Thomas Jefferson University plans to double the size of its health insurance business within five years. Then last month’s agreement to acquire Lehigh Valley Health Network dramatically shortened that timeline.
Now the Philadelphia-based nonprofit health system expects to achieve its goal Within two years, Jefferson CEO Joseph J. Caccione told investors last week in San Francisco, Fierce Healthcare reports.
Jefferson Health Plans has about 350,000 people in Medicaid and Medicare plans, most of them in Philadelphia. Last year, it offered individual plans Concerning the Pennsylvania Affordable Care Act market, and has picked up a small number of clients for coverage in 2024. Jefferson currently has no plans to sell insurance to private employers.
The acquisition of the Lehigh Valley and its 13 hospitals as far north as the city of Scranton was given by Jefferson Total 30 hospitals It significantly expands the marketing opportunity for Jefferson Health Plans that you own Wholly owned since fall 2021.
Jefferson’s plan to grow its insurance business is part of a national trend toward consolidation Doctors, hospitals and insurance all In one giant healthcare a company.
The strategy is designed to enhance profitability by dispensing with the insurance company as a business mediator. Executives say it will also help with the transition To new payment methods that will hold hospitals accountable for providing high-quality, cost-effective health care. Health systems have traditionally made money The amount of care.
When health care providers know they’re getting a fixed amount of money regardless of the cost of a patient’s care, they have to adopt a different approach, experts say.
“I think they are more active in promoting health,” Caccione said in a December interview on The Jeffersonian. Tentative agreement with Lehigh Valley. “This is really what we think we should do.”
Jefferson has already received a financial return from owning Jefferson Health Plans, which were formerly called Health Partners Plans. That company reported operating profits of $48 million for the year ending June 30, while the health system had operating profits of $48 million Clinical operations had an operating loss of $216 million.
Financial lure for hospitals
Four decades ago in In the 1980s, a group of Philadelphia-area hospitals owned the HMO, as was common at the time “Health Maintenance Organization” Insurance plans It was called, and in the early 1990s Main Line Health hospitals and doctors had their own managed care plan.
This shows how health care systems have long viewed expansion into the insurance market as an opportunity to help boost typically tight profit margins, said Dan Groman, CEO of Veralon, a Philadelphia-based health care consulting firm with clients around the world. his mom.
“If that intermediary didn’t exist, and we could work directly with Medicare and Medicaid and employers, there would be some extra money there,” Grauman said, offering the perspective of hospital executives he advises. “This has been the temptation for decades.”
After the pandemic, rising labor costs squeezed hospital margins, Which makes it more difficult to claim profits from the financial health care pie.
Stephen K. admitted. Klasko, the former CEO of Jefferson, addressed these pressures two years ago At a business conference in Philadelphia, he specifically pointed to insurance: “There’s not enough money for someone to get 17 cents on the dollar as an insurance company to be the middle man.”
The national context of Jefferson’s insurance goals
Jefferson is joining the national trend by targeting expansion of its insurance business through the acquisition of another hospital network.
Two notable examples that could serve as models for Jefferson are in Michigan and the Far West.
Intermountain Health, a Salt Lake City-based nonprofit, saw its insurance business, Select Health, as its biggest growth opportunity when it acquired Colorado-based SCL Health in 2022, Intermountain’s chief financial officer told Becker Hospital’s CFO report.
Select Health, Intermountain’s insurance arm, announced plans to begin selling Medicare Advantage plans in Colorado, where SCL has hospitals.
In Michigan, Beaumont Health and Spectrum Health merged to form Corewell Health in 2022. Spectrum’s statewide health insurer, Priority Health, is a key force for the combined venture, according to Standard & Poor’s. Crain’s Detroit Business described the merger as a springboard for Priority’s expansion into southeastern Michigan.
Merger talks between Jefferson and Lehigh Valley Health Network began as a conversation about expanding Jefferson Health Plans into the Lehigh Valley area through a partnership, Cacchione said last month.
Jefferson has already begun offering Medicare Advantage plans in the Lehigh Valley during the fall 2022 enrollment season.
Emphasize the challenge of breaking In a new market, Jefferson has picked up just 90 members in Carbon, Lehigh and Northampton counties as of this month. Jefferson had a similarly slow start near his home, in Burlington, Camden, and Gloucester counties.
The challenge of mixing hospitals and insurance
Jefferson’s announcement of the Lehigh acquisition comes as Kaiser Permanente, the largest and most respected model for combining hospitals, doctors and insurance, descends on Pennsylvania with its acquisition of Geisinger Health.
Geisinger, headquartered in Danville, Pennsylvania, It will be the first health system in a new nonprofit called Risant Health, which is expected to acquire additional systems across the country.
There’s a big difference between Kaiser and other health systems with insurance arms, according to experts.
Kaiser, the nation’s largest nonprofit health system, thinks of itself as a health plan that just happens to be in some hospitals, said Kevin Holloran, a senior director at Fitch Ratings. Almost all of her patients have Kaiser insurance.
“In this model, anyone who comes through the door has already received all the money you’re going to make for them through the health plan. You manage the cost from there on out,” Holloran said.
By contrast, at places like Jefferson, UPMC and Geisinger, many or most patients have insurance from other companies. Doctors still mostly operate under the traditional reimbursement model, which pays them more to see more patients and provide more services.
Jefferson said in an email that he is working “to align incentives for providers toward care and wellness.”
In the long term, Jefferson will use what it has learned from its own insurance operations in its work with other insurers, Caccione said. This could lead to fully prepaid — or capitalized — contracts with other insurers.
Under these contracts, Jefferson will be fully responsible for managing the costs of caring for a group of patients. You will be paid a fixed amount each month, regardless of how much it costs.
This is the future of health care, said Rick Gundling, senior vice president of the health care finance practice at the Healthcare Financial Management Association, a trade group in Washington.
“It’s a different mentality, a different management style,” he said.