5 Things to Know About the Merger of Health Systems and Insurance Providers

Traditionally, healthcare delivery and health insurance existed as two separate types of business, but there is a new trend in the healthcare industry of hospitals and health systems buying insurance companies.

Here are five things to know about healthcare organizations merging with insurance providers.

1. Many healthcare organizations are seeking to become both the payer and provider to offer better care and cut costs. Health reform is increasingly focused on population health management, and many healthcare organizations are trying to improve quality of care through the use of value-based systems that employ quality measures. Hospitals that enter the insurance business may be able to better design quality care programs by becoming a unified organization and removing competing incentives.

2. Becoming the provider and payer can also cut costs for healthcare organizations. As part of the transition to pay-for-performance, the healthcare industry has become more focused on preventive care with the goal of keeping patients healthy. Providing more preventive care to patients can lead to dramatic costs savings, and by merging with health insurance companies, healthcare organizations can change the way they are reimbursed to make providing more preventive care a doable feat.

3. Choosing to act as both payer and provider, in 2012, Detroit Medical Center announced it had purchased ProCare Health Plan, a Detroit-based Medicaid HMO. More recently, in April, a subsidiary of Englewood, Colo.-based Catholic Health Initiatives reached an agreement to acquire QualChoice Holdings, a health insurer based in Little Rock, Ark., pending regulatory approval. In May, St. Louis-based Acension Health — the nation's largest nonprofit and Catholic healthcare system — announced it is considering buying an undisclosed insurance company. 

4. The trend of health systems and health insurers merging has caught the eye of antitrust regulators because the mergers can lead to a reduction in competition by limiting entry or expansion of third parties into the market. By putting competing organizations at a disadvantage or even driving out competition all together, the unified organizations would be able to raise members' premiums. Although it would be costly to gather and analyze data concerning hospital-offered health insurance plans, antitrust regulators and health economists believe the research is necessary to address the effects of these plans on healthcare quality and costs.

5. The one major study directly related to hospital-insurer integration with quality and premiums was published in 2013 in the journal Health Services Research. The study shows the integration may be bad for consumers because when hospitals buy health insurers, the plans offered have higher premiums. The study also found 70 percent of the additional premium cost is not attributable to higher quality care. Even though consumers rate hospital-offered insurance plans as higher-quality than other plans, researchers have been unable to find any evidence showing a correlation between the higher premiums charged and superior quality of care.

More Articles on Mergers in the Healthcare Industry:

8 Recent Hospital Transactions and Partnerships
Somerset Medical Center CEO to Step Down Before Merger With RWJ University Hospital
CHS Calls Off Bert Fish Merger Deal