Category: Payers

Recon takes an analytical look behind select developments in healthcare

With the DaVita Medical Group acquisition, OptumHealth deepens its presence in existing markets rather than adding new ones

OptumHealth and its proposed acquisition target DaVita Medical Group (DMG) have a lot in common: Ambulatory care portfolios: physician practices, urgent care centers and ambulatory surgical centers (ASCs) – both directly owned and affiliated via owned independent practice associations (IPAs) Geographic position: multiple states and markets Advantaged model: within-market cross-referrals and care collaboration which should support market share, economics and a value-based care advantage Construction: largely assembled via acquisition resulting in similar challenges in integrating operations (e.g. multiple EHRs, management structures) In short, the DMG acquisition is a classic horizontal

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United’s ambulatory delivery system OptumCare can reach 70% of the US population

Who will be the first to take integrated health care delivery national? A few years ago, the best bet might have been an established provider with a nationally compelling brand and a growing affiliate federation such as Cleveland Clinic or Mayo. Instead, Optum – just a decade ago three separate services largely focused on serving United’s health benefits business – has entered care delivery and — by a constant stream of acquisitions big and small — built up beachheads in a majority of markets and is – via ongoing big

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UPMC’s race to the sea and the tentative steps towards Highmark-Geisinger alliance

On May 10, Highmark and Geisinger announced plans for a clinical joint venture to create community-based care in four rural north-central Pennsylvania counties. The target counties are small (200K lives total), largely peripheral to Geisinger and Highmark core markets, and are already served by the Susquehanna Health system. Why all this complexity and investment to launch a battle for 1.5% of Pennsylvania’s population? Look at the whole board The move should be understood in the context of the widening struggle between Highmark and UPMC. Consent decrees have temporarily fixed some

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A population health approach to value-based drug pricing

Working Paper   Summary Drug companies are naturally incentivized to price their drugs under assumptions of optimal clinical value, i.e. as high as possible.  Payers react to this by setting stringent conditions for patient eligibility for coverage of those therapies. As a consequence, patients who do not meet these conditions do not receive those drugs even though they could derive benefit, albeit not of a magnitude that would justify the cost.  Here we lay out a population health based scheme by which payers and drug companies can design a system

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Biopharma risk-sharing: what needs to happen

A couple of years ago, we addressed the question of whether drug companies could use new business models to capture more of the value they create. At the time, we pointed out that drug makers had struggled to get payers interested in new models, and that any potential solution would need to consider aspects of the drug (as it relates to the overall care paradigm and system), and of the payer. Fast forward to 2016, and there are a number of factors that suggest that now may be the right time for drug makers and payers

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Context is King – When to use an Agile corporate strategy?

“Agile corporate strategy” (as defined in a previous post) is already the established the weapon of choice for small, early-stage innovators trying to re-invent their marketplace, where the product is the company and uncertainty is the hallmark new emerging markets.  Startups like agile strategies – often referred to a “Lean Startup” – because they effectively counter the scale advantage of incumbent competitors without requiring massive initial investment.  But contrary to the conventional wisdom that firms must abandon agility as they get larger and more complex, in the right market context

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Mercy Health exits the insurance business and curtails ambitions for its state-wide provider alliance

Earlier this month, Mercy Health announced deals to dismantle HealthSpan (the former Kaiser business in northeast Ohio acquired in 2013), selling the insurance arm to local powerhouse Med Mutual, dissolving the medical group, and transitioning physicians to various northeast Ohio providers. 2015 was supposed to be a growth year for the business, but membership declined across lines of business, PMPM costs ballooned and Exchange risk adjustment obligations wreaked havoc with the bottom line ( HealthSpan is said to cover 160K lives total, of which half are risk with the legacy

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Centene bringing a new managed care strategy to The Big House?

Correctional health and correctional pharmacy 2.2M people are incarcerated in local jails and state and federal prisons at any one time in the U.S. for whose healthcare various government agencies are responsible. This aggregate number hides some important segment differentiation (see table). Local jails are housing a little over 700K on any average day but typically for a short period of time (on average a month or less), implying over 11M people flowing through the jail system in any one year (boldly assuming few repeated tours). Less than a month

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Ohio’s Mercy-Summa alliance grows contracting teeth

Mercy Health – the largest system in Ohio – has recently formed a Clinically Integrated Network (CIN) with Summa Health called Advanced Health Select. CINs allow separately owned provider systems to jointly contract with payers on a risk basis as well as invest in clinical systems to support consistent practice and joint accountability. The model offers some key advantages of affiliation (joint economics and investment) without the regulatory hurdles, governance challenges and business risks change of control usually entails. Mercy and Summa had two prior business relationships: First, Mercy holds

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Working paper: the coming age of algorithmic medicine

Summary In this working paper, we develop the following thesis. In the not so distant future (a decade or two), medicine will be largely governed by algorithms — highly deterministic clinical pathways characterized by a high level of reproducibility of care — that will be developed and improved by providers. These algorithms will include individual patient preference branch-points but not individual provider preference.  As a result, payers and providers will agree on coverage on the basis of a set of algorithms and a process of how they should evolve; providers

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Can convenience care be a platform for an insurance product?

Summary A Portland-based urgent care operator is launching a health plan from scratch The strategy targets the busy and healthy with the convenience of a retail network providing “store brand care”; a simple, consumer oriented service model at low cost. Carving out this segment can plausibly allow for sustained advantage in admin, medical cost and revenue management. The plan has hit a speed bump with regulators on pricing, so evidence of this model’s market appeal will come slowly. Convenience care has historically played nice with the ecosystem, but Oscar’s explosive

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A sizeable step forward but miles still to go: CMS’ Next Generation ACO model

CMS has issued a “Request for Applications” describing its Next Generation (NG) ACO. The model makes progress on three issues that have generated plenty of analytical handwringing from MedPAC and the broader ACO community. It also signals a strategy to set ACOs up to compete more directly with Medicare Advantage (MA). (1) Enhancing predictability The Medicare Shared Savings Program (MSSP) and Pioneer ACO models had different approaches to solving the same business parameters. With NG, CMS has generally picked the ones which enhance simplicity and predictability (see table). For example,

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Shifting lines in the mobile health competitive battlefield: Aetna makes a strategic retreat while United digs in?

The battle to own healthcare’s consumer relationship is being nowhere fought more intensely than in the mobile arena. Tea leaves suggest that Aetna has pulled back from trying to own this relationship in favor of a more collaborative “ecosystem” strategy, but United appears determined to lead. The thinking is speculative but I let me point out the emerging evidence and offer some guesses on what will come next. Strategy environment for consumer mobile health At the risk of oversimplification, let me offer six hypotheses regarding the strategic context for consumer

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The “weaponization” of ACO narrow networks: Strategic destabilizers which compel their own replication?

In theory, narrow networks built around a single provider or a network of aligned providers (“provider-orchestrated narrow networks” or “ACO networks”) can pose a much higher stakes threat to non-participating providers than ones assembled solely by payers (i.e., where the payer picks who is in based on cost and rates): They are more likely to achieve broad utilization reduction because participating providers can align on principles, build shared capabilities and coordinate management of specific patients consistently. As a result, discounts can play a smaller role in creating a compelling value

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Can drug companies make drugs, AND money?

In this morning’s New York Times (June 3,2014), Andrew Ross Sorkin asks,“DO drug companies make drugs, OR money”? That’s a fair question in the context of what I’ll call a “fee-for-product” reimbursement regime. Another way to look at this question is, “CAN drug companies make drugs, AND money”? Value has not been an easy sell As the U.S. healthcare services system moves from fee-for-service to a value-based system, the biotech and pharmaceutical (biopharma) industry should have an opportunity to capture more of the value it creates. But with drug costs only ~10%

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Aetna not conceding the private exchange space to the benefits consultants

Summary Aetna is stitching its inventory of ACO deals into a national ACO network and will offer them on its proprietary private exchange (PHIX) Linking ACOs and PHIXs is smart because PHIX’s defined contribution feature creates a strong consumer reward for picking a tighter network product Promising a national network of ACOs is bold: ACO deals depend on willing providers and opportunity in local care patterns; in many geographies, the delivery system isn’t ready or interested. If Aetna can create a national network, it should be attractive to major employers

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MA hospital relative prices by payer

Here’s a quick look at relative prices in MA using CHIA data for you to play with. What you could do for instance is select Commercial and Medicare on the left (use CTRL key for multiple selection) and then on the right, check off say only BCBS. That wold show you the difference between TMEs for Medicare and Commercial just for BCBS. Can also filter by hospital system (on the right). Have fun. P.S. You may need to scroll to the right or re-size on your browser (CTRL -) to

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Cigna and Samsung: assembling a “global account”-based business model for mobile

Samsung and Cigna have agreed to a multi-year development alliance for health applications for the Samsung smartphone. The partners will initially focus on content (access to the health-related tips and articles Cigna already offers its customer base). Ultimately, the partnership will “connect individuals with caregivers, doctors and hospitals to improve health and wellness globally.” So far, the announcements have been silent on any exclusivity. In our view, the content deal is a sideshow: health and wellness tips are highly commoditized and an insurer an undifferentiated supplier for this content. I

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Marrying into the right family: the bets underlying United’s revenue cycle management joint venture with Dignity Health

Market for outsourced revenue cycle management could be big The revenue cycle management (RCM) vendor industry is about $2.0B for hospitals and $11 billion for physicians today. The market is constrained because most providers do their own RCM. Vendors only have a ~10% penetration among hospitals and a 25% penetration among physicians (implying that the potential combined hospital and physician market is $60-70B). However, RCM as a function is getting more complex and outsourcing could quickly start looking more attractive: Value-based contracting models raising the stakes in documentation, reporting, benchmarking,

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Strategic “crowd-out” via narrow networks: an emerging case study in Wisconsin

Last week, I argued that, if payers want to secure competitive advantage from improved provider care, they would need tighter, more exclusive alignments with these providers to “crowd out” the free riders (the “free riders” in this case are the other payers who have members being treated by the same providers and who can therefore share in any improvements). Two deals last week suggest a case study of the concept may be developing in southeastern Wisconsin: On September 9, Anthem announced that it will be teaming up with highly ranked

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