Some hospital networks also become insurers

Michael Dowling, who runs one of New York’s largest hospital networks, is preparing to turn his business model on its head: He wants to keep his hospital beds empty, rather than full.

That’s because the North Shore-LIJ Health System, with 16 hospitals and more than 300 outpatient centers in Long Island and New York City, is laying the groundwork to be an insurer, as well as a provider of health care.

(Chris Gash for The Washington Post)

Like other hospital chains across the country, it’s under intense pressure from public and private insurers, as well as employers, to accept flat-rate payments for care, rather than reimbursements for every service. And that puts pressure on hospitals not just to manage costs, but to keep people well — in short, to act more like insurers.

“This is a huge, dramatic cultural shift,” said Dowling, president and chief executive of North Shore-LIJ, who expects it will take several years to market coverage to the general public.

Once the system becomes an insurer, picking up the tab for a hospitalization rather than generating revenue from it, more resources will be devoted to preventive care, Dowling said.

“The last place I’ll want you to be is in the hospital,” he said. “I’ll be doing everything to get you to take care of yourself.”

Hospitals from Colorado to Virginia are exploring similar strategies spurred by rising costs and incentives in the health law. An estimated 20 percent of networks market an insurance product, including MedStar Health, serving the Washington-Baltimore region with Georgetown University Hospital and eight other facilities.

Another 20 percent are exploring doing so, according to a survey last year of 100 hospital leaders by the Advisory Board Co., a research firm.

“This trend is definitely picking up steam across the country,” said Chas Roades, the firm’s chief research officer.

Impact on consumers

Proponents say consumers would benefit from streamlined care and possibly lower costs, but some also worry they could find themselves with fewer choices and limited access to outside experts and cutting-edge treatments.

“The idea of managing care for patients in a holistic fashion sounds great,” said Carmen Balber, who directs the Washington office of Consumer Watchdog. “The question is how it plays out. Are doctors given the freedom to make recommendations outside of cost calculations?”

Driving the change is the transition from fee-for-service payment schemes, which pay for each doctor’s visit, appendectomy or CT scan separately, to one that pays providers a lump sum per person per year. This will shift more of the financial risk of medical care from insurers to providers.

Once hospital systems are paid this way, “they’re sort of halfway toward being an insurance company,” Roades said. “The more hospitals take on risk and manage the care, the more they look like insurance companies. And ultimately you have to ask: Why do we even need an insurance company sitting between a health system and an employer?”

Of course, Americans rebelled against an earlier iteration of this model, known as managed care, when insurers ran the show.