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Home»Health»A Future Option For Health Systems Seeking To Remain Independent?
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A Future Option For Health Systems Seeking To Remain Independent?

May 16, 2023No Comments8 Mins Read
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A Future Option For Health Systems Seeking To Remain Independent?
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If value-based care is healthcare’s Everest, could Risant Health’s platform play be one of the critical sherpas (doing all of the hard work) helping to get us there? Maybe.

Kaiser Permanente announced it was acquiring Geisinger Health System on April 26th, leading to the … [+] formation of Risant Health

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Amidst a continued flurry of healthcare M&A, Kaiser Permanente’s intended launch of Risant Health, including Geisinger Health as its first partner, is one that’s prompting interest, discussion and questions.

What is Risant Health? The Basics

Created by Kaiser Foundation Hospitals, in partnership with Geisinger Health, Risant Health is a nonprofit organization designed to “expand and accelerate the adoption of value-based care in diverse, multi-payer, multi-provider, community-based health systems,” as detailed by the companies. In addition to Geisinger, Risant Health’s health system acquisition strategy is aimed at connecting other nonprofit, “value-oriented community-based health systems anchored in their respective communities.”

While Geisinger will retain its name, its CEO, Jaewon Ryu, MD, JD, and continue working with other health plans and providers, the health system will leverage Risant’s scale, expertise and resources to fuel the transition to value-based care delivery. As Ryu noted in a recent Health Leaders interview, “By building a platform that can house these capabilities, these like-minded and mission-oriented systems can access the right expertise, tools for patients or members or providers, state-of-the-art technologies, sophisticated data and analytic insights, etc., all enabled through a more digital channel.”

Greg. A. Adams, chair and CEO of Kaiser Permanente, reiterated that Risant Health’s mission is to make the organization’s value-based care expertise, technology and services available to community-based health systems, like Geisinger, in order to enable value-based care models, improve care quality and achieve equitable health outcomes.

What’s Driving Financial Stress and How Can Risant’s Model help?

There are a couple of conflicting narratives related to the financial strain that hospitals and health systems are currently under – and both are true. On one hand, a Health Affairs analysis found the majority – 85% – of hospitals’ net profit/loss stemmed from unrealized, non-cash, mark-to-market losses from health system portfolios.

At the same time, as industry analyst Blake Madden broke down in his own in-depth analysis, increases in hospitals’ operations costs, such as labor and supply costs, are also chief contributors to hospital losses. A recent report by Kaufman Hall also found that median operating margins of about 900 hospitals in the first half of 2022 were negative and lower than prior periods, which the American Hospital Association cited in its petition to Congress for financial relief (among other requests).

Why does this matter? Because costs related to running a hospital or health system are growing at an unsustainable rate.

Source: Hospitalogy, via analysis of hospital EMMA disclosures, audited financial statements.

Workweek.com

In his assessment of eight of the nation’s top hospitals, Madden, founder of the Hospitalogy newsletter found that, “When you take a look under the hood, the simple fact is that for the hospitals analyzed, operating expenses on the unit level are rising faster than revenues.” This trend is unsustainable, says both the data and Madden, which means that hospitals and health systems need to find new ways to work together – including via large, operations-focused transactions – to be in any position to both improve care and drive down costs.

Then there’s the increasing competition from the new healthcare delivery kids on the block, aiming to do for consumers what hospitals and health systems have been unable to achieve. From Amazon/One Medical to CVS Health/Oak Street Health, healthcare organizations are continuing to look to vertical integration to achieve scale, improve consumer loyalty, drive down costs and ultimately pool resources to get a bigger slice of the patient pie.

For Geisinger, it’s not just competition from newcomers: University of Pittsburgh Medical Center (UPMC), a rival health system in Pennsylvania, has grown rapidly, from 12 hospitals to more than 40 hospitals in the past 10 years.

Risant presents the opportunity for the Geisinger to remain operationally independent amid this increasingly competitive and financially challenging environment.

For hospitals and other healthcare organizations, looking to successfully transition to an era of value-based care and essentially survive in the longer term, it’s the age-old make vs. buy decision. If there are areas of operations that another organization can do better, while simultaneously providing the resources – from expertise to technology to scalability – needed to grow, then Geisinger will not be the first health system to join Risant, and Risant won’t be the only value-based platform player in the arena.

Getting Closer To The Premium Dollar

The creation of Risant Health doesn’t appear to be about reimbursement rate negotiations, as many of the recent cross-market mergers seem to be. Recent examples of such cross-market mergers include the Atrium-Advocate Aurora merger (making it the fifth largest hospital system in the country), and the Iowa-based Unity Point’s merger with New Mexico-based Presbyterian health system.

Instead, Risant Health’s genesis is likely rooted in health systems’ “desire to get closer to the premium dollar, and a reaction to secular, worsening payor mix shift to Medicare,” says Madden. Kaiser Permanente, as a $95B fully integrated healthcare system (combining health plan and insurance operations with a full service healthcare delivery organization to meet the needs of members) has a long history of success competing as a health plan. As health plans control healthcare’s purse strings, they hold significant economic power over health systems; they also have been growing profitably even as hospital system financials have deteriorated.

Kaiser’s health plan capabilities and know-how, combined with the economies of scale and sophistication that it can bring to hospitals related to operations, technology investments, and analytics, can be a compelling offering to health systems struggling to survive and thrive. It’s also worth noting that Kaiser, as a closed-loop system, has effectively built and proven out how health systems can successfully operate within a value-based system.

Indeed, the model has been working for Kaiser itself: its $94.5B in revenue in 2022 is up from $37.8B revenue in 2007. This annual growth rate of 6.3% exceeds the growth rate of healthcare expenditures overall during the same time period, which averaged 4.5%. In other words, Kaiser has been winning and taking share.

Madden gave Forbes a forward look at his research and upcoming analysis for Hospitalogy subscribers explaining, “The hospital model is evolving, and launching Risant is a compelling move for Kaiser to work with struggling small to mid-sized health systems. Through Risant’s growth expectations, Kaiser will gain access to $30B to $35B in incremental health system revenue and I imagine will sell population health services and expertise to Risant members operating existing risk chassis. Given that health system mega M&A is evolving into capability-based scale and Risant’s initiative sounds rather fuzzy, things could get pretty creative. Risant is one to watch as a progressive health system platform.”

In the advanced notes, Madden goes on to call out Risant as a significant, escalated health system response to ongoing payor consolidation and vertical integration of services assets.

M&A and Consolidation: The Way Forward For Health Systems?

The trend towards consolidation and more efficiently using pooled resources is consistent with, but differentiated from, other ‘plays’ we are seeing in healthcare.

The industry continues to see monumental investments in primary care. Payers are integrating vertically to become providers (e.g., Cano Health and University Health Group, CVS Health and One Medical). Care platforms (e.g., Privia, Agilon, Aledade) are enabling independent physicians to remain independent. And smaller health systems (e.g., SSM, John Muir), are starting to work with companies like Optum to outsource certain technology and administrative functions, while regional players explore options to remain independent.

I’ve written about these last points before, including my thoughts on Bassett Healthcare Network’s partnership with Optum. While on the surface, health system strategic partnerships with health plans don’t make sense, they start to resonate when looking through a broader lens, taking into account both competitive context and operating environment.

Bassett Healthcare Network, an independent not-for-profit health system in upstate New York, wanted to find a partner that could take over much of the administrative and back-office functions that were neither a core competency nor tied to actual patient care delivery. Bassett was also looking for the necessary capital and best-of-breed technology services to set the system up for a more competitive future.

This kind of thinking aligns with what Ristant is hoping to do for community-based health systems such as Geisinger. It also requires a strong change management strategy, given the complexities of the transaction and blending of two IDNs.

Proving Out The Model: Key Questions Risant Will Need To Answer

This will not be the last platform play and M&A transaction among large health systems, with the combined mission to improve operational efficiency, lower costs, improve quality and ultimately achieve value-based care. But it remains to be seen if these goals will happen under the Risant Health umbrella.

Will this platform approach to value-based care, led by health systems, be the model for an outcomes-driven reimbursement landscape going forward? Will patients and/or employers not only tolerate, but opt for closed networks? Can a managed service organization (MSO) framework be successful with health systems?

Like climbers that reach Everest’s Base Camp, there’s still a long way to go for both Kaiser and Geisinger to prove out this concept, where it remains to be seen if Risant Health will help Geisiner and others reach the value-based summit. But, it seems like a (Hillary) step in the right direction.

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future health Independent option remain seeking systems
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