Compete by creating more competitors: the Heartland Health deal and Aetna’s strategic jiu jitsu

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 to have in this market, Heartland is it.

A lot remains unclear about the
deal (e.g., terms and economics); here’s what we know:
  • A new organization “Midwest Community Health
    Solutions” associated with both Aetna and Heartland has been created to provide the insurance.  While the ownership/governance of the organization is not described, Aetna did describe the Heartland relationship as one of symmetrical risk sharing and providing fee income to Aetna during their recent Investor Day.
  • The insurance product is likely to be narrow
    network focused on Heartland Health’s providers.
  • Heartland brings its “incredibly progressive approach
    to wellness and its outreach to businesses and their employees” — likely
    drawing on Heartland’s subsidiary, Community Health Improvement Solutions (or
    CHIS), which provides an overlay of locally orchestrated wellness and health
    coaching interventions (onsite screening and counseling, classes, fairs,
    discount programs etc.).
  • Aetna’s ActiveHealth Care Engine will provide
    the data analytics to guide Heartland providers to the most critical care
  • Costs are expected to be 5-12% lower than Aetna’s
    other products and (per Investor Day discussion) the lowest price point in the market.
  •  While initially focused on risk, the press
    release suggests the plan may eventually be opened to self-funded accounts.

The deal also likely provides a resolution to Heartland’s small and unprofitable Community Health Plan (CHP) subsidiary through a closer collaboration with Aetna (Heartland has been working with Aetnaon a new approach to these ~20K lives since the Baldridge Award application in2009; most recently, CHIS has shifted to selling Aetna products rather than CHP).

During last December’s Investor Day, Aetna indicated they were going to drive towards narrow network solutions (in some sense, throwing in the towel on competing vs. United and the Blues on more open configurations) to achieve a competitive network cost — logical enough given their relative share of lives vs. the two larger players. 

But Aetna has recognized for some time that there can be a strategic advantage in having low share (or, rather, exploiting – jiu jitsu like – the larger shares of their competitors). The Carilion deal pointed the way: collaborate with a strong local provider to create a new competitor in the market: the provider brand can match or even overwhelm the health insurer brands and take share (especially among those willing to adopt narrow networks). Sure, Aetna risks cannibalizing its share of lives, but this share is small and, in return, it gets a slice of what can be carved away from the much bigger shares of the Blues or United.

The Heartland deal seems to fit this model. Aetna is in 3rd/4th share position in each of Heartland Health’s states — well below the Blue competition and United (typically #1 and #2). An interesting twist here is around risk vs. ASO. Both the Blues and United have roughly equal weighting of lives towards risk while Aetna’s lives in these markets are much more heavily weighted toward ASO. Given the initial focus for the Heartland Health business on risk products, the new offer will disproportionately pull lives from the Blues and United. Its co-branded positioning with the local big provider name will also likely play well with lives on the future health insurance exchanges. At the same time, the deal offers Aetna a unique alliance with Heartland Health that may translate into more attractive rates for Aetna’s ASO products (without having to necessarily push for a narrow network). And, by the way, even the potential entry of the Heartland business into ASO won’t be too painful for Aetna as it will still be deeply dependent on Aetna for services and out of area network.

The potential tally:

  • Share of economics of risk business taken from Blues
    and UNH (++)
  • Advantaged rates for Aetna’s ASO lives (++)
  • Unique co-branding for a future Exchange based
    product for individual and small group (++)
  • Solidified Aetna insurance provider to Heartland’s 6K lives (++) 
  • Cannibalized economics of lives lost to the new
    product which competes alongside Aetna’s other risk products (-) 

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