Leading the Plunge into the Risk Pool

Modern Healthcare
December 21, 2013
 

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Leading the Plunge into the Risk Pool
By Melanie Evans

The nation's healthcare delivery systems face a payment world where public and private payers are moving toward more risk-based reimbursement methods. Only a few systems have confronted the challenge head-on by adding insurance to their mix of services.

Michael Dowling, president and CEO of North Shore-LIJ Health System since 2002, is among the few leaders who have taken the plunge. North Shore-LIJ operates 16 hospitals and nearly 400 physician practices throughout the New York metropolitan area. Its workforce of 46,000—which makes it the third-largest employer in the nation's most populous region—includes more than 9,400 physicians and 10,000 nurses. Last July, it received authorization from New York state to begin selling insurance throughout the region through its CareConnect subsidiary.

Modern Healthcare's New York Bureau Chief Melanie Evans recently sat down with Dowling in his Great Neck office to explore why North Shore-LIJ believes taking on insurance risk must become an important component of the system's business going forward. The following is an edited excerpt:

Modern Healthcare: Why enter the insurance market?

Michael Dowling: It's very, very important to think ahead over the next five to 10 years and plan your strategy so you can assure yourself the greatest chance of being successful long term. I'm convinced that you have to move away from fee-for-service and you have to get into the risk business. You have to be able to create the competency within your organization to be able to manage populations of people.

There is no better way to do that than to set up the internal infrastructure so that you can take full risk. When you build an infrastructure like this, you are many ways very much like an insurance company. If you have the opportunity to get a license, which we did in New York state this year, then why not just get a license, which allows us to go into the market and get on the exchange and off the exchange? In many ways, it is a hedge to prepare ourselves for the inevitability of all of the changes that are occurring and will be occurring.

If you look at some of the large organizations across the country that are in the top echelon of successful organizations, they all have a health plan. Look at Intermountain. Look at Geisinger. These are the places that a lot of people talk about as being at the cutting edge, and one of the things that they have been able to do successfully is to get into the risk business via an insurance entity.

MH: What operational and financial risks did you take to become an insurer?

Dowling: It's a risky business. Fee-for-service in many ways is relatively straightforward and simple, even though everybody would always complain about it. You do something, you get paid. You do it twice, you get paid twice.

You were primarily in the illness treatment business. I want us to be in the health promotion business as well as the illness treatment business. So when you move from the traditional way of getting paid, like fee-for-service, and you move into some kind of a risk business, whether you do it through your own insurance company or through other arrangements with current insurance companies, it is a risky endeavor.

You have to spend a lot of resources hiring the right people with insurance backgrounds. You have to hire people with actuarial backgrounds, with risk-management backgrounds, with utilization-management backgrounds. We've spent a lot of time in the past year hiring a lot of talented people from insurance companies who are now here with us to provide the core of our insurance business.

You cannot take a smart person who works in a hospital and tell them, “By the way, tomorrow you're over on the insurance side and you have to learn it quickly.” That doesn't work well.

Now you're managing people's health, not just treating their illness. And you have to manage their health in environments that are the least restrictive, that give you the best outcomes. It's not about inpatient care even though there are a lot of people who will need inpatient care.

We've been very inpatient-care dominated just like most health systems around the country and most hospitals. Now you have to shift to the other way of doing business.

The other big change for us is that over the past four or five years, we have dramatically increased our footprint in the ambulatory-care world. We have now 400 locations. Not all are traditional outpatient. We're doing deals with CVS; we're opening up freestanding emergency departments; we've been bringing on a lot of physicians full time. … We now have 2,600.

We also have home care; we have hospice; we have long-term care. So we've got the whole continuum. The challenge and the risk is figuring out how to manage across the whole continuum, so that you can take care of people the best way possible in the future and enhance quality.

And, hopefully, if you do it right, over time it will reduce the cost. That's the overall goal. To do it you have to have all the tools in the toolbox, and the insurance entity is one of the tools in the toolbox.

MH: What has your experience been with the rollout and early enrollment on the New York health insurance exchange?

Dowling: The rollout has been a disaster, especially on the federal side of it. I don't think anybody can over-exaggerate the level of dysfunction that existed. And it's not just with the exchanges themselves. It's with the whole legislation, the whole Affordable Care Act itself. There is so much we don't know, and it depends upon all of the behaviors of all the different players who are in healthcare.

Nobody can fully anticipate how all of these people will behave over time and how the customer will behave. So there are a lot of unknowns. So you've got to wait for quite a number of years to figure out how all of this is going to play out.

The New York exchange had its fumbles in the beginning, but it has worked pretty well. So we've signed up quite a number of people from the New York exchange. We don't have a lot of the information yet on who these people are. So until we know exactly who they are, it's a little bit of a dicey situation.

MH: What kind of volume or market share do you expect to gain from the exchanges?

Dowling: It's going to be small to begin with, which is good because when you get into the insurance business, you've got to walk incrementally. You've got to do it small, get it right, increase it, do it better. And then when you get it right, then you expand.

What I don't want to happen is this to expand so fast without being able to have all the cultural changes that are necessary. This is the history of everybody that's been doing these insurance entities. If you look at Geisinger or you look at Intermountain, it took them years to get to the level of competence that they now have. It doesn't happen immediately.

It's like running the marathon. If you run a marathon and you're ahead in the first five miles, you're not going to be around at the end of 26 miles. So you want to take it nice and easy at the beginning, preserve your strength and then at the end you can be the winner. I look at this as a long-term play. This is not a six months or a year thing. This is a 10-year effort. And if we do it right, at the end of the 10 years, we'll be successful. That will be the measuring rod, not the first year or two. And everybody wants immediate results. You're not going to get immediate results.

MH: Do your plans reimburse using fee-for-service or capitation or something else?

Dowling: Right now we get reimbursed every which way. Just imagine the difficulty of that from an operational point of view. But in all of our deals with the major insurance companies, which will still be the bulk of the business, over the next three to four years all of them move us to various forms of risk: pay-for-performance that is associated with quality results where we'll have to ensure quality with partial risk to full risk.

At the end of the day, I want to get as much control of the premium dollar as I can so that we, who deliver the care, can actually organize the care the right way. If I do things to have people stay out of the hospital, I get the savings. In the current fee-for-service situation, if I work to keep people out of the hospital, I do great things, but I don't get reimbursed for it.

The people who get reimbursed, who get the savings, are the people who don't do the work. So why would I want to be in a situation of keeping people out of the hospital, appropriately keep them out of the hospital, and I take a bath financially? So you've got to change the dynamic, so that there is a synergy between the financial operations and the programmatic operations all geared toward giving you the best quality outcomes at the end of the day. …

(Our insurance company) will be reimbursing for quality outcomes.

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