On Monday, a federal judge denied the Department of Justice (DOJ)’s attempt to block UHG’s $13B purchase of Change Healthcare, a technology firm specializing in claims processing and data analytics.
The DOJ sought to block the purchase on antitrust grounds, arguing that UHG would have access to technologies that its rivals use to compete, but the judge, writing in a sealed ruling, found the DOJ’s case inadequate. It is unclear at this point whether the DOJ will appeal.
Change will now join UHG’s OptumInsight division, though in response to anticompetitive concerns, the ruling ordered UHG to sell part of Change’s claims payment and editing business, as it had already planned to do.
The Gist: Antitrust regulators have had much greater success at challenging horizontal healthcare mergers but have struggled to find solid footing to fight vertical deals.
The UHG-Change case was closely watched in part because of the precedent it would have set in terms of holding “platform” aggregators in check. As UHG and other healthcare titans continue to acquire assets up and down the value chain (physician practices, ambulatory surgery centers, clinics, telehealth capabilities, risk products), it’s increasingly clear that the government will face an uphill climb to question the competitive effects of these vertical M&A activities.
The nation’s largest retailer and its largest insurer announced a 10-year partnership to bring together the collective expertise of both companies to provide affordable healthcare to potentially millions of Americans. Set to start next year with 15 Walmart Health locations in Georgia and Florida, the collaboration will initially focus on seniors and Medicare Advantage (MA) beneficiaries, and will include a co-branded MA plan in Georgia. Walmart Health Virtual Care will also be in-network for some UnitedHealthcare beneficiaries. Plans for future years involve expanding the collaboration across commercial and Medicaid plans, as well as including pharmacy, dental, and vision services.
The Gist: We have long wondered if this powerhouse pairing was in the works, as this kind of partnership makes a lot of sense for both parties. While Walmart has reportedly been considering an insurance company acquisition for years, and more recently been dabbling in its own insurance efforts, partnering with UHG provides the retailer with a share of the upside potential of getting into the insurance market without having to fully commit to entering that complex business. And given that 90 percent of Americans live within 10 miles of a Walmart store, and more than half of Americans visit a store every week, Walmart provides UHG with low-cost healthcare access points all over the country, especially important in markets where United’s own Optum physician network is not (yet) present.
Radio Advisory’s Rachel Woods sat down with Advisory Board’s Sarah Hostetter and Vidal Seegobin to discuss the good and bad elements of private equity and what leaders can do to make it a valuable partner to their practices.
Private equity (PE) tends to get a bad rap when it comes to health care. Some see it as a disruptive force that prioritizes profits over the patient experience, and that it’s hurting the industry by creating a more consolidated marketplace. Others, however, see it as an opportunity for innovation, growth, and more movement towards value-based care.
Radio Advisory’s Rachel Woods sat down with Advisory Board‘s Sarah Hostetter and Vidal Seegobin to discuss the good and bad elements of PE and what leaders can do to make it be a valuable partner to their practices.
Rachel Woods: Clearly there are a lot of feelings about private equity. I’m frankly not that surprised, because the more we see PE get involved in the health care space, we hear more negative feelings about what that means for health care.
Frankly, this bad guy persona is even seen in mainstream media. I can think of several cable medical dramas that have made private equity, or maybe it’s specific investors, as the literal enemy, right? The enemy of the docs that are the saviors of their hospital or ER or medical practice. Is that the right way we should be thinking about private equity? Are they the bad guy?
Sarah Hostetter: The short answer is no. I think private equity is a scapegoat for a lot of the other problems we’re seeing in the industry. So the influx of money and where it’s going and the influence that that has on health care. I think private equity is a prime example of that.
I also think the horror stories all get lumped together. So we don’t think about who the PE firm is or what is being invested in. We put together physician practices and health systems and SNPs, and we lump every story all together, as opposed to considering those on their individual merits.
Woods: And feeds to this bad guy kind of persona that’s out there.
Hostetter: Yeah. And like you said, the media doesn’t help, right? If the average consumer is watching and seeing different portrayals or lumped portrayals, it’s not helping.
Vidal Seegobin: Private equity, as all actors in our complex ecosystem, is not a monolith, and no one has the monopoly on great decisions in health care, nor do they have a monopoly on the bad decisions in health care. And so if you attribute a bad case to private equity, then you also have to attribute the positive returns done from a private equity investment as well.
Hostetter: Agree with what Vidal’s saying, but bottom line is that every stakeholder is not going to have the same outcomes or ripple effects from a private equity deal. It really depends on the deal itself, the market, and the vantage points that you take.
Woods: I want to actually play out a scenario with the two of you and I want you to talk about the positive and the potentially negative consequences for different sectors or different stakeholders.
So let’s take the newest manifestation that Sarah, you talked to us through. Let’s say that there is a PE packed multi-specialty practice heavily in value-based care. That practice starts to get bigger. They acquire other practices, including maybe even some big practices in a market and they start employing all of the unaffiliated or loosely affiliated practices in the market.
I am guessing that every health system leader listening to this episode is already starting to sweat. What does this mean for the incumbent health system?
Seegobin: So I think one thing that’s going to be pretty clear is that size does confer clear advantages and health care is part and parcel that kind of benefit. What I think is challenging is when we’re entering into a moment where access to capital is challenging for health systems in particular and we’re going to need to scale up investments, health systems could see themselves falling further and further behind as private equity makes smart investments into these practices to both capture and retain volume. And as a consequence of that, reduces the amount of inpatient demand or the demand to their bread and butter services.
Hostetter: And I think it’s really important that you phrase the question, Rae, as health system. Because we so often equate health system and hospital.
But a health system includes lots of hospitals, it includes ambulatory facilities, a range of services. And so I think for systems to equate health system and hospital, it’s really hard when any type of super practice or large backed practice comes into the market.
Whether we are talking about a plan backed practice, a PE backed practice, or just a really large independent group. There are pressures on health systems who think of their job or their primary service as the hospital. And there is a moment where the power dynamics can shift in markets away from the health system, if they aren’t able to pivot their strategy beyond just the hospital.
Woods: Which is exactly why health systems see this scenario as, let’s just say it, threatening. Sarah, then how do the physicians feel? Do they have the opposite feelings as the incumbent health systems?
Hostetter: There’s a huge range. Private equity is incredibly polarizing in the physician practice world, the same way that it is in other parts of the industry. So I think there is a hope from some practices that private equity is a type of investor that is aligned with them.
Physicians who go into private practice historically tend to be more entrepreneurial. They are shareholders in their own practice, so there are some natural synergies between private equity, business minded folks, and these physicians.
Also, even though I go into a small business, it takes a lot to run a small business, so there are potentially welcome synergies and help that you can get from a PE firm. On the flip side of that, there are groups who would never in a million years consider taking a private equity investment and are unwilling to have these conversations.
Woods: There is a tendency, especially in the conversation that we’re having, for folks to think about private equity as being something that primarily impacts the provider space, at least when it comes to health care. But I’m not sure that that’s actually true. So what consequences, good or bad, might the payers feel? Might the life sciences companies feel?
Seegobin: So one common refrain when talking about private equity and their acquisition or partnering with traditional health care businesses like physician practices is that they are immediately focused on cutting costs. So they are going to consolidate all of the purchasing contracts, they are going to make pretty aggressive decisions about real estate, all the types of cost components that run the business.
Now, if you are a kind of life sciences or a diagnostic business for whom you would depend on being an incumbent in those contracting decisions, you’re worried that the private equity is either going to direct you to a lower cost provider, or in many cases, another business that the private equity firm owns as well, right?
They would love to keep synergies within the portfolio of businesses that they’ve acquired and they partner. So if you were relying on incumbent or historical purchasing practices with these physician practices, it can be disrupted, depending on the arrangement.
Hostetter: And then I think there’s a range of potential implications for payers. So you have some payers who themselves are aggregating independent practices, and they’re targeting the same type of practices that the PE firms that are betting on value-based care are targeting. They are targeting primary care groups who are big in Medicare Advantage. So there’s some inherent competition potentially for the physician practice landscape there.
Woods: Well, and I think they’re trying to offer the same thing, right? They’re trying to offer capital. They’re trying to do that with the promise of autonomy. And they’re coming up against a competitive partner that is saying, “I can do both of those things and I can do it better and faster.”
Hostetter: Yeah. And both of them are saying we can do it better and faster than hospitals. That’s the other thing, right?
Woods: Which, that part is probably true.
Hostetter: Yeah. Their goals are aligned and they believe they can get there different ways. And I think autonomy is a big sticking point here for me or a big bellwether for me, because I think whoever can get to value-based care while preserving autonomy is going to win. You have to have some level of standardization to do value-based care well. You can’t just let everyone do whatever they want. You need high quality results for lower cost. That inherently requires standardization. So who can thread the needle of getting that standardization while preserving a degree of autonomy?
It’s fascinating, as we’ve had this call, it was suggested multiple times that payers actually might be the end of the line for some of these PE deals. That there’s a lot of alignment between what payers are trying to do with their aggregation and what PE firms who are investing in primary care do, and hey, payers have a lot of money too. So could we actually see some of these PE deals end with a payer acquisition? Because they’re trying to achieve similar things, just differently.
According to a Wall Street Journal report, CVS is expected to submit a bid to purchase Dallas-based Signify Health, which supports physicians, payers, and health systems with tools and technology to provide in-home care. Signify acquired accountable care organization manager Caravan Health earlier this year. Last week, the Journalreported that Signify, valued at more than $4B, was looking for buyers. While CVS is said to be interested, so are private equity firms and other managed care companies.
The Gist: CVS CEO Karen Lynch told investors during last week’s earnings call that the company plans to grow its primary care and home health offerings through mergers and acquisitions. The Signify bid, along with reports that CVS considered acquiring concierge primary care company One Medical, suggests that the retail pharmacy and insurance giant is charging ahead with its strategy of creating a vertically-integrated healthcare company.
As several newly public digital health and value-based care companies have seen share prices plummet and capital dry up in a cooling economy, they are becoming targets for large insurers and tech companies who have seen their own fortunes grow during the pandemic. Watch for more announcements from these “platform assemblers” in the months to come.
All but two of the seven largest insurers saw profits climb in the second quarter as hospital operators continued to struggle with weak volumes and higher labor costs.
The nation’s top health insurers again raised financial targets for the year as revenues climbed on increased membership, while some signs indicated demand for medical services was tepid.
All but two of the seven largest insurers saw profits climb in the second quarter compared with the prior-year period, as many saw a key metric for medical spending decrease.
Many of the largest insurers saw profits climb in the second quarter
Industry observers have been closely watching for signals of pent-up demand as many patients delayed care amid the varying spikes in COVID-19 cases.
That didn’t seem to materialize in the second quarter as insurance executives didn’t report a surge in care. Almost all insurers saw their medical loss ratios either decline or remain the same from the second quarter last year.
Executives at Cigna, one of the nation’s largest insurers with nearly 18 million members, said there were fewer surgeries, fewer emergency room visits and fewer people admitted to the hospital in the second quarter compared to the prior-year period.
Direct COVID-19 costs were also better-than-expected, Cigna executives told investors on the second-quarter earnings call. As fewer Cigna patients sought medical care, net income climbed 6% to $1.6 billion.
Cigna wasn’t alone in reporting lighter patient volumes.
UnitedHealthcare, the insurer arm of UnitedHealth Group with more than 51 million members, reported a lower level of COVID-19 patient care and said usage of some medical services still fell below pre-pandemic levels, including pediatrics and the emergency department. UnitedHealth’s net income increased to $5.1 billion.
Q2 performances led insurers to raise their financial expectations for the full year.
“The lower utilization trends and lack of COVID-19 headwinds seen to date, give us confidence in raising our full year adjusted [earnings per share] guide,” Humana CFO Susan Diamond said on a call with investors.
On the other hand, the nation’s for-profit hospital chains reported fewer admissions and a dip in profits as they continued to deal with labor and other expenses amid record high inflation.
After a few years of relatively unchanged monthly premiums, a Kaiser Family Foundation analysis of 72 rate filings for 2023 finds a median 10 percent increase. Insurers say the biggest driver is rising medical costs, driven by higher rates for provider services and pharmaceuticals, as well as a return to pre-pandemic utilization levels. Insurers aren’t expecting COVID-19 or federal policy changes—including a potential extension of enhanced subsidies—to have much of an impact on rates.
The Gist:High inflation and the growing wage-price spiral have left providers with much higher costs, which is sure to drive up the overall cost of healthcare. Where provider systems have the leverage to demand higher rates from insurers, this will inevitably drive up premiums—an effect that is already starting to show up in the individual insurance market.
If Congressional Democrats are able to extend ACA subsidies, most ACA enrollees won’t actually feel these premium increases, but as contracts in the group market come up for renewal, we’d expect inflation in employer-sponsored premiums as well. Given the cost-sharing now built into most benefit plans, individual consumers will likely see healthcare join gas, food, and housing as household costs that are experiencing unsustainable inflationary increases.
Concierge primary care company One Medical is reportedly considering a sale after receiving interest from CVS Health, according to Bloomberg. While talks with CVS are no longer active, sources familiar with the situation say the company is weighing offers from other suitors. Also this week, there were rumors that Humana is interested in acquiring Florida-based Cano Health, which provides comprehensive care to over 200K seniors enrolled in Medicare Advantage plans across six states.
The Gist: We’ve long thought that the ultimate buyer for these primary care startups would be large, vertically integrated insurers, as many have struggled to achieve profitability while maintaining strong enrollment growth.
Competition among insurers to acquire care delivery assets has intensified, as payers look to Medicare Advantage as their primary growth vehicle, and aim to amass primary care networks capable of managing their growing senior care businesses.
A recent conversation with a health system CFO made us realize that a long-standing nugget of received healthcare wisdom might no longer be true. For as long as we can remember, economic observers have said that healthcare is “recession-proof”—one of those sectors of the economy that suffers least during a downturn. The idea was that people still get sick, and still need care, no matter how bad the economy gets. But this CFO shared that her system was beginning to see a slowdown in demand for non-emergent surgeries, and more sluggish outpatient volume generally.
Her hypothesis: rising inflation is putting increased pressure on household budgets, and is beginning to force consumers into tougher tradeoffs between paying for daily necessities and seeking care for health concerns. This is having a more pronounced effect than during past recessions, because we’ve shifted so much financial risk onto individuals via high deductibles and cost-sharing over the past decade.
There’s a double whammy for providers: because the current inflation problems are happening in the first half of year, most consumers are nowhere near hitting their deductibles, leading this CFO to forecast softer volumes for at least the next several months, until the usual “post-deductible spending spree” kicks in.
Combined with the tight labor market, which has increased operating costs between 15 and 20 percent, this inflation-driven drop in demand may have hospitals and health systems experiencing their own dose of recession—contrary to the old chestnut.
The momentum behind Medicare Advantage is only growing as more baby boomers age into eligibility, and experts don’t expect the energy around the program to slow down any time soon.
A recent analysis from the Kaiser Family Foundation found that a record 3,834 plans were available for the 2022 plan year in MA, which represents an 8% increase over 2021 and the largest number on the market in a decade.
Open enrollment for Medicare ended Dec. 7, and enrollment numbers will begin trickling out as the year winds down. In 2021, 26 million Medicare beneficiaries, or about 42% of those eligible for the program, were enrolled in an MA plan.
“As Medicare Advantage enrollment continues to grow, insurers seem to be responding by offering more plans and choices to the people on Medicare,” the KFF analysts said.
Part of the appeal of MA to an increasingly savvy consumer base is that it offers additional benefits beyond those afforded people in traditional Medicare, such as vision and dental coverage as well as supports for members’ social needs.
Sachin Jain, M.D., CEO of SCAN Health Plan, told Fierce Healthcare that people are increasingly shopping around for plans, building greater awareness of MA as a whole as well as of the different types of benefits beneficiaries could select.
“We’re seeing that consumers are more sophisticated today than they were a decade ago,” he said. “I think people are realizing that fee-for-service Medicare doesn’t cover a lot of things.”
The KFF report shows that more than 90% of non-group MA plans offer some kind of vision, hearing, telehealth or dental benefits and that most (89%) include prescription drug coverage as well.
Elena McFann, president of Medicare at Anthem, told Fierce Healthcare that throughout the open enrollment period, plans built with benefits that target the social determinants of health and promote whole-person care resonated strongly with members.
Anthem, for example, offers plans that include a slate of essential extra benefits that members can choose from based on what they need the most. Options include grocery cards, transportation benefits and in-home supports.
She said that the grocery benefits and flex cards that allow members to purchase additional hearing, vision and dental coverage have proven particularly popular in this enrollment season.
“What those all point to is the concept of flexibility and helping them lead healthier lives where they really need the help where they are in their journey,” McFann said.
As these benefits prove popular, an increasing number of plans are offering them in tandem. The Better Medicare Alliance released a survey late last month that found the number of plans including supplemental benefits grew by 43% for the 2022 plan year.
The Centers for Medicare & Medicaid Services (CMS) has issued additional flexibilities that allow MA plans to address members’ social determinants of health as the program’s enrollment continues to swell.
Jain said SCAN has seen similar interest in supplemental benefits, and that flexibility afforded to MA plans to adapt to seniors’ needs and expectations is a critical factor in the program’s success.
“When you’re in the business of serving seniors, a lot of what you have to do is anticipate needs that those seniors may not anticipate that they have, give them things they didn’t know they needed,” he said.
McFann said that beneficiaries value plans like these that unite brands they trust and recognize and that partners like Kroger enable insurers to more effectively meet seniors where they are. In its co-branded plans, members can access benefits like Healthy Grocery Cards and stipends to purchase over-the-counter health items.
She said that there has been significant “excitement” around those plans, which are available in four states, during the current enrollment period.
“It gives the Medicare eligibles a sense of familiarity and a sense of comfort, again meeting them on their terms,” McFann said.
However, while many established insurers have set ambitious growth targets in this market and new startups enter the space regularly, they still have plenty of work to do if they want to catch up with the market’s dominant forces: UnitedHealthcare, Humana and Blues plans.
UHC and Humana together account for 45% of the MA market in 2021, according to the KFF analysis. Humana offers plans in 85% of counties and UHC in 74% for 2022.
That means, 89% of Medicare eligibles have access to a Humana plan and 90% have access to a UHC MA plan if they choose, according to the report.
Competition is continuing to grow, though, and both McFann and Jain said they don’t feel the momentum around MA slowing down anytime soon.
“It is those extras and social drivers of health solutions that really have caught on with the Medicare-eligible segment and we expect to see that expand even further,” McFann said.
The Massachusetts Health and Hospital Association is planning to release its semiannual health plan performance report next month and will focus on payers’ finances and enrollment in 2021.
In a May 23 newsletter, the association highlights the 22 percent increase in payers’ net worth during the COVID-19 pandemic, which totals $6.1 billion for all plans in the state. The newsletter also points to the combined $1.2 billion profit made in 2020 and 2021, which exceeds the previous five years combined.
The newsletter does point to the important role insurers played during the pandemic, including providing coverage of medical care, new therapies, vaccinations and COVID-19 testing. Under federal law, payers also provided rebates to premium payers as healthcare utilization decreased significantly. Some payers independently provided financial support to stabilize providers and used their resources to support the pandemic response.
“Despite these new expenses and efforts related to the COVID-19 emergency, health insurance company profits were substantially higher than at any point in recent history given the overwhelming effect of decreased medical utilization,” the newsletter said.
The association also criticized the decrease in claims payouts during the pandemic, arguing surplus revenue should have been used to increase payouts and not increase profits.
The hospital group stated that four specific payers, Harvard Pilgrim Health Care, UnitedHealthcare of New England, Tufts Associated HMO and HMO Blue from BCBS Massachusetts have risk-based capital ratios that approach or exceed 600 percent.