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Acquisitions: Payers Gobble Up Provider Networks


Paul Nicolaus

Industry outsiders threatening to disrupt the status quo has become a common theme in the world of health care lately. Rumors that Amazon could enter into the pharmacy business were followed by the big news that it would join forces with financial giants JPMorgan Chase and Berkshire Hathaway to form an independent company and work to address rising costs for their employees. And speculation has surfaced that Walmart is in talks with Humana about a potential buyout. 

While the mainstream media and investors remain focused on how these types of newcomers could shake up the health care market, though, some of the nation’s largest insurers have been busy buying up massive numbers of providers and moving into the care delivery system. 

Among the notable active mergers underway are Aetna-CVS, Cigna-Express Scripts, and Humana-Kindred Healthcare. If these deals come to fruition, the resulting entities will be competing with UnitedHealth Group’s Optum, which has expanded into surgical, urgent, and primary care over the course of the last 2 years. Most recently, the company agreed to pay nearly $5 billion for DaVita Medical Group, a pending purchase expected to make OptumCare one of the largest physician groups in the country.

Innovation has taken a new turn, said Thom Walsh, PhD, founder and chief strategy officer of consulting firm Cardinal Point Healthcare Solutions. It used to be about the widgets or pills used to treat patients, he said, but lately there’s been an emphasis on how organizations are set up to deliver care. 

But will these deals improve outcomes? Lower costs? Enhance patient satisfaction? Much of this remains to be seen, so First Report Managed Care gathered the thoughts of several experts to consider the potential impact of this trend.  

Financial Opportunities 

What is interesting about this array of recent deals is that they represent different pieces of the care continuum, said Allen Miller, MPH, CEO of consulting firm COPE Health Solutions. The CVS-Aetna deal involves minute-clinics and pharmacy access, for instance, while the Humana-Kindred partnership incorporates elements like home health and hospice. 

Regardless of the specifics of an individual deal, though, they collectively represent a larger trend that presents a number of economic opportunities. These large health plans would have a better chance to dip into the Medical Loss Ratio (MLR) and deal with the notion that they are only allowed to retain a certain percentage of it, according to Mr Miller. 

“If [payers] own the provider groups, they have a better chance to capture more of the premium dollar,” he said. 

He explained that it is also useful for the health plans to gather access to EHR data. 

“What we’re finding nationally is that more and more of the health plans are trying to get access directly to the EHRs,” Mr Miller said. “If they are employing the doctors, own the medical group, and therefore own the EHR, it should be easier for them to create the appropriate interfaces and reporting so they can capture that clinical data.” 

This can be used to work on aspects like quality scores or to understand whether they are appropriately capturing the risk scores for their populations. 

It is much easier to draw a correlation to financial impacts than health outcomes, he added, but there is an evidence base demonstrating that improving access to preventive care, for example, is likely to improve outcomes. And large health plans are well positioned to do that, he said, because they “have access to all the financial incentive levers, and they also have the capital to do things like capture the data and impact the data.”

Insurers believe that efficiency and productivity will increase faster and better if they form their own network for care delivery, Lyndean Brick, JD, president and CEO of The Advis Group, a health care consultancy, explained in an email interview. To be effective, though, these players will need to dictate which physicians and pharmacies members use and determine where they will need to go for diagnostics and acute care. 

The cost of care should drop as a result, she predicted, but these deals will ultimately limit consumer choices and any savings realized will likely benefit shareholders—not consumers. If savings can be passed along in the form of lower premiums, however, members might be more willing to accept fewer options.

Delivery Disruption

Perhaps the largest impact of these deals will be the disruption to health care delivery as we know it—a dynamic that opens the doors to possibilities and potential pitfalls. In a well-run example, it may be possible for members to have a more seamless experience, Mr Miller pointed out. If physician networks are integrated effectively with the health plan and financial incentives are well-aligned, it could help ensure that members receive care at the right place at the right time. 

In other words, he added, health plans that purchase and aggregate physician groups can make e-visits available on phones or partner with employers to put clinics on site. They can ensure there is an urgent care network aligned with primary care physicians and provide access to specialists who offer effective and fiscally responsible care. They can also help senior populations integrate with home care or remote visits. All this can make it easier for members to use the health care system.

“Health care going ‘retail’ can have a big impact,” added Rick Morino, director of strategic solutions at LexisNexis Risk Solutions Health Care. The ability to go to a local drugstore for a physical or a sinus infection, for example, could be well-received by members, and these clinics can potentially expand into urgent care to provide convenience for low-severity incidents such as a broken thumb. Furthermore, partnering with telemedicine could allow these newly formed companies to offer a touch point for population health efforts in areas where retail space does not exist, he told First Report Managed Care.

Although these changes can add to convenience, he explained that it remains to be seen whether or not they will impact costs considering that prescription drugs and hospital services—two significant drivers of expenses—are only lightly touched by the mergers making headlines. Ultimately, patient satisfaction will come down to execution, Mr Morino added. If wait times are long, the scheduling of appointments is not intuitive, or the coordination of medical records is poor, patients could wind up rebelling.

Are Patients Put at Risk?

Patient satisfaction is one thing, but some are turning their attention to patient safety. According to a paper published in April, in the JAMA, health system expansions could wind up putting patients in harm’s way. Although mergers and acquisitions often carry the expectation of improving safety and quality of care, Harvard University researchers point out that there has been little attention devoted to the risks that system expansion can have on patients.

Through a partnership between medical liability insurer CRICO/Risk Management Foundation and health systems research center Ariadne Labs, coauthors Susan Haas, MD, MSc; Atul Gawande, MD, MPH; and Mark E Reynolds analyzed the patient safety risks for Harvard-affiliated institutions by interviewing clinicians and speaking with health system leaders. 

What they found is that system expansions can create significant safety risks, especially when clinicians experience changes in their patient populations, infrastructure, or practice settings. 

“Teams with little expertise in patient safety are typically responsible for implementing health care mergers, acquisitions, and affiliations,” they point out. “Their primary impetus is often financial rather than clinical, and when the impetus is clinical, the concerns usually involve patient access and services rather than the way care is practiced in the affected institutions.” 

As a result, the authors suggested that institutions “plan for, monitor, and manage the resulting risks as part of a comprehensive strategy,” which includes “sharing data on quality and safety, and sharing oversight of care for the joint patient population.” 

Time Will Tell

The purpose of these deals is to come up with a novel care arrangement, Ms Brick pointed out, but the real problem at hand is more complex than that. ‘

“Each delivery system must be completely aligned to be effective,” she noted, and these players don’t yet have all the pieces assembled for ultimate success. When they do, though, she believes a new dialogue about American health care will begin.

In the meantime, because these prominent deals tend to involve publically held companies, Mr Morino believes that shareholders will decide the definition of success and how long these newly merged companies have to achieve it. UnitedHealth Group has a good track record of finding financial success while integrating physician groups into their overall business, he pointed out, but it remains to be seen if others can integrate effectively while delivering profits. 

Well-capitalized health plans have the potential to acquire quite a bit, Mr Miller said, and that is what many of them are thinking through today. But there’s only so much these plans can digest in terms of acquiring and integrating into systems. 

So the question becomes, what is going to constitute the right network of owned versus contracted? That is a question that speaks to network adequacy across the continuum, he said, as well as geographic coverage.

Dr Walsh concluded that rising health care costs are a ubiquitous problem in need of an inventive solution.

“There’s not a country in the world that has health care figured out to the point where they’re comfortable, where they’re not worried about rising costs, overuse, and underuse,” he said, “so we’re trying new and different things.” Will these newly formed entities and fresh ways of delivering care work as hoped and planned? “Time will tell.” 

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