Sutter Health, a large medical group and hospital chain in Northern California, has applied to become an HMO/insurance company. According to this article, Sutter Health submitted its application to the California Department of Managed Care (DMHC) in August 2012.

The article reports that DMHC has seen a significant increase in the number of applications to establish new HMO plans saying that “the agency typically has two or three applications in the works at any given time, it currently has 23.”

This type of arrangement – where a hospital and medical group also includes an insurance company/HMO – describes the staff model HMO of Kaiser Permanente.  Kaiser is “an integrated health care delivery system” that unites insurance operations with hospital and doctor services.

The Affordable Care Act (Federal Health Care Reform) encourages this sort of arrangement.  We may see much more of this. It will be interesting to see how the insurance companies react to their medical groups and hospitals becoming direct competitors.  The health insurance companies could cancel their contracts with Sutter Health for fear of helping a rival. That would be bad for consumers. If Sutter Health is able to offer comprehensive coverage at a lower rate that would help consumers.  We’ll have to wait and see. In the meantime, it is interesting to note this new phenomenon.