Recent years have seen multiple high-profile decisions to close or sell health plans amid financial losses.

“If successful, a health insurance product can provide a hedge against declining patient revenues, limit patient leakage to other systems and play a key role in population health strategies,” Moody’s noted. “However, managing a health insurance plan requires actuarial expertise in underwriting, pricing know-how, strong customer service and marketing skills, a large brokerage network and a proven ability to project usage rates.”

Other challenges for provider-sponsored health plans, according to the report, include:

  • Regulatory and market vulnerability from significant concentration in one market or state
  • Complications in relationships with existing health plans

And some industry advisers warn that it is too early to fully assess the pandemic’s fallout on the finances of health plans, including provider-sponsored plans.

 

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