Blue Cross, North Memorial team up to run health system's 20 clinics

Blue Cross and Blue Shield of Minnesota, which is the state's largest nonprofit health insurer, and North Memorial Health are creating a joint-venture company to operate the health system's 20 clinics.

Eagan-based Blue Cross did not say how much it will invest in the joint venture, which gives the insurance company's corporate parent a 49% ownership stake in the clinics.

The deal announced Monday is the latest example of health insurers and health care providers joining via mergers or other partnerships, based on the idea that new corporate structures will help them provide more efficient health care.

"The intent here is not to form a conglomerate," said Dr. Craig Samitt, the Blue Cross chief executive, in an interview. "The intent here is to fix health care."

"It's not a merger," said Dr. J. Kevin Croston, the chief executive of North Memorial, which is based in Robbinsdale and owns a hospital there of the same name and part of Maple Grove Hospital. "It's a joint-venture partnership of just the ambulatory services. The hospitals stay North Memorial Health."

The partnership follows the example of other independent Blue Cross health plans that have reported financial success by moving into the clinic business, said Allan Baumgarten, an independent health care analyst in St. Louis Park. Pointing to the recent example of Minneapolis-based Allina Health System launching a joint-venture insurance company with the national carrier Aetna, Baumgarten said health insurers sometimes think they will benefit by teaming with the brand of a hospital or clinic operator.

"Part of the logic … is this notion that people have warmer feelings for their provider than they do for their insurance company," he said.

As for North Memorial, Baumgarten speculated that the deal makes sense considering the health system's moves in recent years to open clinics far from the primary service area of its hospitals. Baumgarten said he has heard from some physicians that the clinic business has been costly.

"Maybe they are looking for a way to sort of mitigate their exposure," he said, "by taking in a partner."

Blue Cross and North Memorial explained the joint venture in terms of the broader push for accountable care organizations (ACOs), where health care providers can make or lose money depending on how well they care for a group of patients within a set budget.

The system is meant to contrast with the "fee-for-service" system, where hospitals and clinics get a negotiated payment for each service provided — a structure that critics say creates incentives for health care providers to run up bills.

The new relationships are described as offering an "alignment" of financial incentives between insurers and health care providers.

Whereas the fee-for-service structure creates arguments between insurers and hospitals over payment rates, the new joint venture means "we actually have the chance to address the dysfunctional relationship between the payer world and the provider world," said Croston, of North Memorial.

Samitt, of Blue Cross, said the time is right for the joint venture because "People will seek to reinvent health care from the outside in if we don't reinvent health care from the inside out."

Blue Cross and North Memorial don't yet have a name for the new company, which they said will be run on a nonprofit basis. Implementing the shared-ownership model for 14 primary-care and six specialty clinics is scheduled to begin January 2020.

The joint venture is just one example of how insurers and health care providers in Minnesota are getting closer.

In recent years, insurers such as Minneapolis-based UCare and Minnetonka-based Medica have developed ACO-style contractual relationships with hospitals and clinics. Bloomington-based HealthPartners, which is one of the state's largest nonprofit health insurers, has steadily built a network of seven hospitals and roughly 100 clinics. Minneapolis-based Fairview Health Services, which includes the University of Minnesota Medical Center, runs the nonprofit health plan PreferredOne.

North Memorial was once a co-owner of PreferredOne, but sold its stake in 2016 to Fairview after the health insurer saw big losses in the state's individual health insurance market. The Blue Cross relationship offers a chance to partner for shared community goals, Croston said, whereas PreferredOne, at the time, had become "an antagonistic relationship rather than a 'we' relationship."

Over the years, North Memorial has had some rough patches in terms of financial results.

The health system is now financially stable, Croston said, adding that there was no financial imperative to negotiate a partnership.

Patients with other health insurance providers will still be able to get care at North Memorial clinics that are part of the joint venture. Conversely, Blue Cross will continue to sell health plans that provide access to other clinics and hospitals.

With about 3,800 employees, the parent company of Blue Cross posted for 2018 a loss of $93 million on $6.8 billion in revenue. The health insurance business generated the vast majority of the revenue and posted an operating profit last year.

North Memorial has more than 5,000 employees. The nonprofit health system saw $6.4 million in operating income last year on $972 million in revenue.

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck