Coming soon: A Cleveland Clinic health plan?

Cleveland Clinic is carefully considering a move into the insurer market.

Cleveland Clinic has already established an ability to manage risk via bundled payment arrangements with several large employers, such as Boeing, Wal-Mart and Lowe's. But now the system is evaluating a more definitive move onto the payer side.  

Heather Phillips, a system spokesperson, said Cleveland Clinic is working closely with "many insurance companies on a variety of different options." One strategy "being carefully considered" is applying for an insurance license with the state, which can take up to 18 months and would let Cleveland Clinic launch its own insurance plans.  

Here are a few thoughts on the development.

1. A Cleveland Clinic health plan would be one more way to monetize the brand. Some health systems are putting insurance products on with the idea that a healthcare provider brand — rather than a health insurance brand —holds greater appeal to consumers as they shop. Would you rather have a health plan from Cleveland Clinic or a health plan from Medical Mutual of Ohio? The answer depends on individual preference, of course. But given Cleveland Clinic's brand recognition, this could be one more way for the health system to monetize its name and patient experience — especially in an untraditional marketplace like the health exchanges. "Given Cleveland Clinic's market position, I'm not surprised that they would look at gaining an insurance plan," says Scott Becker, publisher of Becker's Hospital Review.
2. Cleveland has a provider-driven market. Whereas other markets have insurers that put great pressure on providers through narrow networks or other mechanisms, Cleveland, Akron and Ohio in general have robust providers and less dominant payers. For the individual market, Ohio's most dominant insurer — Blue Cross and Blue Shield of Ohio — held 36 percent of individual market share as of 2012, the most recent data available, according to Kaiser Health Facts. Medical Mutual of Ohio held 34 percent and UnitedHealth Group held 14 percent — only 3 other insurers held at least 5 percent of the market.
In 2013, Kaiser Permanente sold its operations in northeastern Ohio — including its insurance arm and Ohio Permanente Medical Group — to Cincinnati-based Catholic Health Partners. The 80,000 Ohioans covered by Kaiser was a small fraction of the healthcare giant's 9.1 million covered lives across the U.S., and Kaiser reportedly lost nearly $60 million in its Ohio operations in 2012. The transaction marked CHP's debut into the insurance business, but that the country's largest integrated health system struggled to grab much of the market is interesting.
3. A health plan would give Cleveland Clinic greater control in where it steers patients. Cleveland Clinic has established a network of community hospitals, family health centers and specialty centers in addition to its main campus. Care settings offer different services. Its Ashtabula County Medical Center specializes in cardiology, for instance, while its Euclid Hospital offers orthopedic specialists. A Cleveland Clinic insurance product would present the opportunity to better control the total cost of care. Cleveland Clinic could steer people to relatively inexpensive clinics and keep the main campus primed for more acute and expensive cases.
4. This would also be a play for employers. Cleveland Clinic already has bundle arrangements in place with some giant employers, including Wal-Mart, Boeing and Lowe's, for certain types of acute care or procedures. Under the deal with Wal-Mart, 1.1 million employees and their dependents covered by Wal-Mart's health plan can travel to Cleveland Clinic for cardiac surgery with the employer covering deductibles and travel costs for the patient and a companion, for instance. An insurance product may help the system move into direct partnerships with employers, creating more population health management solutions and expanding the breadth of services covered.  
5. Provider-sponsored health plans require a range of capabilities. Across 39 states, 107 health systems offer health plans in one or more markets, according to research from McKinsey. These plans cover about 8 percent of all insured lives. Systems that pull it off must have the size of a population to truly amortize and carry risk, and market and run an insurance plan. The back office and capital requirements alone are substantial, including documentation and coding capabilities, cost and utilization analytics, patient navigation tools, clinical pathways and contract management.
6. Payers have benefited from negotiating reduced reimbursement rates with providers, lowering patient utilization or both, whereas providers have benefited from higher reimbursement rates and increase patient volume. These are different ways of creating value that must be reconciled to remain sustainable. "In some ways, the ownership of a health insurance plan helps a healthcare system diversify its portfolio," says Mr. Becker. "In some years, providers seem to have the upper hand. In other years, insurers seem to have the upper hand. By owning both, the discussion in some circles is that a system can diversify its risks over time."
7. Generally speaking, constant detente between large systems and the main insurer in a market will often cause the system to go slow in developing its own plan. But as a health system gains market share, the insurer often tries to bolster a competitor system, says Mr. Becker. This can again drive the system to look at its own plan. Still, launching a provider-sponsored plan is not a silver bullet: "A core challenge of one's own insurance plan is  it can put a system at war with its biggest customer," or the dominant health plan in the market, according to Mr. Becker.

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