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A recent article in the NEJM argues that cost savings from quality improvements are illusory because of the lumpy nature of healthcare capacity.  Quality’s impact on utilization is just too small to be captured in a heavily fixed cost environment.  Any reduction in utilization results in a trivial savings of direct costs and, more importantly, unchanged fixed costs simply being reallocated across the smaller volume. Cost reduction in a high overhead environment is indeed difficult (ask any of the big process consulting houses).   It can be done, though it will… Read More

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Several recent acquisitions suggest a rapidly growing valuation on Medicare Advantage (MA) lives. Last August, Healthspring paid about $3.6K per adjusted MA life with its acquisition of Bravo. (My adjustments extract the value of the PDP lives using the CVS acquisition of Universal American PDP lives as a benchmark and for the share of Special Needs Plan or SNP lives which typically have higher utilization levels and higher reimbursement). This past November, there were two major MA acquisitions, both with sharply higher prices. Cigna (CI) bought Healthspring for $3.8B — $8.8K per adjusted MA life or about 2.5x what… Read More