What happens when your hospital is also your insurance company? We’re starting to see the effects

When your hospital and insurance company are under the same corporate umbrella, it can lead to numerous effects that affect patients, providers, policymakers, and researchers alike. Hospitals that also own insurance plans, often referred to as "payviders," make decisions about the treatment and payment processes for individuals enrolled in their insurance plans. This arrangement raises several questions about the implications of hospitals and insurers operating together.

As health services scholars, we aim to uncover the pros and cons of this setup, particularly in the context of Medicare Advantage, the private version of the traditional Medicare program. We focused on Medicare Advantage plans owned by hospitals, examining their impact on the healthcare landscape.

There are several benefits to having a hospital and insurance company under one corporation. One advantage is improved communication between the insurer and doctors, which can reduce bureaucratic obstacles. In some cases, insurers and separate hospitals may have conflicting priorities, with hospitals concerned about doctors overriding their treatment decisions, and insurers worried that doctors may recommend excessive care without proper oversight.

In contrast, hospitals that own insurance plans argue that their doctors are more motivated to provide quality care while keeping costs low, as they are both responsible for patient care and insurance costs.

Research shows that when Medicare Advantage patients with plans managed by insurers that own hospitals receive most of their care at those hospitals, they tend to have fewer prior authorizations and experience better overall care, quality, and coordination. Additionally, there is some evidence suggesting that these patients may have fewer readmissions, mortality, and surgical complications compared to those in standard Medicare Advantage plans.

However, there are also concerns about this arrangement. One potential issue is that hospitals with insurance plans might manipulate regulations to receive more taxpayer money. The government pays Medicare Advantage plans a predetermined amount for each enrolled person, which the plan then uses to cover healthcare expenses. By adjusting patient diagnoses through a process called risk adjustment, hospitals can potentially earn more government payments, thereby increasing taxpayer costs. This incentivization to code more intensively may lead to unnecessary diagnoses and inflated costs.

Another problem could be that hospital-owned plans might extract additional taxpayer money through the prices they pay their affiliated hospitals. According to the law, insurers in markets like Medicare Advantage must spend 85% of their revenues on enrollee healthcare, known as the medical loss ratio. However, if a hospital-owned plan spends less than this percentage on care, it could pay higher prices to its affiliated hospital, allowing the company to superficially boost its plan costs and increase profits while appearing to comply with the medical loss ratio rules.

In our research, we found that hospital-owned Medicare Advantage plans tend to have higher medical loss ratios compared to unaffiliated plans. While this may indicate superficially inflated plan costs, there could also be more legitimate explanations, such as the plans serving sicker patients who require more resources.