Blog and Whitepapers
Recon takes an analytical look behind select developments in healthcare
Medicaid going mainstream: thoughts on the IBC / BCBSM / AmeriHealth deal
Historically Blues have shied away from Medicaid. Two thirds of plans do not serve any Medicaid and those that do often have disproportionately small shares. No real surprise: Medicaid specialist plans can fluidly move in and out of markets depending on the rates and redeploy their capabilities wherever are the best returns. Blues on the other hand, are prime “hold-up” targets because they are largely stuck in their assigned states. They can only respond to an offer of low rates with a threat of dismantling their Medicaid operations entirely (and
ESRX-MHS Part 2: mail facility speculations (…or: Indulging my Inner SWAGer)
Summary ESRX was running at close to maximum capacity at its mail facilities while MHS has room to spare. ESRX is facing a scenario of significantly increased demand as greater mail penetration is achieved in the Wellpoint book and lacked the capacity to meet this demand. Similarly, ESRX would not be able to meet increased demand from reform coverage expansion. By combining, ESRX avoided having to build a new facility and the combined entity appears to have enough capacity to close at least one older mail facility. Given that a
ESRX-MHS Part 1: Last stand of the PBM pure play: observations on the Medco-Express combination
UNH’s decision to take the commercial PBM business in-house did not force MHS into ESRX’s arms: I would argue that it removed the major roadblock to what the companies wanted to do anyway. MHS and ESRX had been talking about a merger off and on for few years (per WSJ reporting) and the logic (laid out below) is compelling but FTC concerns must have kept getting in the way. UNH’s decision doubled the size of its PBM subsidiary in terms of lives (somewhat less in terms of scripts because the
Consumerism bulk-up: Quick thoughts on Aetna’s acquisition of PayFlex
Payflex is an administrator of account-based benefits including HSAs, HRAs, FSAs and COBRA benefits. The company has $58M in revenues, 1M individual consumer accounts and 3,300 employer customers. On Monday, Aetna accounced plans to acquire the company for $202M. The acquisition pricing looks rich relative to the other benchmark out there: Wageworks is a competitor about 2x the size of Payflex and which recently filed an IPO to sell 23% of the company for $75M (in the works at least since April and described in detail in the registration statement
Highmark and West Penn: it’s about mitigating consolidation, not transforming the system
Highmark will invest up to $475M in the West Penn Allegheny Health System, a move characterized as a prelude to purchase. This is no bold move to drive closer integration of information flows and care decisions or align incentives in a transformative vertically integrated model. My take: this is about desperately propping up the last competing provider standing in a highly concentrated hospital market. Highmark’s hand was forced by West Penn’s financial bleed out. But, in response, UPMC has thrown down the gauntlet in a move that will reshape the
Did Wellpoint overpay for Caremore? No….not yet anyway
Summary Wellpoint probably paid full value for Caremore (if that company’s performance is as powerful as limited data suggests) but did not overpay. In addition, Caremore offers several powerful upsides if Wellpoint can continue to grow the model. However, Wellpoint will need to tread carefully to avoid damaging its purchase, given an uncertain record with vertical models (NextRx) and the inherent challenges in integrating fast-growing, PE-fueled innovators into large, mature businesses. Some indicator of Wellpoint’s strategy for Caremore will be given by its approach to Arizona — a key market
Blue Shield of California’s unilateral profit cap: competitive gambit or PR move?
Summary: Blue Shield of California (BSC) has committed to keeping profits at 2% of revenues or less (and returning any excess). The commitment is economically meaningful: $180M of 2010 revenues will be returned; just a few years ago, BSC made 4.9% net income and, under its promise, would have had to return 2.9% of revenues. However, given BSC’s very large reserves, it has plenty of capital to fund investments or, if necessary, absorb losses. While the PR aspects of the move are interesting, it seems unlikely that this is an
Employer opt-out as a result of reform: survey vs. model
Yesterday, McKinsey released a report suggesting that 30% of employers will definitely or probably stop sponsoring health insurance after the Federal reform “big bang” in 2014. Although disputed by the White House per press reports and the methodology details are limited in the published article, there are four good reasons to think the McKinsey survey could be correct: Contradictory studies (Urban Institute in January 2011 and RAND in April 2011) use simulation methodologies while McKinsey did a survey. With a change as transformative as Federal health care reform, simulation parameters
Rapid shift to “bare bones” coverage among Massachusetts small employers: preview of Federal reform impact?
Summary Massachusetts small group went from an average actuarial value (share of expected medical costs covered by the benefit) of 85% in Q1-07 to 73% in Q4-09. In the same timeframe, actuarial benefit levels in another state for which we could find data (Wisconsin) held steady. Given that this trend was well underway in 2007/08, only a portion of the change can be attributed to the economy. The rest may well be a result of 2006 Massachusetts healthcare reform. If true, back-of-the-envelope analysis suggests 50-70% of the decline in actuarial
Rise of self-insurance in smaller groups: opportunity and threat
Summary Self-insurance is growing among smaller groups (including those sized 50-250) From a competitive point of view, it will be hard for insurers holding attractive groups in risk products to respond given the enormous profit cannibalization of converting from risk to an ASO offering But they will need to find some solution: risk products today are expensive for many groups given continuing low levels of utilization; “peanut-butter” share nationals at the forefront of these products (Cigna and now Aetna) won’t have cannibalization worries to stop them from pushing the model
Major health plan Q1 earnings: Profit surprise in commercial risk; multiple reasons why business prospects look good
Public health insurers startled the market with earnings ~25% above consensus expectations. A key driver was lower-than-expected utilization (particularly in the under 65 commercial lives) which kept medical costs down. Management teams offered two theories in the analyst calls: bad weather and the beginning-of-the-year reset of consumer directed (CD) deductibles; neither is compelling: A lot of discretionary care has already been squeezed out of the system by the bad economy; it is hard to imagine that bad weather would drive out a lot more. Also the utilization decline was concentrated
ACO profitability: Reasons for optimism
Summary A new article in the NEJM suggests ACO economics will be unattractive because of the costly upfront investment and low probability of shared savings payments. However, the results of the Medicare Physician Group Demonstration project show good earnings potential for providers (average >$5K per physician). Further: best-practice sharing, emerging narrow networks and scalability of ACO capabilities are likely to significantly enhance ACO economics for providers. It is likely that the most adept providers will be the ones forming ACOs; given delivery system capacity constraints, however, providers opting out of
Primary care capacity and the looming Medicaid surge: Medicaid-focused providers must be part of the answer
Summary A new study from Center for Studying Health System Change suggests that new Medicaid eligibles under reform will have trouble getting access because most primary care are not accepting new Medicaid patients. Our view: The study does not take into account the role of focus in Medicaid which makes a big difference: Providers earning more than 25% of revenues from Medicaid are much more willing to take on all or most new patients. In fact, among the providers most likely to care for Medicaid eligibles, the willingness to accept
Revolution in Roanoke? Perspectives on the Aetna-Carilion deal
Summary The line between health plan and provider continues to evolve: the Aetna-Carilion deal exemplifies providers backward integrating into insurance (and contrasts with other providers exiting commercial insurance business e.g. art part of last year’s Coventry deals) The Aetna-Carilion alliance appears to have compelling, multi-layered business logic and there will surely be more of these sorts of couplings in markets where there is a strong provider brand and a health plan with low share but deep capabilities and ambition. Using the provider brand to sell insurance creates challenges for health
How can a health plan weather the MLR hit to profitability? Some clues from Coventry
Summary Health plan profits will be down dramatically in 2011 due to MLR rules Providing care management services to providers building out ACOs and medical homes can open new revenue streams outside the MLR constraints System profitability (health plan + provider) can be enhanced if the health plan allows providers to keep more of the savings from ACOs while requiring larger fees for its care management services * * * Could this be part of the plan behind Coventry’s touted close provider relationships and plans to acquire more health plan
Conventional wisdom that provider capacity drives cost questioned in new study
Remember the idea that coordination will improve care? Well, if physicians do not get timely reports from other providers, their patients seem to have lower costs!!! This from a new study out from the Center for Studying Health System Change. More importantly, this paper throws cold water on the idea that providers generate a lot of unnecessary cost to fill up excess capacity in the delivery system. As you know, conventional wisdom driven by the Dartmouth Atlas and other studies has it that that care utilization and cost can vary sharply across regions without
Surprising implication of drivers of Medicare FFS variation – MedPAC
New MedPAC report on Medicare fee for service utilization finds large geographic variation not explained by underlying risk or better outcomes. Another indicator of our HC system gone haywire. A couple of overarching datapoints highlight the variation. Only 25% of Medicare enrollees live in regions where Medicare spending is within 5% of the national average (looking only at utilization the # is 30%) Spending in top decile region was 55% greater than spending in the bottom decile region (looking only at utilization, the # is 30%) But that is not the
Health care reform not so easy to derail
Prediction 1: Despite all the beating of drums we do not think there will be any major legislative changes between now and 2012. controlling the house but not the senate and the White House does not give Republicans sufficient clout to fundamentally change the bill it is politically advantageous for the Republicans to keep the Democrats on the defensive on health care through the 2012 election cycle Prediction 2: Administrative proceedings with implementation of the big milestones will continue though there will be considerable friction and much name calling some
If you’re on Medicare – don’t fall sick
A friend of mine pointed out some shocking data from a report released today from the Office of Inspector General. More than a quarter of Medicare hospitalizations result in adverse events, half of them “serious” (meaning prolonged hospital stay, permanent harm, need for life sustaining intervention, death). Strikingly, almost half these situations arise are preventable. In other words they are the result of medical errors, sub-standard care, lack of patient monitoring and assessment and hospital acquired infections! According to the study, these cost the taxpayer over $4 billion in 2008