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Why hospital-owned health plans are big in Wisconsin

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Wisconsin is known for its dairy farming and rolling hills. But some health care experts call it a trailblazer.

In the past few years, health systems have been eagerly launching or expanding their own health plans, seeing it as an opportunity to cut out the middleman and take on more direct financial risk while caring for patients.

In Wisconsin, providers have practiced that strategy for decades. And, according to Medicare and the National Committee for Quality Assurance, they're among the highest-rated in the country.

The Badger State ultimately could serve as a prototype for health systems that are trying to shift their focus away from filling hospital beds and toward more risk-based care coordination.

“Insurers have put risk down to providers,” said Gunjan Khanna, a partner in the health care practice at McKinsey & Co. “At what point do providers start to have their own entity to manage the risk and have control?” Wisconsin has done that well, he said.

Nationwide, about 13% of health systems offer a health plan. There are nine provider-owned health plans in Wisconsin, second only to Texas, according to data from McKinsey.

Dean Health Plan, Security Health Plan, Unity Health Insurance and several others offer commercial, Medicare and Medicaid coverage in the state. Those plans cover almost a third (32%) of Wisconsin's insured population based on a recent analysis from consulting firm Deloitte. The only state with a higher concentration is Utah, where 36% of people are covered by provider plans.

There are a number of reasons provider-owned health plans are a staple in Wisconsin, which has about 5.8 million residents. Commercial payers historically stray from insuring vulnerable, costly patients in urban areas. That's allowed insurers such as Children's Community Health Plan, owned by Milwaukee-based Children's Hospital of Wisconsin, to cover nearly 137,000 Medicaid adults and children, said Bob Duncan, the hospital's executive vice president for community services.

Wisconsin's fairly rural. Outside of the southeast and south central regions, where Milwaukee and Madison are located, populations thin out quickly. Rural areas typically have fewer health insurance options, and that spurred hospitals and doctors to offer coverage to their patients.

“A lot of communities didn't have strong national or Blues penetration, and there had to be an answer to someone financing healthcare,” said Bill Copeland, a health care analyst at Deloitte. “The dominant market leaders — provider systems — started those plans a long time ago. In Wisconsin, I think that's especially true.”

What makes Wisconsin different from other states is that providers didn't quit their insurance businesses. Many hospital-based plans across the country failed or were sold off more than a decade ago. A lack of rate-setting experience and data hindered their pursuits, as did the growing competition from purebred insurance companies. “In most of the other markets where these health plans evaporated, it happened because the provider system wasn't able to manage the tension between their own health plan and the third-party standalone payers in their market,” Mr. Khanna said.

However, hospital-owned plans have not necessarily led to lower health spending. From 1991 to 2009, per-capita spending on hospital and physician care in Wisconsin grew at a faster pace than the U.S. average and the highest of the five Great Lakes states, according to CMS data.

And although many Wisconsin health systems have expressed a desire to be more involved on the financing side, not all of them want to deal with the high capital requirements or stringent regulations associated with owning a health plan. Consequently, two broad partnerships have engulfed the state in the past year to bridge that gap: AboutHealth and Integrated Health Network. AboutHealth includes eight health systems and their 48 hospitals. IHN is a slightly smaller beast with seven health systems and 45 hospitals.

Aside from improving care quality, sharing data and pulling out wasteful costs, the two competing alliances look to contract with health insurers and employers to build broader networks. That effort has not come without conflict. Some insurers have already partnered with AboutHealth, for instance, but others have not been as thrilled to see the state's prominent systems team up for negotiations.

“It has not at all been a uniform response,” said Dr. Nick Turkal, CEO of Aurora Health Care, a 15-hospital, $4.7 billion system based in Milwaukee. Aurora does not own its own health plan but is part of AboutHealth.

Marshfield Clinic Health System, which owns Security Health Plan, is also an AboutHealth member. Marshfield CEO Dr. Susan Turney said regardless of whether providers own a health plan, more has to be done to ensure people are incentivized to get the right care. “Patients are telling us ... they delay medical care pretty consistently when they don't have the resources to pay for it,” Turney said.

Bob Herman writes for Modern Healthcare, a sister publication of Business Insurance.