How Kaiser's national expansion plan may take shape

How Kaiser's national expansion plan may take shape Alex Kacik

Risant Health, the nonprofit created through a definitive agreement between Kaiser and Geisinger, is expected to acquire integrated health systems.

With Kaiser Permanente and Geisinger's new nonprofit venture taking shape, former executives are mapping out Risant Health's potential growth strategy.Kaiser Foundation Hospitals—an arm of the integrated, closed-loop network of hospitals, physicians and health plan based in Oakland, California—and Geisinger signed a definitive agreement in April to form Risant Health, which would acquire Geisinger. Kaiser expects regulatory approvals and the proposed transaction’s close in the early part of the second quarter, a Kaiser spokesperson said in a statement.Related: Kaiser, Geisinger deal may speed up hospital consolidationRisant plans to add up to six more health systems across the country over the next five years, leading former Kaiser executives and industry observers to turn their attention to other possible acquisition targets. While Geisinger and the other health systems that may join the new organization would operate independently, Kaiser plans to invest up to $5 billion in Risant.“That value-based care model is the strength of Kaiser because everything is internal and all the incentives are aligned,” said Dr. Uli Chettipally, founder and president of InnovatorMD, a physician-support company, and former chief technology officer of Kaiser’s Clinical Research on Emergency Services and Treatments Network. “Now the challenge is, how do you replicate that in other places?”Here’s what to know about Geisinger and Kaiser as the proposed transaction's close looms.

Which health systems could join Risant?

The proposed Geisinger acquisition signals Risant will likely target health systems that operate health plans. Those systems tend to take on more risk because they can use claims data to hone treatment and coordinate care for their patients.The Danville, Pennsylvania-based health system has 10 hospitals, 1,700 employed physicians and a 600,000-member health plan in three states.Geisinger is known for its risk-based contracting strategy, which aligns with Kaiser’s plans to help other health systems achieve value-based quality outcomes and savings while working with multiple insurers and providers, Kaiser executives said. However, Risant won’t try to fully replicate Kaiser’s model, CEO Greg Adams said when the proposal was announced in April.Risant would invest "no less than $100 million" in Geisinger through 2028 to expand the system's care delivery and health plan services in markets adjacent to its central and southeast Pennsylvania network, according to financial statements. Risant would also earmark at least $115 million annually over a 10-year span for Geisinger's research and education efforts.Risant will likely add health systems that operate in less competitive markets and delve deeper into alternative payment models, experts said. Geisinger, for instance, established in 2006 a bundled payment model for cardiac surgery, where providers are paid upfront for a patient's care. Still, like the broader hospital industry, most of Geisinger's revenue stems from traditional fee-for-service reimbursement.Sentara Healthcare, an integrated health system based in Norfolk, Virginia, could be a good fit for Risant, said Dr. Eric Bricker, founder of consulting firm AHealthcareZ.“Sentara’s health plan has a combination of Medicare Advantage and employer plans that already have relationships with local insurance brokers,” he said. “That's something that Risant could build on.”Sentara and Kaiser declined to comment.

Where else has Kaiser expanded?

Kaiser, which has health plan members in eight states and Washington D.C., tends to get traction in markets where employers and physicians have already embraced alternative payment models.The integrated health system has grown its business in Maryland, Virginia and Washington, D.C. That's because doctors bought into Kaiser’s model, including capitated payments, coordinated care transitions between hospitals and physicians and closer management of patients with chronic diseases, said Dr. Robert Pearl, the former CEO of the Permanente Medical Group who helped lead Kaiser’s expansion into the mid-Atlantic.But, the organization struggled in states like Texas, North Carolina, New York and Missouri, where physicians were reluctant to trade fee-for-service pay for riskier forms of reimbursement, Pearl said.“The Geisinger model of a combination of prepayment and fee-for-service can be very problematic, similar to what happened to Kaiser in other regions,” said Pearl, who is a lecturer at the Stanford Graduate School of Business. “One system has an incentive to raise volume, the other has an incentive to raise value. In all of Kaiser’s failed regions, there has been an underinvestment in preventive care and an overinvestment in the amount of care you can provide and bill for.”Kaiser will likely face stiff opposition from physicians in many markets because most still heavily rely on fee-for-service revenue, said Lawton Robert Burns, professor of healthcare management at the University of Pennsylvania Wharton School. Only an estimated 2.3% of nonprofit health systems’ 2022 revenue came from capitation, according to a September 2023 report from Moody’s Investors Service.“The overall healthcare system hasn’t moved to value-based care,” Burns said. “This is just window dressing as Kaiser tries to justify the deal.”

Will regulators approve the proposal?

Federal antitrust agencies aren’t expected to oppose the proposed acquisition.State attorneys general and lawmakers have pushed legislation designed to prevent out-of-market health systems from controlling their local healthcare facilities. But the Federal Trade Commission and Justice Department have yet to challenge a proposed merger or acquisition involving health systems without market overlap.Last year, the FTC and DOJ updated merger guidelines, adding some potential risk and uncertainty to cross-market mergers. One of the new guidelines addresses how merging parties could extend their dominant position from one market into a related market by “linking the sales of two products, excluding rival firms and ultimately substantially lessening competition in the related market.”Depending on how the court interprets the guideline, it could have a stifling effect on cross-market hospital combinations, antitrust experts said. But they said it will still be difficult for the antitrust agencies to challenge cross-market transactions.“[The Kaiser-Geisinger proposal] is unlikely to be challenged since they aren’t in the same markets,” said Beth Vessel, a partner at law firm Holland & Knight who specializes in antitrust issues.Future Risant acquisitions could potentially face more scrutiny, especially if there is market overlap between potential Risant members, she noted.Meanwhile, the Pennsylvania Insurance Department said it is reviewing the proposed transaction, but declined to comment on its investigation.