Thomas Jefferson University CEO Stephen K. Klasko likes to think big. That’s no secret.

Under his leadership, the Philadelphia nonprofit has ballooned from three hospitals in 2015 to 14 now. And annual revenue has more than doubled to $5.2 billion, making Klasko’s health-care empire a big player in the Philadelphia region.

But what could be Klasko’s most ambitious, and possibly the riskiest, move — for Jefferson and Philadelphia residents — is yet to come.

Jefferson is trying to take control of Health Partners Plans Inc. (HPP), an insurer that covers about 245,000 adults and 11,000 children in Southeastern Pennsylvania, mostly in Philadelphia.

If the transaction, which has an undisclosed price tag, gets the green light, it could reshape competition in the Philadelphia health-care market. Depending on how it plays out, Philadelphia consumers and employers could end up paying more, or less, for their health care. And the move could limit patient access to the vast networks of doctors in the Philadelphia region.

The big question, local health-care experts say, is whether Klasko will extend the reach of Health Partners — now a Medicaid and Medicare insurer — into commercial insurance for employers and individuals. That would pit Jefferson against the region’s largest insurer, Independence Blue Cross, which provides coverage for nearly 3 million Philadelphia-area residents.

“If Jefferson is going to align with Health Partners, for some type of leverage purpose, then maybe Blue Cross has to do some aligning, as well,” said Michael Rosko, a recently retired professor of health-care management at Widener University.

Hospitals’ owning of insurance providers could mean healthier patients and lower health-care costs, according to advocates for the model. But there can be downsides. A similar experiment in Boston resulted in significant financial losses. In Pittsburgh, patients became the casualty in a turf war between powerful health systems and large insurers.

Klasko, however, believes that health care could benefit from having more hospitals align with an insurer that offers a full range of health insurance, as he recently told HealthLeaders, a trade journal.

But academics say there is no large-scale evidence that the arrangement results in higher quality of care at a lower cost.

Jefferson didn’t make Klasko available for an interview. “We’re not going to comment on HPP prior to close,” spokesperson John Brand said.

A new kind of competition

Once it has full ownership of Health Partners, Jefferson could gain the ability to sell health insurance plans to employers and individuals.

“That may not necessarily occur, but it’s a real possibility and certainly something about which Blue Cross, Aetna, Cigna, Humana, and other insurers are undoubtedly sensitive,” said Stuart Fine, an associate professor in Temple University’s College of Public Health.

Daniel J. Hilferty, chief executive of Independence Health Group, the parent company of Independence Blue Cross, said the company welcomes competition and intends to build on partnerships that achieve high quality and good value for consumers and employers.

“It is my hope that our health-care institutions continue to be highly competitive yet willing to collaborate wherever necessary to benefit the health and well-being of the millions of people we serve in this region,” Hilferty said in an email. “In this particular instance, it remains to be seen how we are going to be able to collaborate with anyone who is in direct competition with us as an insurer.”

Aetna, Cigna, and UnitedHealthcare, which have significant business in the region, either declined to comment or did not respond to requests for comment.

Under one scenario, the health-care market could split between Jefferson/Health Partners and Independence and its allies. Independence and the University of Pennsylvania Health System, for example, already work closely together under a 2017 contract.

That could mean a Philadelphia resident with insurance from Independence would lose in-network access to the Jefferson doctors and hospitals. And those insured by Health Partners could be limited to the Jefferson network.

That might not go over well with the public, an expert said.

“People seem to want choice. They don’t want to be in just one system,” said Mark Pauly, a professor of health-care management at the Wharton School of the University of Pennsylvania.

FILE photo shows Stephen K. Klasko, head of Thomas Jefferson University, beside a portrait of Steve Jobs, one of his heroes and major influences.
CHARLES FOX / Staff Photographer
FILE photo shows Stephen K. Klasko, head of Thomas Jefferson University, beside a portrait of Steve Jobs, one of his heroes and major influences.

The deal

Everything hinges on Jefferson’s pending purchase of Temple University’s 50% interest in Health Partners. That would give Jefferson control of the Philadelphia Medicaid and Medicare insurer. Jefferson already owns 25%.

Health Partners, which was founded in 1984, has long competed with Independence and other insurers in Medicare and Medicaid managed care, but likely not as effectively as it could, given the ownership split among Temple University Health System, Jefferson (through the former Aria Health), and Einstein Healthcare Network.

Under the Blue Cross system, Independence is restricted to selling individual and employer plans in Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties, making any potential move by Jefferson into the individual and employer markets of particular concern to the Center City company.

If Jefferson completes both the acquisition of Temple’s interest in Health Partners and the long-pending acquisition of Einstein (which owns 25% of Health Partners), the nonprofit would own 100% of Health Partners, which employs 900 and is based at 901 Market St., just a couple of blocks east of Jefferson’s new headquarters in the former Aramark Tower.

Health Partners, which had net income of $20 million on nearly $2 billion in revenue in 2018, has had contracts to manage Medicaid benefits in the five-county Southeastern Pennsylvania region since the 1990s.

The nonprofit sold its Medicare Advantage business in 2007 when it managed benefits for 21,000. It went back into that market in 2014, but as of December had just 15,780 Medicare members. A bid to expand into Lehigh and Northampton Counties went nowhere.

More bad news came in 2016, when Health Partners did not win a Medicaid contract to manage long-term services, including nursing home stays, for elderly and disabled individuals.

Such setbacks may have contributed to a board decision a few years ago to explore a sale of Health Partners. The sale process was held up by litigation over the state’s handling of the competition for Medicaid contracts, Larry Kaiser, Temple Health’s former CEO, said in a March 2019 interview.

During the same interview, Stu McLean, now Temple Health’s acting CEO, explained why it makes sense for Temple to sell its Health Partner’s stake: “When you’re a 50% owner, you’re still not really in control of that operation the way you might be if you’re a 100% owner.”

A final sale agreement would have to come with a long-term contract between Temple and Health Partners, McLean said.

A wild card is how long Health Partners will continue as a Medicaid managed-care company. Bids for new contracts were due Jan. 6, and it could take a year for the Pennsylvania Department of Human Services to pick winners.

Hospitals owning insurers

It’s not always pretty when hospital owners start selling health insurance, in part because health insurance and health care are very different businesses, experts said.

Partners HealthCare System Inc., in the Boston area, in 2012 acquired a nonprofit Medicaid insurer, Neighborhood Health Plan, and after a few years moved into commercial health insurance for employers, even as losses mounted. During the six fiscal years ended Sept. 30, 2019, the insurance unit, now called AllWays Health Partners Inc., reported $299 million in operating losses.

In 2013, Northwell Health Inc., now a 19-hospital chain in New York, started a health insurer from scratch but decided to close it four years later. The venture led to $333 million in losses, which the nonprofit blamed on risk-adjustment payments made under the Affordable Care Act.

Among the best-known and widely praised health systems with a health insurance arm are two Pennsylvania nonprofits: Geisinger Health and the University of Pittsburgh Medical Center (UPMC).

In May, Fitch Ratings said UPMC’s growing health insurance plans played a key role in “solidifying market share at the expense of UPMC’s main competitor.” That is Allegheny Health Network, owned by Highmark, a Blue Cross Blue Shield insurer. A yearslong contract dispute between Highmark and UPMC illustrates what can go wrong when insurers and hospital owners encroach on each other’s turf.

Although bond analysts see advantages to having an insurer and a provider under on roof, academics say the benefits are not clear.

“It’s an unanswered empirical question as to whether or not there’s value in an insurer aligning with a delivery system, a health-care provider,” said Dennis Scanlon, a professor of health policy and administration at Pennsylvania State University.

“There is a lot of rhetoric about health-care markets and the impact of health-care policy that is not supported by data,” Scanlon said.

Stephen K. Klasko, head of Thomas Jefferson University, outside his office.
CHARLES FOX / Staff
Stephen K. Klasko, head of Thomas Jefferson University, outside his office.