In this first week of this new year, I share a few insights regarding acquisitions and consolidations in healthcare. The short answer: expect a great deal of both horizontal and vertical integration.
Expect plan consolidations to continue.
In many lines of business, bidding and minimum MLRs have forced percentage margins down considerably in Medicaid and Exchange. Plans need to consolidate to reduce costs and boost membership numbers. Plans will continue to look to bolster margins by acquiring lucrative Medicare Advantage plans where margins are still considerable.
Plans will want to continue acquiring providers such as PCPs and Specialists.
This is key as downstream delegated risk takes hold throughout the nation. This is a major factor already in many markets, like South Florida. Some of the biggest plans are focusing here. This allows plans to recapture dollars spent at the provider level. It also allows them to excel on Star measures. A great example of this is United Optum’s acquisition of DaVita Medical Group.
Plans will acquire other key components that tie to their members’ demographics.
For example, Humana’s possible purchase of a 40% stake in Kindred’s home care, hospice and community care assets sounds odd at first blush, but makes a great deal of sense for one of the biggest Medicare plans out there. Plans in Medicare suffer from the high cost of inpatient care. This is due to poor management of chronic conditions, poor care transitions post discharge, and high readmission rates. The Kindred assets can help Humana with reducing admission and readmission costs, lowering overall MLR and on boosting Star scores tied to care transitions. It is a very logical step in Humana’s vertical integration strategy.
Plans want to be PBMs
Despite a bit of moderation in inflation the last few years, drug prices are and will be an ever-growing component of the healthcare pie. As such, health plans need to control their drug costs and more closely align with, or buy, PBMs. The pending CVS-Aetna merger is a good example, as is the now possibly doomed Anthem-CVS PBM alliance. Plans want to control their own destiny both from a cost perspective and to improve the lagging Star scores costing a majority of MA plans 4 Star or greater status. PBMs and pharmacies see an upside here too as they become a much bigger part of the healthcare continuum. Further, PBMs are worried about impending drug transparency and price controls.
Plans will buy additional provider assets
Like the vertical integration noted above, expect plans to seek out additional provider assets, such as clinics and 24-hour low cost services alternatives. CVS and Aetna will have that as noted earlier in this post. The merger allows CVS and Aetna to build out CVS’ Minute Clinics into low cost access, prevention, and ER diversion solutions. United’s DaVita purchase noted above adds to their considerable PCP, Specialist, outpatient, urgent care, and telehealth/house call capabilities.
Providers want to be payers
Expect an overall blurring of the distinction between payer and provider. Providers will act more and more like payers in an effort to cut out the middle man. As with payers acquiring provider assets, expect that providers will seek to enter the payer world in traditional regulated forms and via reform initiatives. ACOs in Medicare have had some quality and cost reduction success. The same holds true for the provider sponsored networks in Medicaid.