Business

Health plans owned by doctors, hospitals are disappearing

The loss of smaller, locally owned health plans is one part of broader market consolidation.

By Emily Berry — Posted Nov. 2, 2009

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

The once-plentiful population of health plans owned by physician groups, hospitals or integrated health systems has dwindled steadily in the last decade. The demise of those plans has continued with acquisitions by larger plans over the last year, experts say.

No one has specific numbers on the rate of consolidation, except to say that new physician- and hospital-owned plans are not popping up to replace those that have been bought.

Large plans, both for-profit and nonprofit, have been eager to buy up health plans that hospitals and medical groups are ready to sell.

There are good reasons for that eagerness, said Peter Kongstvedt, MD, author, professor and managed care consultant based in McLean, Va. "The larger the acquisition, the more time it takes and the more it costs."

Dr. Kongstvedt added, "Smaller provider-owned plans do not command a high price."

Large plans also know that hospital and physician-owned plans sometimes have a hard time competing with them and therefore make good targets for acquisition.

"You need the scale, you need a lot of things to get by to build the capital ... to be able to provide the service," said Humana Chief Financial Officer Jim Bloem. "These kinds of increasing challenges give smaller plans ... the impetus to take a real look at the economics of the plan, the relationship of the plan with other entities they might own."

Experts say the reasons hospital systems and physician groups are ready to part with their insurance business include state regulations requiring large reserves, patient preference for large networks, and limited resources for marketing that would allow the smaller plans to compete with the national giants.

A recent example of the continuing trend of smaller plans being gobbled up by larger plans came in October, when Coventry Health Care, based in Bethesda, Md., purchased Preferred Health Systems, a health plan owned by Wichita, Kan.-based hospital group Via Christi Health System. If approved, the merger would add about 120,000 people to Coventry's current membership of 5.2 million. Terms of the deal were not disclosed.

Pam Carbiener, MD, a Daytona Beach, Fla., ob-gyn, was on the board of commissioners for Halifax Health at the time its Florida Health Care Plans subsidiary was sold to BlueCross BlueShield of Florida in August 2008.

She was torn, she said, because as a clinician she worried about losing a physician-friendly, patient-centered, local health plan. Eventually, she came to believe that the hospital needed to sell the health plan to remain financially healthy. The $85 million deal was finalized in January.

Physician- and hospital-run plans are challenged with keeping down medical spending while the practices and facilities need patient volume. A.M. Best found the median medical loss ratio for a physician- or hospital-owned plan was 89.3% in 2007, an increase of 3% since 2004, and higher than the overall health insurance market.

"It's hard to take off one hat and put on the other," said Linda McMullen, director of medical economics and associate general counsel at the Florida Medical Assn. "You're member-benefit driven, so you're trying to say 'yes' to members, but trying to run a business on the other side, saying, 'We've got to raise your premiums by 25%.' "

Beating the odds

There are some plans, however, that are not only surviving, but look to be thriving.

For example, Hometown Health, the insurance arm of Reno, Nev.-based hospital system Renown Health, has turned away interested buyers. Even in the midst of a recession, the plan has kept up its market share with about 120,000 members, said Ty Windfeldt, director of sales and service.

He said Hometown Health has done well by offering the same things larger plans do, including wellness programs and sophisticated claims reports for employers, but has combined it with customer service anchored in local relationships.

"Rates are one thing; rates drive the main decision, but the premiums employers are paying are so substantial, they're demanding they get a certain level of service and quality," Windfeldt said.

Back to top


ADDITIONAL INFORMATION

Larger plans buying smaller counterparts

Small, regional health insurance plans owned by doctors and hospitals have been steadily disappearing for several years, but the bigger plans have become more open about seeking them out as acquisitions. A few recent examples:

Date Acquiring plan Plan purchased Former owner
October* Coventry Health Care Preferred Health System Via Christi Health System, Wichita, Kan.
September Blue Cross Blue Shield of Michigan Physicians Health Plan of Mid-Michigan Sparrow Health System, Lansing, Mich.
January BlueCross BlueShield of Florida Florida Health Care Plans Halifax Health, Daytona Beach, Fla.
October 2008 Humana Cariten Health Plan Covenant Health, Knoxville, Tenn.
May 2008 Humana OSF HealthPlans OSF Saint Francis, Peoria, Ill.
April 2008 Medical Mutual of Ohio Premier Health Systems Palmetto Health and Sisters of Charity

*Pending regulatory approval

Source: Company announcements

Back to top


ADVERTISEMENT

ADVERTISE HERE


Featured
Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story


Read story

Goodbye

American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story


Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story


Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story


Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story


Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story


Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story


Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn