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Yesterday, Aetna announced a deal with Heartland Health (an integrated delivery system serving northwest Missouri, northeast Kansas and southeast Nebraska) to create a new health plan for the small group market (2-50 employees) for 2 counties in Missouri and 1 county in Kansas. Heartland Health has a ~350 bed acute care hospital (Heartland Regional Medical Center) with 200+ medical staff physicians, and the Heartland Clinic with 100 providers in 23 locations. Most important, recent financial evaluations have given Heartland Health a startling 82% market share in primary service area (!). If there is a provider ally… Read More

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Aetna has struck a deal with Best Buy to sell four online coaching programs (fitness, weight management, smoking cessation and stress management) in new 1,200 sq. ft. “health technology departments” in 3 suburban Chicago locations.   In these departments, Best Buy is selling a broad range of technologies and tools for fitness, sleep, nutrition and beauty alongside the Aetna programs.   The strategy: target Best Buy’s tech savvy customers when they are thinking about health and when they have an expectation to buy (vs. for example being on-line when there is more of an… Read More

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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

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UPDATE: United buys XL Health! Here’s what we surmised in the original post on this topic:  “That leaves United. A leadership position in C-SNPs would fit well with United’s leading position in Medicare Advantage overall, #1 position in D-SNPs and #2 position in I-SNPs. The capabilities would also seem to be readily applicable to the broader Medicare population (given, for example, the potential transfers back and forth across between C-SNP and regular Medicare Advantage). The curious thing is that United dramatically reduced its C-SNP business last year (went from about 35K lives to 5K… Read More

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In complex system, even small changes can have big, unexpected consequences.  These are occasionally beneficial but more often than not have a negative impact.     Over the last year we have started to see some evidence for unintended consequences from the health care reform act.  Negative impacts that we see are of two kinds: Perverse effects that directly affect the objectives of the act and side-effects that manifest in seemingly unrelated areas (see figure below). It is not the intent here to comment on the overall merits or demerits of health care… Read More

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Summary Provider discounts are a key priority for national accounts – which puts CIGNA (CI) and Aetna at a disadvantage; CI responding in part by trying to get closer to providers A provider collaboration strategy requires a critical mass of patients and provider mindshare. CI does not have it; nor will the Healthspring (HS) acquisition provide it given the limited geographic overlap between the two companies CI must therefore grow share in key markets to capture the deal’s potential provider collaboration synergies (though other synergies are certainly accessible) If CI relies on organic growth going forward, it may have to… Read More

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1. The final ACO rules largely maintain the demanding economic parameters for mature ACOs (Track 2) found in the originally proposed version (relative, for example, to the original PGP demonstration project): Potential for both downside and upside reward. Maximum shareable savings of 60% (less than in the original PGP demo); and the rewards are limited to an upper bound of total costs. In this regard, the ACO contract payoff locks a lot like your classic “collar” financial option (see graphic below). The starting cost benchmark based on the ACO’s actual historic costs (removing any “easy wins” for today’s low… Read More

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Kaiser’s latest employer benefits survey offers some interesting data on the adoption of narrow (or high performance) network products. See chart below: Couple of observations: Overall adoption at the firm level appears to stand at almost 20%. The data probably under-represents the share of firms with a narrow network product: firms which have narrow networks in their second or third most common plan would not appear in this data. However, the share of lives in a narrow network product is probably lower: I would think narrow network products are adopted more frequently among employers… Read More

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Why would a health plan want to buy an exchange? Isn’t the only synergy if the owning plan tilts the exchange in their products favor? And won’t that damage the value proposition of the exchange for buyers and see them flock elsewhere? To understand the Bloom Health acquisition, it is important to recognize that the private health insurance exchange (PHIX) space is quite fluid, consisting of three or four distinct market opportunities. (The fourth — capabilities resell — might not really qualify as a PHIX specific opportunity, it is more a readily accessible adjacency):… Read More