Integrated insurer-provider Kaiser Permanente (KP) will acquire Geisinger Health, the Pennsylvania-based integrated health system and health insurance plan, as part of a new Kaiser venture that will aim to take over other regional nonprofit hospital systems. That new venture, Risant Health, will be an independent division of Kaiser and seek to orient its subsidiary hospital systems toward payer-agnostic, value-based reimbursement. Experts tell AIS Health, a division of MMIT, that the deal accelerates and intensifies the ongoing trend of multistate, cross-market hospital system consolidation.

According to Kaiser spokesperson Stephen Shivinsky, Geisinger is the inaugural member of Risant Health, “a new nonprofit organization created by Kaiser Foundation Hospitals to expand and accelerate the adoption of value-based care in diverse, multi-payer, multi-provider community health system environments….Risant Health will operate separately and distinctly from Kaiser Permanente’s core integrated care and coverage model while building upon Kaiser Permanente’s 80 years of expertise in value-based care.”

Others will follow. According to Shivinsky, Kaiser will invest $5 billion “to launch Risant, including the development of differentiated technology, tools and services, fund operations and integrate other health systems.”

Shivinsky adds that Risant “will grow its impact by acquiring and connecting a portfolio of likeminded, nonprofit, value-oriented community-based health systems anchored in their respective communities. Health systems that become part of Risant Health will continue to operate as regional or community-based health systems serving and meeting the needs of their communities, providers and health plans while gaining expertise, resources, and support through Risant Health’s value-based platform.”

Shivinsky also hints that Kaiser might use the deal to expand the access of other insurers to its own walled-garden facilities.

“Kaiser Permanente’s mission calls on it to find new ways to provide high-quality, affordable health care services and to improve the health of members and the communities it serves,” Shivinsky said. “By creating Risant Health, Kaiser Permanente can learn from community-based health systems like Geisinger how to succeed in multi-payer, network-based environments, improving KP’s core integrated care and coverage model while equipping it to operate in new ways.”

Currently, Kaiser Permanente’s primary operations are focused on a closed system in which Kaiser facilities exclusively treat Kaiser members. Geisinger operates an integrated health plan and hospital system, but also enters network agreements with other carriers.

Per Shivinsky, Kaiser Permanente took in revenue of $95.4 billion in 2022 across 39 hospitals and over 700 medical office buildings. It covers more than 11 million people in eight states and the District of Columbia, according to AIS’s Directory of Health Plans. Geisinger, meanwhile, controls 10 hospitals and 130 clinics across a “$7 billion integrated nonprofit health services organization,” Shivinsky said.

The deal is just the latest tie-up between nonprofit health plans. SCAN Group, parent company of SCAN Health Plan, in December revealed plans to combine with CareOregon to become HealthRight Group, pending regulatory review. If the deal goes forward, the two nonprofit health plans will become one organization with revenues of $6.8 billion. SCAN operates Medicare Advantage plans in California, Arizona, Nevada, and Texas. CareOregon serves about 500,000 members of Medicaid and CHIP plans, alongside some dual-eligible members. Together, they expect to serve nearly 800,000 health plan members.

The deal comes amid tough times for hospitals, which have seen care utilization drop since the onset of the COVID-19 pandemic, even as labor costs increase. Many hospital systems posted losses during 2022, although there is some disagreement as to why. Some experts say that losses from investments are the primary reason, and others cite high capital costs.

“I always take nonprofits’ losses, to some degree, with a grain of salt,” Dustin Thompson, director at health care investment bank Provident Healthcare Partners, tells AIS Health. “Because a lot of times those are net income losses taking into account X equipment be bought, or X building, or whatever research we’re doing….These capital losses, it’s because we’re depreciating in such a rate that, from a financial standpoint, Kaiser’s always, I’ll say, operating at a loss or close to break-even.”

“Don’t get me wrong — some hospitals, with COVID, and high-revenue procedures being postponed or canceled altogether, did operate at significant losses. But it’s always important to consider what somebody is reporting on nonprofit [filings]. Losses and their actual financial cash flow could be two different things,” Thompson adds. For Kaiser, “that loss is likely attributed to some of their long-term growth plans, and not necessarily their business’s operating major cash flows.”

Whatever the reason, Michael Abrams, principal at Numerof & Associates, tells AIS Health that all economic signs point toward further hospital consolidation.

“Last year they [Geisinger] lost almost a quarter of a billion dollars on their patient care and insurance operations,” Abrams says. “So it’s not surprising that they’re happy to grab the life buoy that’s being offered by KP. At that level” — small- and midsize regional hospital groups — “it’s a story that’s been repeated many times. The question that it raises is whether this acquisition starts a new wave of consolidation at a whole new level. And I think…that is possibly what we may be seeing. It’s something that I have been anticipating for probably 20 years…where we are going is to the point where we have a handful of corporations providing health care to 85% of the United States population.”

“This combination, to me, doesn’t seem that extraordinary,” Abrams adds. “At base, you have a system with substantial resources, KP, who’s contracted with a smallish system…[which] will continue to operate as a standalone organization, except it will have the benefit of KP’s quote-unquote ‘platform,’ which is described as best practices, value-based care, and capabilities in areas like care model design, pharmacy, consumer digital engagement, health plan product development, and purchasing.”

“The standout aspect of the merger is the bold nature of KP’s plan,” Abrams continues. “They’ve announced they’re going to fund the creation of a brand-new, sparkling system to the tune of $5 billion. But since KP doesn't have any plans to expand its insurance arm into Geisinger’s market, and it said it has no plans to try and replicate its own closed system arrangement, you’ve got to ask yourself, ‘Why are they doing this?’”

While Kaiser already has “considerable market power,” Abrams says, “it is safe to say that, if they double their size — which they could easily do, given the size of their checkbooks — it would substantially change the level of market power that they have to throw around. I do wonder if KP executive daydreams involve telling CMS, for a change, what to do.”

“Kaiser, and its growth trajectory from a revenue standpoint — over the last 10 years or so, they’ve almost doubled in revenue,” says Thompson. “Now they’re going to be close to, I would say, over $100 billion in 2023. So I think by them forming this new company, I would expect the operations of that to expand outside what their current local markets are, and start to test those ventures with the outside payers in these markets where they [Kaiser] don’t have a [health plan] member base.”

“The fact that Geisinger already has that in common with KP is very positive for the viability of this combination," Abrams says, in contrast with past Kaiser hospital transactions, which "have not been successful" immediately. Geisinger, unlike those hospitals, focuses on value-based care delivery and reimbursement already, making it a natural cultural fit for Kaiser.

“That being said,” Abrams adds, “I would have understood it better if KP had said they are going to move their insurance arm into the market. They’ve already said that’s not what they plan to do. So in that respect, it is going to be very different from what KP has. They have a closed system, and that’s a huge difference. We’ll have to see how well they adapt to that. Geisinger has managed to do business [that way], but they haven’t been spectacularly successful as of late.”

by Peter Johnson

Adapted from the 5/5/23 issue of AIS’s Health Plan Weekly

Published by AIS Health
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