Doctors and health systems with a significant portion of risk-based contracts weathered the pandemic better than their peers still fully tethered to fee-for-service payment. Lower healthcare utilization translated into record profits, just as it did for insurers.
We’re now seeing an increasing number of health systems asking again whether they should enter the health plan business—levels of interest we haven’t seen since the “rush to risk” in the immediate aftermath of the passage of the Affordable Care Act a decade ago.
The discussions feel appreciably different this time around (which is a good thing, since many systems who launched plans in the prior wave had trouble growing and sustaining them). First, systems are approaching the market this time with a focus on Medicare Advantage, having seen that growing a base of covered lives with their networks is much easier than starting with the commercial market, where large insurers, particularly incumbent Blues plans, dominate the market, and many employers are still reticent to limit choice.
But foremost, there is new appreciation for the scale needed for a health plan to compete. In 2010, many executives set a goal of 100K covered lives as a target for sustainability; today, a plan with three times that number is considered small. Now many leaders posit that regional insurers need a plan to get to half a million lives, or more. (Somehow this doesn’t seem to hold for insurance startups: see the recent public offerings of Clover Health and Alignment Health, who have just 57K and 82K lives, respectively, nationwide.)
We’re watching for a coming wave of health system consolidation to gain the financial footing and geographic footprint needed to compete in the Medicare Advantage market, and would expect traditional payers to respond with regional consolidation of their own.
Large health insurers no longer just provide coverage, but are instead repositioning themselves as vertically integrated healthcare organizations that span the care continuum.
The graphic above shows five-year total revenue growth by segment for the top five health insurance companies.
Some, like Anthem and Humana, are still in the early stages of revenue diversification, leveraging partnerships and investments to fill service gaps—in Humana’s case, these are mainly centered on the Medicare Advantage population.
On the other hand, the insurance revenue of Cigna and CVS Health is already dwarfed by pharmacy benefit management (PBM) revenue (as well as retail clinic revenue for CVS).
UnitedHealth Group (UHG) is clearly leading the pack, with a robust revenue diversification and vertical integration strategy.
Its Optum subsidiary grew 62 percent over the last five years, nearly double the rate of its UnitedHealthcare insurance business. Already the largest employer of physicians in the country, Optum recently announced plans to acquire Massachusetts-based 715-physician group, Atrius Health. It also announced its intent to acquire Change Healthcare, one of the largest providers of revenue and payment cycle management solutions.
Given the outsized role of the Optum division in driving UHG’s growth and profitability, it may soon face a dilemma that other publicly traded, diversified companies have had to confront: shareholder demands to unlock value by spinning off the business into a separate company.
Central to fending off that kind of activism by shareholders: demonstrable steps to integrate the myriad businesses the company has acquired into a functional whole. Just as Amazon’s hugely profitable Web Services business has become a target of spin-off demands, so too, eventually, may UHG’s Optum.
Walmart has continued to grow its presence in healthcare over the past few years, with expansions of its primary care clinics and the launch of its new insurance arm.
Here are nine numbers that show how big Walmart is in healthcare and how it plans to grow:
Walmart has opened20standalone healthcare centers and plans to open at least 15 more in 2021. The health centers offer primary care, urgent care, labs, counseling and other services.
Walmart’s board approved a plan in 2018 to scale to 4,000clinics by 2029. However, that plan is in flux as the retail giant may be rolling back its clinic strategy, according to a February Insider report.
Walmart in January confirmed plans to offer COVID-19 vaccines in 11 states and Puerto Rico.
Walmart said it believes expanding its standalone clinics will help bring affordable, quality healthcare to more Americans because 90 percent of Americans live within 10 miles of a Walmart store.
The Walmart Health model lowers the cost of delivering healthcare services by about 40 percent for patients, according to Walmart’s former health and wellness president Sean Slovenski.
In October, Walmart partnered with Medicare Advantage insurer Clover Health on its first health insurance plans, which will be available to 500,000 people in eight Georgia counties.
Walmart’s insurance arm, Walmart Insurance Services, partnered with eight payers during the Medicare open enrollment period in 2020 to sell its Medicare products. Humana, UnitedHealthcre and Anthem Blue Cross Blue Shield were among the insurers offering the products.
UnitedHealth subsidiary Optum signed a definitive agreement to acquire Atrius Health, a 715-physician group based in Newton, Mass., according to The Boston Globe.
Optum said March 2 the agreement was signed the evening of March 1 after UnitedHealth’s board approved the transaction. Atrius’ board also unanimously approved the deal.
The deal will need approval from Massachusetts’ Health Policy Commission, the Department of Public Health and the Federal Trade Commission.
If the deal is approved, it would expand Optum’s presence in Massachusetts. The organization had previously acquired Worcester, Mass.-based Reliant Medical Group in April 2018.
Optum reportedly had been interested in purchasing Atrius, which has 30 locations in Massachusetts, for a few years and submitted a bid for it in 2019 when the medical group was looking for a partner. In 2019, Atrius decided to remain independent. However, Atrius said it decided to reignite potential partnership talks again due to the pressures of the pandemic.
“We looked at many alternatives and chose [Optum] because of cultural alignment, the benefit we could provide for patients, the stability it could provide for our practice, and the help we can provide to the commonwealth as it pertains to managing medical spend,” Atrius President and CEO Steven Strongwater, MD, told the Boston Business Journal.
This week Brookdale Senior Living, the nation’s largest operator of senior housing, with 726 communities across 43 states and annual revenues of about $3B, announced the sale of 80 percent of its hospice and home-based care division to hospital operator HCA Healthcare for $400M. The transaction gives HCA control of Brookdale’s 57 home health agencies, 22 hospice agencies, and 84 outpatient therapy locations across a 26-state footprint, marking its entry into new lines of business, and allowing it to expand revenue streams by continuing to treat patients post-discharge, in home-based settings.
Like other senior living providers, Brookdale has struggled economically during the COVID pandemic; its home and hospice care division, which serves 17,000 patients, saw revenue drop more than 16 percent last year. HCA, meanwhile, has recovered quickly from the COVID downturn, and has signaled its intention to focus on continued growth by acquisition across 2021.
In separate news, Optum, the services division of insurance giant UnitedHealth Group, was reported to have struck a deal to acquire Landmark Health, a fast-growing home care company whose services are aimed at Medicare Advantage-enrolled, frail elderly patients. Landmark, founded in 2014, also participates in Medicare’s Direct Contracting program.
The transaction is reportedly valued at $3.5B, although neither party would confirm or comment on the deal. The acquisition would greatlyexpand Optum’s home-based care delivery services, which today include physician home visits through its HouseCalls program, and remote monitoring through its Vivify Health unit.
The Brookdale and Landmark deals, along with earlier acquisitions by Humana and others, indicate that the home-based care space is heating up significantly,reflecting a broader shift in the nexus of care to patients’ homes—a growing preference among consumers spooked by the COVID pandemic.
Along with telemedicine, home-based care may represent a new front in the tug-of-war between providers and payers for the loyalty of increasingly empowered healthcare consumers.
Employers — including companies, state governments and universities — purchase health care on behalf of roughly 150 million Americans. The cost of that care has continued to climb for both businesses and their workers.
For many years, employers saw wasteful care as the primary driver of their rising costs. They made benefits changes like adding wellness programs and raising deductibles to reduce unnecessary care, but costs continued to rise. Now, driven by a combination of new research and changing market forces — especially hospital consolidation — more employers see prices as their primary problem.
By amassing and analyzing employers’ claims data in innovative ways, academics and researchers at organizations like the Health Care Cost Institute (HCCI) and RAND have helped illuminate for employers two key truths about the hospital-based health care they purchase:
1) PRICES VARY WIDELY FOR THE SAME SERVICES
Data show that providers charge private payers very different prices for the exact same services — even within the same geographic area.
For example, HCCI found the price of a C-section delivery in the San Francisco Bay Area varies between hospitals by as much as:$24,107
Data show that hospitals charge employers and private insurers, on average, roughly twice what they charge Medicare for the exact same services. A recent RAND study analyzed more than 3,000 hospitals’ prices and found the most expensive facility in the country charged employers:4.1xMedicare
Hospitals claim this price difference is necessary because public payers like Medicare do not pay enough. However, there is a wide gap between the amount hospitals lose on Medicare (around -9% for inpatient care) and the amount more they charge employers compared to Medicare (200% or more).
A small but growing group of companies, public employers (like state governments and universities) and unions is using new data and tactics to tackle these high prices. (Learn more about who’s leading this work, how and why by listening to our full podcast episode in the player above.)
Note that the employers leading this charge tend to be large and self-funded, meaning they shoulder the risk for the insurance they provide employees, giving them extra flexibility and motivation to purchase health care differently. The approaches they are taking include:
Some employers are implementing so-called tiered networks, where employees pay more if they want to continue seeing certain, more expensive providers. Others are trying to strongly steer employees to particular hospitals, sometimes know as centers of excellence, where employers have made special deals for particular services.
Purdue University, for example, covers travel and lodging and offers a $500 stipend to employees that get hip or knee replacements done at one Indiana hospital.
Negotiating New Deals
There is a movement among some employers to renegotiate hospital deals using Medicare rates as the baseline — since they are transparent and account for hospitals’ unique attributes like location and patient mix — as opposed to negotiating down from charges set by hospitals, which are seen by many as opaque and arbitrary. Other employers are pressuring their insurance carriers to renegotiate the contracts they have with hospitals.
In 2016, the Montana state employee health plan, led by Marilyn Bartlett, got all of the state’s hospitals to agree to a payment rate based on a multiple of Medicare. They saved more than $30 million in just three years. Bartlett is now advising other states trying to follow her playbook.
In 2020, several large Indiana employers urged insurance carrier Anthem to renegotiate their contract with Parkview Health, a hospital system RAND researchers identified as one of the most expensive in the country. After months of tense back-and-forth, the pair reached a five-year deal expected to save Anthem customers $700 million.
Legislating, Regulating, Litigating
Some employer coalitions are advocating for more intervention by policymakers to cap health care prices or at least make them more transparent. States like Colorado and Indiana have passed price transparency legislation, and new federal rules now require more hospital price transparency on a national level. Advocates expect strong industry opposition to stiffer measures, like price caps, which recently failed in the Montana legislature.
Other advocates are calling for more scrutiny by state and federal officials of hospital mergers and other anticompetitive practices. Some employers and unions have even resorted to suing hospitals like Sutter Health in California.
Employers face a few key barriers to purchasing health care in different and more efficient ways:
Hospitals tend to have much more market power than individual employers, and that power has grown in recent years, enabling them to raise prices. Even very large employers have geographically dispersed workforces, making it hard to exert much leverage over any given hospital. Some employers have tried forming purchasing coalitions to pool their buying power, but they face tricky organizational dynamics and laws that prohibit collusion.
Employers can attempt to lower prices by renegotiating contracts with hospitals or tailoring provider networks, but the work is complicated and rife with tradeoffs. Few employers are sophisticated enough, for example, to assess a provider’s quality or to structure hospital payments in new ways.Employers looking for insurers to help them have limited options, as that industry has also become highly consolidated.
Employers say they primarily provide benefits to recruit and retain happy and healthy employees. Many are reluctant to risk upsetting employees by cutting out expensive providers or redesigning benefits in other ways. A recent KFF survey found just 4% of employers had dropped a hospital in order to cut costs.
Employers play a unique role in the United States health care system, and in the lives of the 150 million Americans who get insurance through work. For years, critics have questioned the wisdom of an employer-based health care system, and massive job losses created by the pandemic have reinforced those doubts for many.
Assuming employers do continue to purchase insurance on behalf of millions of Americans, though, focusing on lowering the prices they pay is one promising path to lowering total costs. However, as noted above, hospitals have expressed concern over the financial pressures they may face under these new deals. Complex benefit design strategies, like narrow or tiered networks, also run the risk of harming employees, who may make suboptimal choices or experience cost surprises. Finally, these strategies do not necessarily address other drivers of high costs including drug prices and wasteful care.
As COVID-19 cases surged last fall, non-COVID-19 hospital admissions fell substantially, particularly in the Midwest and West, according to a new analysis by the Kaiser Family Foundation of 2020 inpatient admission data from electronic medical records through Dec. 5.
The analysis also highlights admission trends by age and sex, and found that patients 65 and over — those most at risk of complications from the novel coronavirus — delayed care at greater rates than those under 65 again in the fall. Still, the discrepancy between visits based on age was more pronounced in the spring.
On average, males and females had almost identical admission patterns throughout the entire year. Though looking at the raw numbers, women’s total admissions trended above their male counterparts, which researchers attributed to childbirth.
The latest analysis from the think tank provides a fuller picture of how the COVID-19 pandemic influenced admission trends throughout 2020.
Overall, total admissions bottomed out in April and March but have remained near normal, or above 90% of expected admissions since June, according to electronic medical record data from the Epic Health Research Network, which pools information from 20 million patients across 97 hospitals in the U.S.
However, while total admissions — which includes those sick with COVID-19 — remained near normal, the pattern differed when zeroing in on non-COVID-19 admissions, or those admitted who did not have the virus.
Non-COVID-19 admissions started to fall againin November and by Dec. 5 they fell to 80% of expected volume, which is likely to put financial pressure on hospitals, particularly those with smaller reserves of cash on hand, Kaiser noted.
The decline was steepest in the Midwest and West, dropping to about 76% of expected volume between early November and December.
Researchers fear the drop in non-COVD-19 admissions may have long-term consequences.
“The levels of non-COVID-19 admissions seen in the fall of 2020 suggest that people may be delaying care in ways that could be harmful to their long-term health,” according to the study.
Insurers observed similar patterns of depressed volume in the fourth quarter.
Humana, which largely covers seniors in Medicare plans, noted non-COVID-19 volume dropped the last two months of the quarter after previously returning to near normal. It led Humana to report a loss in the fourth quarter as COVID-19 testing and treatment accelerated. Centene, which reported a Q4 loss, echoed a similar pattern.
Molina’s net income fell sharply in the fourth quarter as the insurer was forced to refund rates to some of its state partners as COVID-19 continues to depress normal care utilization, CEO Joe Zubretsky told investors Thursday.
Although utilization remained curtailed, COVID-19 costs were higher in the fourth quarter than any other quarter in 2020, Zubretsky said. As such, Molina’s medical care ratio for the quarter increased to 90.8% from 86% the prior-year period.
Still, Molina remained in the black for the full year of 2020. Looking ahead, the company expects utilization to improve, though does not expect it to rebound entirely. At the same time, the company expects direct COVID-19 costs to come in lower than last year.
Insurers have largely remained unbruised from the pandemic, unlike some providers, but the fourth quarter was a different story.
The pandemic took a bite out of Molina’s net income in the fourth quarter as the company reported that figure fell to $34 million from $168 million in Q4 2019.
The biggest contributor to the impact on the bottom line was Medicaid refunds to states, including California, Michigan and Ohio. States have clawed back some of the money they pay insurers like Molina as members continue to defer care, which is a benefit to insurers as they then pay out less.
Molina painted a clearer picture of this scenario during Thursday’s conference call with investors.
For the full year, Molina estimated that medical cost suppression amounted to $620 million while direct COVID-19 costs amounted to $200 million. In other words, curbed utilization continued to outweigh direct COVID-19 costs, resulting in a $420 million benefit from the pandemic, which the company characterized as a surplus.
But states took back a total of $565 million through rate refunds. Overall, the net impact of COVID-19 was a $180 million hit to Molina for 2020 when factoring in other costs.
Looking ahead, executives seemed cautiously optimistic for 2021 but noted headwinds from the pandemic will persist. While the forecast reflects future growth, Zubretsky said, “it is a constrained picture” of the company’s potential earnings.
Some of those headwinds include Medicare risk scores that don’t fully capture the acuity of their Medicare members. As seniors put off care in 2020, companies like Molina were unable to capture diagnosis codes to help them determine how sick members are and the ultimate risk they pose.
Still, there are some bright spots. As the public health emergency is likely to be continued throughout the remainder of the year, it means that redeterminations will remain halted, or, in other words, Medicaid members will not be kicked off coverage.
This was a boon for Molina in 2020, as it allowed them to pick up a significant number of new members. Overall, it was a major catalyst for Medicaid membership growth in 2020, Zubretsky said.
Molina expects care utilization to improve this year but not fully return to normal. Instead, it expects utilization suppression to be about one third of 2020 levels.
Molina, which solely focuses its portfolio on government sponsored and marketplace plans, said it expects to pick up as many as 30,000 additional members during the Affordable Care Act special enrollment period.
Opening up a special enrollment period was one of the first moves made by the new administration in the White House. Zubretsky seems enthused by the recent moves through executive orders and the unfolding bill developments in Congress that are looking to raise premium subsidies on the exchanges.
Those early actions “just couldn’t be better for government sponsored managed care, and we’re pleased to see that progress already being made,” Zubretsky said.
Karen Lynch, the new president and CEO of CVS Health, said during an earnings call on Tuesday that Aetna will reenter the ACA business. The ACA business has improved, she said, and Aetna will rejoin the ACA marketplace, selling individual coverage in 2022.
“We’ll accelerate the pace of progress via targeted investments that will drive consumer-focused strategy,” Lynch said. “We will create future economic benefit for CVS Health and its shareholders.”
Aetna joined other insurers in leaving or downsizing its footprint as premiums rose and insurers lost money.
The ACA market has grown since the exodus and shown strength in 2021, in lower premiums for consumers, steady enrollment numbers and insurers expanding their marketplace reach.
As COVID-19 has cost many their employer-based health insurance, the Biden Administration has opened a new enrollment period that started on February 15 and goes through May 15.
THE LARGER TREND
President Donald Trump and Congressional GOP members attempted to get rid of the Affordable Care Act that was passed into law by his predecessor, President Barack Obama.
Trump’s successor, President Biden, has promised to strengthen the market, even as the Supreme Court considers whether the ACA law remains valid without the individual mandate’s tax penalty. The Supreme Court is expected to hand down a decision by June.
In 2018, Aetna became part of CVS Health in a $69 billion merger.