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Summary Aetna has struck a deal to sell individual health insurance with Costco, the #6 retailer. The deal targets 9 populous states first with more to follow in 2012  While the deal lacks some of the levers of the very successful Walmart-Humana Part D deal, there is real potential for this channel to attract consumers if employers opt-out on a large scale Given that Aetna has some arrangements with Best Buy (the #9 retailer) and an established alliance with CVS (the #7 retailer), it looks like Aetna is building out a multi-prong big box retailer channel strategy; others may follow… Read More

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There have been some blog posts (here and here) about a discussion on payment reform at the Massachusetts Health Data Consortium last week. While I did not attend, the commentary is provocative and I would like to offer a few observations. The discussion included some critical perspectives on the prospects for implementing payment reform and whether its implementation will really bend the trend. My main point in response to the dialog is that payment reform needs to be understood as part of a dynamic trajectory, a multi-stage game. Couple variations on this theme: Getting to critical… Read More

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Summary Geographic barriers to provider competition are a headache for payers By importing capabilities, specialty franchising could help reduce some of the barriers to cross-geography competition It is too early to tell whether the recent Sarasota-Columbia is a good example of what franchising could do given the rapid growth in capacity for high-end cardiology in the area; it may be more about preserving network status and price point But payers should not assume the model will be a disappointing supplement to provider leverage: Instead, consider encouraging providers with differentiated outcomes (resulting in a differentiated cost profile) to explore franchising models… Read More

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Next week, the California insurance commissioner will propose legislation to deter small employers from exiting the traditional health insurance market and going self-insured. The legislation will put a floor on the amount of losses an employer must incur with any one employee before the stop-loss coverage is triggered (“attachment point”). This won’t affect larger employers which benefit from the balancing impact of their large numbers and so only need to protect themselves from the most catastrophic risks. The bottom lines of self-insured smaller employers are much more vulnerable to even a moderately ill employee; therefore, lower loss thresholds for… Read More

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The PE firm TPG is reportedly considering investing in LHC, a publicly-held home health agency (LHC announced earlier this year they were exploring strategic options). PE funding could allow LHC to pursue a much bolder strategy in the wide-open post-acute care market. Home health With home health revenues of ~$560M, LHC is #3 behind Amedisys ($1.25B) and Gentiva (~$1.1B) and ahead of #4 Almost Family. These four operate in an incredibly fragmented industry of $70B/year (though most of their attention is on the $20B year Medicare FFS market). The vast majority of care is delivered by thousands of… Read More

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Summary Administrative clearinghouse NaviNet has been acquired by 3 Blues plans and a provider of analytics capabilities for plans and providers (Lumeris).  Both NaviNet and Lumeris appear to need a strategic breakout. The key opportunity is coupling sophisticated cloud-based (=EMR agnostic) analytics with a real time communications platform touching 130K physician offices.  If viable, cloud approaches to ACO enablement could reduce the upfront infrastructure cost for providers to go at-risk, therefore allowing smaller scale provider groups to participate in the new economics – an attractive proposition for payers unnerved by provider consolidation. But it is a big “if”.  The Blues… Read More

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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