Category Archives: Health Insurance Industry

Humana to exit employer-sponsored insurance market

Posted on by • Posted in Employer-Sponsored Commercial Health Insurance, Health Insurance Industry, Medicare Advantage, Strategy • Leave a comment

https://mailchi.mp/12e6f7d010e1/the-weekly-gist-february-24-2023?e=d1e747d2d8

On Thursday, Louisville, KY-based Humana announced it will wind down its Employer Group Commercial Medical Products business over the next two years. The company said its exit from all fully insured, self-funded, and federal employee medical plans—a book of business that shrunk to under 1M lives in 2022—will allow the company to focus more on its Medicare Advantage (MA) offerings, which covered over 5M lives in 2022. Humana is currently the second largest MA payer behind UnitedHealthcare. 

The Gist: In a move signaled earlier this month, Humana has chosen to double down on its more profitable MA business, rather than continuing to compete with other major payers in the shrinking employer-sponsored commercial market. Humana already offers MA plans in 89 percent of US counties, more than UnitedHealthcare, but its 2022 MA growth was only a third of United’s (250K new lives enrolled, versus 750K). 

This move allows Humana to devote more resources to fielding competitive MA plan offerings and integrating its growing portfolio of physician and postacute care assets. 

A battle of (growing) titans in healthcare  

Posted on by • Posted in Health Industry Distributors, Health Insurance Industry, Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Share, Market Trends, Pharmaceutical Industry, Retail Pharmacy • Leave a comment

https://mailchi.mp/12e6f7d010e1/the-weekly-gist-february-24-2023?e=d1e747d2d8

We’ve updated our annual comparison of the relative size of the largest healthcare companies, with the graphic below comparing 2022 revenues to 2019 for a sense of how different companies and industry sectors weathered the pandemic. 

The annual revenues of the five largest health systems in 2022 pale in comparison to the industry’s true giants—and the gap only widened over the pandemic. The largest health systems averaged just 5 percent annual growth since 2019, while the largest companies in each other healthcare subsector have grown revenues by over 10 percent annually.

Unsurprisingly, the pandemic drove Pfizer’s revenue to a record $100B in 2022—over half of that was driven by the company’s COVID vaccine and antiviral treatment, Paxlovid. Amazon’s 2022 revenue was nearly double its pre-COVID level. While very little of that growth came from healthcare, it enabled the company to fund investments like its all-cash $3.9B purchase of One Medical, which closed this week.

Even the nation’s largest health systems cannot compete with that kind of firepower, and looking beyond revenue paints an even more difficult picture. According to Kaufman Hall, although the median hospital has grown its revenue by 15 percent, it has seen expenses climb 20 percent, and lost 26 percent of margin since 2019. 

Physician Arms Race

Posted on by • Posted in Health Insurance Industry, Market Consolidation, Market Power, Market Trends, Medicare Advantage, Physician Arms Race, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Private Equity, Vertical Integration • Leave a comment

https://mailchi.mp/d62b14db92fb/the-weekly-gist-february-10-2023?e=d1e747d2d8

After rumors of a possible deal first surfaced in early January, CVS Health announced on Wednesday that it has entered into a definitive agreement to acquire value-based primary care provider Oak Street Health for $10.6B. The Chicago-based company will join CVS’s recently formed Health Care Delivery organization, bringing with it roughly 600 physicians and nurse practitioners working at 169 senior-focused clinics in 21 states. This move is the latest by CVS to expand its care offerings, following its $100M investment last month in primary and urgent care provider Carbon Health, and its $8B acquisition of in-home evaluation company Signify in September.

The Gist: If this deal goes through, CVS will have the key pieces of the national primary care physician network it needs for a value-based care platform focused on Medicare Advantage—although how they will combine Oak Street’s clinics with retail-based HealthHUBs and other primary care assets remains unclear.

The fact that CVS is paying about a 50 percent share price premium shows how competitive the market for large physician organizations has become, driving up bidding prices such that only cash-rich payers, pharmacies, and retailers can afford them as they seek to emulate UnitedHealth Group’s Optum strategy.

Of note, the same day CVS announced the deal, Aetna competitor and erstwhile investor in Oak Street, Humana announced a five-year network partnership with Oak Street competitor ChenMed.

We’ll be watching for whose strategy proves most effective as we enter the next phase of the physician arms race between vertically-integrated payers, and the emphasis shifts from how many providers are employed to how they’re integrated and deployed.

CMS finalizes audit plan to recapture overpayments to MA insurers

Posted on by • Posted in Audit, Center for Medicare and Medicaid Services (CMS), Clawbacks, Cost Management, Cost-Effective, Health Insurance Industry, Health Policy, Medicare Advantage • Leave a comment

https://mailchi.mp/a44243cd0759/the-weekly-gist-february-3-2023?e=d1e747d2d8

This week, the Centers for Medicare and Medicaid Services (CMS) finalized a 2018 proposed rule that will impose aggressive audits on Medicare Advantage (MA) insurers. By extrapolating the audits to insurers’ entire contracts, CMS expects to claw back almost $500M annually in overpayments since 2018, but has opted not to extrapolate the audits for 2011 to 2017. While MA insurers threaten to sue over the rule’s exclusion of a “fee-for-service adjustor” that would have reduced the degree of overpayments, CMS officials note that the estimated repayments under the final rule constitute less than 0.2 percent of total MA spending. 

The Gist: This MA overpayment audit is overdue, especially given how well-documented MA overbilling has become. This week the Biden administration also announced a proposed change to MA risk adjustment that would reduce MA spending by $11B annually.

Though nearly half of all US seniors are now enrolled in MA plans, the program has yet to achieve its original purpose of saving the government money by encouraging competition around delivering care more efficiently. 

MA cannot continue to cost more per enrollee than traditional Medicare in perpetuity, and an eventual reduction in per-member per-year payments is inevitable.

Elevance to acquire Blue Cross Blue Shield of Louisiana

Posted on by • Posted in Health Insurance Industry, Market Consolidation, Market Outlook, Market Power, Medicare Advantage, Mergers & Acquisitions • Leave a comment

https://mailchi.mp/8f3f698b8612/the-weekly-gist-january-27-2023?e=d1e747d2d8

On Monday, Indiana-based Elevance Health, formerly known as Anthem, announced it has signed a deal to add Blue Cross Blue Shield of Louisiana (BCBSLA) to its network of Blues plans for an undisclosed sum. BCBSLA covers two-thirds of the state’s commercial insurance market, and has partnered with Elevance for five years to serve Louisiana’s dual-eligible population.

Elevance will operate BCBS plans in 15 states and cover 49M beneficiaries should the acquisition go through, though the move faces regulatory obstacles around folding nonprofit BCBSLA into its for-profit business.

The Gist: This deal is a harbinger for similar combinations to come. We’ve long been expecting more roll-ups of state- and regional-level plans as they struggle to compete with the for-profit national giants. 

Standalone regional plans often lack the scale to diversify their businesses and emulate the successful strategic playbooks of national insurers like UnitedHealth Group and Humana, which have rapidly expanded into the more profitable areas of care provision, provider support services, and pharmacy benefit management. 

State-level Blues plans have long been dominant in the PPO-driven commercial market, but have experienced mixed success in expanding into Medicare Advantage and other segments. If these mid-sized insurance players find they can’t compete alone, it won’t bode well for the cohort of much smaller “insurtech” startups. 

More payer consolidation ahead.  

A contentious time for payer-provider negotiations

Posted on by • Posted in Employee Staffing, Employee Staffing Shortage, Health Insurance Industry, Health System, Hospital, Hospital Capacity, Hospital Industry, Inflation, Labor Shortages, Labor Spend Management, Market Outlook, Market Power, Market Trends, Negotiation, Payer Contracting, Strategy, Supply Chain • Leave a comment

https://mailchi.mp/59374d8d7306/the-weekly-gist-january-13-2023?e=d1e747d2d8

In our decades of working in healthcare, we’ve never seen a time when payer-provider negotiations have been more tense. Emboldened insurers, having seen strong growth during the pandemic, are entering contract negotiations with an aggressive posture.

“They weren’t even willing to discuss a rate increase,” one CFO shared as he described his health system’s recent negotiations with a large national insurer. “The plan’s opening salvo was a fifteen percent rate cut!”

Health systems are feeling lucky to get even a two or three percent rate bump, well short of the historical average of seven percent—and far short of what would be needed to account for skyrocketing labor, supply, and drug costs. According to executives we work with, efforts to describe the current labor crisis and resulting cost impacts with payers are largely falling on deaf ears.  
 
This scenario is playing out in markets across the country, with more insurers and health systems announcing that they are “terming” their contract, publicly stating they will cut ties should the stalemate in negotiations persist.

Speaking off the record, a system executive shared how this played out for them. With negotiations at an impasse, a large insurer began the process of notifying beneficiaries that the system would soon be out-of-network, and patients would be reassigned to new primary care providers. The health plan assumed that the other systems in the market would see this as a growth opportunity—and was shocked when they discovered that other providers were already operating at capacity, unable to accommodate additional patients from the “terminated” system. 

Mounting concerns about access brought the plan back to the table. Even in the best of times, a major insurer cutting ties with a health system is extremely disruptive for consumers, who must shift their care to new providers or pay out-of-network rates. But given current capacity challenges in hospitals nationwide, major network disruptions can be even more dire for patients—and may force payers and providers to walk back from the brink of contract termination. 

West Coast nonprofit health plans announce agreement to combine

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https://mailchi.mp/e44630c5c8c0/the-weekly-gist-december-16-2022?e=d1e747d2d8

Two nonprofit insurers, Long Beach, CA-based SCAN Group and Portland, OR-based CareOregon, have agreed to merge. The new organization—which will take the name HealthRight Group, while retaining the SCAN and CareOregon brands in local markets—will have $6.8B in annual revenue and cover around 800K lives.

Continuing their previous areas of focus, SCAN will cater primarily to Medicare Advantage (MA) beneficiaries, and CareOregon will prioritize serving managed Medicaid enrollees. Executives from both companies cited scale as the primary motivation for the merger, with the companies aiming to both strengthen their foothold in current markets and expand their reach into new ones.

The deal, which still needs approval from state regulators, is expected to close in 2023.

The Gist: HealthRight stands to be a strong player in the booming government-backed, managed care market in states currently dominated by large payers like Kaiser Permanente and UnitedHealthcare. 

SCAN has differentiated itself with services dedicated to underserved populations, including creating a MA plan designed for LGBTQ+ seniors, and offering California’s only integrated dual-eligible, special needs plans. We expect the addition of CareOregon’s 319K managed Medicaid members to provide a larger platform for these targeted initiatives, and we wouldn’t be surprised to see more nonprofit insurers joining forces with HealthRight to better compete with current market heavyweights.  

Why large health insurers are buying up physicians

Posted on by • Posted in Antitrust, Competition, Federal Trade Commission (FTC), Health Insurance Industry, Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Monopoly Behavior, Physician, Physician Strategy, Physician Workforce, Vertical Consolidation, Vertical Integration, Vertical Merger • Leave a comment

https://mailchi.mp/3a7244145206/the-weekly-gist-december-9-2022?e=d1e747d2d8

An enlightening piece published this week in Stat News lays out exactly how UnitedHealth Group (UHG) is using its vast network of physicians to generate new streams of profit, a playbook being followed by most other major payers. Already familiar to close observers of the post-Affordable Care Act healthcare landscape, the article highlights how UHG can use “intercompany eliminations”—payments from its UnitedHealthcare payer arm to its Optum provider and pharmacy arms—to achieve profits above the 15 to 20 percent cap placed on health insurance companies.

So far in 2022, 38 percent of UHG’s insurance revenue has flowed into its provider groups, up from 23 percent in 2017. And UHG expects next year’s intercompany eliminations to grow by 20 percent to a total of $130B, which would make up over half of its total projected revenue.

The Gist:

The profit motive behind payer-provider vertical integration is as clear as it is concerning for the state of competition in healthcare. 

UHG now employs or affiliates with 70K physicians—10K more than last year—seven percent of the US physician workforce, and the largest of any entity. 

Given the weak antitrust framework for regulating vertical integration, the federal government has proven unable to stop the acquisition of providers by payers. Eventually, profit growth for these vertically integrated payers will have to come from tightening provider networks, and not just acquiring more assets. That could prompt regulatory action or consumer backlash, if the government or enrollees determine that access to care is being unfairly restricted.

Until then, the march of consolidation is likely to continue.

Optum expecting $214B in revenue in 2023

Posted on by • Posted in Health Insurance Industry, Market Outlook, Operating Revenue, Optum Health, Optum Insight, OptumRx, UnitedHealth Group, UnitedHealthcare • Leave a comment
https://www.beckerspayer.com/payer/optum-expecting-214b-in-revenue-in-2023.html?utm_medium=email&utm_content=newsletter

UnitedHealth Group expects Optum to see a long-term double-digit revenue growth rate and bring in a range between $212 billion to $214 billion in 2023 revenues.

The Minnetonka, Minn.-based healthcare giant shared Nov. 29 it projects growth margins of over 20 percent for technology products and low- to mid-single-digit growth for pharmacy care services. 

2023 projections:

Optum Health
Revenues: $91 billion to $92 billion
Earnings: $7.4 billion to $7.6 billion

Optum Insight
Revenues: $18.6 billion to $19.3 billion
Earnings: $4.4 billion to $4.5 billion

OptumRx
Revenues: $105.5 billion to $106.5 billion
Earnings: $4.8 billion to $4.9 billion


UnitedHealth Group expects 2023 revenues of $357 billion to $360 billion, net earnings of $23.15 to $23.65 per share, and adjusted net earnings of $24.40 to $24.90 per share. Cash flows from operations are expected to be $27 billion to $28 billion.

UnitedHealthcare expects 2023 revenues to range from $274 billion to $276 billion. By the end of this year, the payer’s revenues are expected to hit $249.2 billion, up from $222.9 billion in 2021.

Inflation slowing as Wall Street looks bullish on healthcare sector

Posted on by • Posted in Biotech, Health Insurance Industry, Healthcare Sector, Inflation, Interest Rates, Market Outlook, Market Trends, Net Income, Pharmaceutical Industry, Wall Street • Leave a comment
https://www.beckershospitalreview.com/finance/inflation-slowing-as-wall-street-looks-bullish-on-healthcare-sector.html?utm_medium=email&utm_content=newsletter

Wall Street’s roil has stabilized somewhat in recent days, with the S&P 500 brushing up against its 200-day moving average and rising more than 10 percent since its October lows, as of publication time.

The index’s 50-day moving average is trending up, according to financial data firm Refinitiv. But it still must climb another 7.4 percent to form a “golden cross,” which is when a stock or index’s short-term moving average rises above one of its longer-term moving averages. The S&P 500’s 20-day and 100-day moving averages are closer to the milestone, only needing increases of 5 percent and 1.2 percent, respectively.

The Dow Jones Industrial Average has already formed a small golden cross: its 20-day moving average is 1.2 percent higher than its 200-day moving average.

Investors Optimistic about Healthcare Sector

– Investors are most optimistic about the Healthcare sector, which is trading close to its 3-year average “price to earnings-per-share” ratio of 48.1x, according to Simply Wall Street.

– Analysts are expecting an annual earnings growth of 13.4 percent, higher than the sector’s past year earnings growth of 5 percent.

– Merck and Johnson & Johnson were among last week’s top gainers driving the market.

Inflation Appears to be Slowing

– The recent lower-than-expected inflation figures could indicate it is slowing.

– The Fed may continue raising rates, considering the strength in recent labor market and retail sales data.