A big question these days in healthcare is whether there will be a role for traditional health insurers as hospitals and physician groups gear up to take on risk. Perhaps not, if more go the route of Sutter Health in California, which announced this month that it is applying for a license to run an HMO.

Sutter joins systems such as Kelsey-Seybold in Houston and Geisinger in Pennsylvania in choosing to be both payer and provider. Healthcare reform calls for new payer reimbursement models that focus on quality and outcomes and shift risk to providers. That begs the question: what role is left for health insurers?

It's true that big hospital systems and physician groups were not particularly successful in running their own health plans in the 1990s (and Sutter had its own HMO back then). Providers weren?t accustomed to managing risk, they didn?t have well developed information technology platforms to analyze data and track population health, and they were in the awkward position of managing care ? trying to keep people out of hospital beds and focusing on preventive care ? in a fee-for-service world that rewarded care consumption, not care management.

It is a far different world now, and while most providers still are not ready to be full-blown integrated delivery systems with both payer and provider components, more are moving in that direction. Medicare's pilot accountable care organizations exclude the insurance middleman. Organizations such as Saint Thomas Health Services in Nashville and Carilion Health in Virginia are experimenting with commercial accountable care models using their own self-insured employee health plans as pilots.
Sutter, which serves some 100 cities and towns in northern California, will certainly continue to contract with health insurers for the time being. It just recently applied for an HMO license, and it has existing relationships with insurers that would take some time to unravel, if it chooses to go that route. Last year Sutter teamed with Health Net to offer a lower-cost HMO in the Sacramento area. No doubt part of its strategy in offering an HMO is to better compete against Kaiser Permanente, the granddaddy of integrated care systems and dominant insurer in California.

Meanwhile, the health plan world is doing its own integration: UnitedHealth Group has been quietly buying up physician groups, Highmark Blue Cross Blue Shield in Pennsylvania intends to run its own hospital, and Humana now owns a chain of urgent-care centers.

In the ?me-first? race to see which entity can better integrate care ? the provider or the payer ? providers just may end up being able to leverage their deep roots in communities and newfound technology capabilities to at least nudge out insurers on a regional level.

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