Unlike a traditional insurer that negotiates to offer coverage with many different providers, the health plan will only include the Cleveland Clinic's network of providers, including its well-known main hospital, 10 regional hospitals and more than 150 outpatient clinics.
The partnership will not address the larger problem overshadowing the law's exchanges: the prospect that some places will have no options at all in 2018. In Ohio, 18 counties are at risk of having no insurers next year, but the new health plan will enter counties in the northeast part of the state, none of which are at risk of being bare with no options.
Instead, the new insurance product — which emerged from discussions that began in the first half of 2016 — is a move that health policy experts said provides a strategic way for leading hospitals to keep a hand in the individual market where people buy their insurance. Price-sensitive consumers buying insurance have meant that health plans offered in the individual market are increasingly constructed with narrow networks that may exclude the top hospital in town.
“Academic medical centers have great reputations in their community and patients want to go there. They’re also much more expensive than peer provider organizations, and so they are getting in many cases excluded from exchange networks, and this is a way they can guarantee availability of their product to the community that wants to buy it — and leverage their brand, which is really important,” said Dan Mendelson, president of Avalere Health, a consulting firm.
Cleveland Clinic, a nonprofit, and Oscar will split the profits and the risks, which gives both entities an incentive to keep patients healthy and to avoid excessive care. Keeping patients healthy — and out of the hospital — has become an important goal for health systems as reimbursements have shifted to rewarding them for better outcomes instead of simply paying them for the volume of services they provide.
“We both have a big incentive to make sure that you get the best health care that you need and that you don’t necessarily need to go to the hospital unless really necessary, by sharing both the downsides and the upsides,” Oscar chief executive Mario Schlosser said in an interview. “I do think the U.S. health-care system is way too expensive and way too inefficient to produce the outcomes we’re paying for. These kinds of deeper partnerships, where incentives are aligned between the payer and provider, where the lines almost blur, are certainly the future of health.”
Oscar was co-founded in 2012 by Schlosser, Kevin Nazemi and Joshua Kushner, the brother of senior White House adviser Jared Kushner, who is Ivanka Trump's husband. The start-up uses technology, including a mobile app that connects patients directly with doctors, to try to create a more consumer-friendly insurance company. The Cleveland Clinic was one of its early investors.
Oscar, a start-up, will likely benefit from its partnership with a powerful brand in medicine by attracting more customers, said Craig Garthwaite, an associate professor of strategy at Northwestern University's Kellogg School of Management. He said that hospitals, which face fixed costs, are thinking about the long-term. Under whatever health-care scenario unfolds as politicians grind forward with an overhaul, the individual market where people buy their own insurance isn't likely to go away.
“I’m intrigued by what Oscar is doing. For it to truly be successful, it’s got to be that they somehow reduce care and reduce spending on care, and reduce that in a way that isn’t... just getting healthier people” in their plan, Garthwaite said.
Steve Glass, Cleveland Clinic's chief financial officer, said the hospital closely scrutinized Oscar's operating model. Oscar has lost money each year since it started up, including a $204 million loss last year. Through the first quarter of 2017, the company has halved its losses compared to last year, reporting a $26 million loss.
One of the problems, Glass said, was that as a start-up Oscar had difficulty negotiating with providers. That problem could be solved by partnering with the Cleveland Clinic, a health system that includes not only its well-known hospital but more than 150 regional care centers in northern Ohio and a network of regional hospitals.
Glass said that despite the near-term uncertainty about health-care overhaul, the Cleveland Clinic was focused on the long-term.
“Whatever happens with Obamacare and the exchanges, however that plays out in D.C., the individual marketplace is still going to exist and health-care providers like the Cleveland Clinic are going to want people in that individual marketplace to have access to the Cleveland Clinic,” Glass said.
One example of how the partnership could improve care, Glass said, is by connecting patients with Cleveland Clinic doctors through a telehealth visit that has no co-pay attached. That could allow people to avoid unnecessary doctors' visits, but also push them to check on health problems they might otherwise ignore. When symptoms are a sign of a bigger problem, telehealth consults could help steer people to the right setting, allowing them to intervene early in chronic health problems and avoid overuse of the emergency room.
Oscar isn't the only expanding into new markets. The insurer Centene announced earlier this week that it would enter Affordable Care Act exchanges in Kansas, Missouri and Nevada and is expanding its offerings in Florida, Georgia, Indiana, Ohio, Texas and Washington.