Insurance plans and hospitals are typically at loggerheads. They squabble over claims that the hospitals submit and insurers sometimes deny…
Now, a growing number of large hospital systems are betting that, with a little help, they can do that just as well — or even better…Seeing health insurance companies as the middlemen, these hospitals are only too eager to squeeze them out.
Often, there is a lot of back-and-forth between hospitals and insurance companies over paying a claim. The hospitals think that by vertically integrating they can get rid of the unnecessary paperwork.
I think that Ronald Coase and Oliver Williamson might be a bit more skeptical. Or at least I would. The hospital half of the insurance-hospital hybrid still has an incentive to do find ways to raise charges. And the insurance half still has an incentive to find ways to reduce charges. They no longer have the cost of dealing with each other at arms length. Instead, they face the cost of creating internal alignment. Do not assume that this cost will be trivial.
I have an anecdote that supports your analysis.
My wife worked as a nurse at a major hospital in Houston, Texas. The hospital developed an affiliation with an extremely large health practice group. This group had hundreds of physicians and dozens of practice locations and even surgery centers. The doctors in this group enjoyed priviledges at the major hospital where my wife worked.
The hospital and the practice developed an internal, vertically intergrated health plan that they offered to both sets of their respective employees. It was way cheaper than the alternatives. It had much lower copays and much lower deductibles and no coinsurance. We signed on and were always satisfied with the quality of care we received as well as the way our charts and services were integrated with the payor. This lasted all of two years when both parties just pulled the plug on the whole deal and went back to offering garden variety major medical plans from two or three major carriers. We were saddened. We have been scratching our heads about it ever since. Your analysis might explain why they abandoned the project.