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Like in Fantasy Football, Fantasy Health System is about matchups. But instead of racking up passing yards against a weak secondary, or sacks against a weak O-line, a Fantasy Health System must garner a sufficient number of hospitals and physicians in order to influence its reimbursement rate from payers. The Affordable Care Act has given health systems not only additional incentives to consolidate, but also additional tools to integrate with physicians. So unlike your Fantasy Football team, your Fantasy Health System might actually happen in real life.

The anticipated emergence of insurance products with narrow provider networks has prompted large health systems to launch their own health plans, which in turn will accelerate the trend of hospital consolidation, as well as integration with physicians via the accountable care organization mechanism. To market viable narrow-network products, these vertically integrated payer/providers must offer robust provider networks with region-wide geographic scope to compete against insurers offering broad network options, or against rival health systems with the same strategy.

For example, a potential game changer in central Florida is the recently announced partnership between Orlando’s dominant health system, Florida Hospital, and Health First Health Plan, a hospital-owned insurer on the Space Coast. Florida Hospital has been positioned to get into the health insurance business for some time, and the only question was whether the health system was going to grow its own health plan (the fledgling Concert Health Plan) or acquire/partner with an established plan. Florida Hospital went with the latter strategy, and the move has the potential to change the entire health system makeup across the middle section of Florida.

The Florida Hospital/Health First Health Plan partnership starts small and outside Orlando, with a previously announced Medicare Advantage partnership for 2014 in Flagler and Volusia counties. Florida Hospital plans to expand the service area for its insurance product through the 10-county Interstate 4 corridor that runs roughly east/west from the Atlantic Coast to the Gulf Coast. Florida Hospital is already a dominant player along the eastern half of I-4, particularly in Orlando, where it has nearly half of the inpatient volume and a large group of integrated physicians. Florida Hospital is also a significant player on the Space Coast, and would be even more so with a presumed tighter partnership with Health First’s hospital partners.

With the need to offer self-contained, clinically integrated health systems that can handle cradle-to-grave care, nonprofit regional players are becoming the norm. In Pittsburgh, competition between UPMC and Highmark has expanded to include all of western Pennsylvania, and both entities are now vertically integrated payer/provider systems. Cincinnati-based Catholic Healthcare Partners has been on an acquisition spree, focusing on its operations in Ohio, Indiana and Kentucky, while purchasing Kaiser Permanente’s operations in northeast Ohio. Some large regional health systems have not yet announced their own insurance products, but could do so soon. Phoenix’s Banner Health is dominant in Arizona, but its medical centers are found elsewhere in the intermountain west. Novant Health has hospitals throughout North Carolina. Regional health systems with the largess to market directly on the exchange will be dynamos for consolidation, prompting local runner-up hospital companies to catch up.

Other companies that are adept at risk are, of course, insurers. In western Pennsylvania, Highmark (the state’s largest insurer) acquired West Penn Allegheny and other local hospitals in 2013 to directly compete against UPMC. UnitedHealth, Humana, Florida Blue and other insurers have made forays into acquiring providers, usually limiting themselves to physician groups. Should health system-owned insurers prove successful, expect more insurers to buy up hospitals.

As was the case in Pittsburgh in the late 1990s, when Highmark facilitated a massive loan to ensure that West Penn Allegheny would be a counterweight to UPMC, insurers will always want there to be a viable alternative to the largest health system in a given region. Otherwise, there is little leverage that insurers can exert.

Following the Highmark blueprint, Blues plans and other regional insurers could move to acquire health systems in their service areas that are not quite large enough to launch their own products on the exchange. The second-largest health systems in larger cities, combined with hospitals serving rural areas where Blues plans are traditionally strong, would amount to a sizable provider network.
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