By CYRIL TUOHY, managing editor of Risk & Insurance®
Accountable care organizations, or ACOs, which offer doctors and hospitals financial incentives to provide quality care to Medicare beneficiaries, could also offer the next big growth opportunity for captives, according to insurance consultants.
Captives already reinsure medical malpractice liability risks for physicians groups and hospitals, and a handful of big companies use captives to fund employer-sponsored long-term disability and life benefits.
So why not accountable care organizations?
"The captive comes in because all these health care systems have captives for medical malpractice and physicians share the risk," said Karin Landry, managing partner with Spring Consulting Group in Boston, speaking at the annual conference of the Captive Insurance Companies Association in Scottsdale, Ariz., last week. "So, the industry's looking to do the same around an employer population."
Accountable care organizations offer employers access to an entire health care system instead of individual health care programs delivered in separate "buckets." An ACO agrees to manage all the health care needs -- primary, inpatient and acute care services -- of a pool of Medicare beneficiaries for at least three years, for example.
Setting up an ACO isn't easy, though, and presents its own risks. An ACO agrees to be accountable for the quality, the cost, the care of beneficiaries and the efficient management of an entire population.
While hospitals operate on a nonprofit model, provider groups like doctors or specialists often operate on a for-profit model and that may create conflicts between the hospital and the physician's practice, Landry said.
It would be up to the ACO to manage that risk, and that's exactly where the opportunity lies for the captive, she said.
Captives could allow physicians and hospitals to share in costs savings generated by the ACO, and would be responsible to distribute savings among doctors and hospitals providing services ACOs, said Landry.
Stop loss coverage and medical malpractice risk exposures, for example, would also be managed by the captive. The captive would help to defend against malpractice claims and provide controls to help reduce medical errors, Landry also said.
In an earlier interview with Risk & Insurance®, Dianne Salter, senior vice president for insurance at Jefferson Health System in Philadelphia, said captives give companies flexibility to adjust coverage.
"You can react very quickly and intelligently to changing conditions," Salter said. "This flexibility, I think, will be very important as healthcare reform becomes a reality in the coming years."
The health care industry is one of the top sectors to use captives to reinsure risk. Health care insurance managers are interested in captives as a way to insure their corporate risks because of the uncertainty surrounding health reform.
"Those options are increasingly important as the industry continues to consolidate with health care reform," said Nancy Gray, regional managing director for Aon Risk Solutions, in a previous Risk & Insurance® interview. "As more hospitals buy physician practices, for example, a captive can make a lot of sense."
Captives and risk retention groups already cover medical specialties. The risk retention group Ophthalmic Mutual Insurance Co., for example, insures 4,250 eye doctors nationwide.
ACO models have been around for at least three years, but they have been slow to grow. They were formed to address accountability issues in the delivery of health care, and Medicare is scheduled to start the first ACO programs this year.
Some experts have compared ACOs to the health maintenance organizations, or HMOs, which were popular 20 years ago.
Accountable care organizations were included in the Patient Protection and Affordable Care Act as tool to reform the health care system. Successful ACOs include Kaiser Permanente and Health Partners Medical Group, both in California.
Banner Health, based in Phoenix, operates in seven states as one of the largest, nonprofit health care systems in the country. The system owns or leases 23 acute-care hospitals, long-term care centers, outpatient surgery centers and an array of other services including family clinics, home care and hospice services, and a nursing registry.
Manufacturing and financial services companies also use captives to give insurance managers more options when rates rise in the traditional market and insurance buyers can't find coverage at reasonable rates.
March 20, 2012
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