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Navigating the Complexities of Payer Mergers - cbinet.com · stock deal valued at $6.3 ... Anthem,...
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Navigating the Complexities of Payer Mergers
Everett Crosland, Senior Director, Reimbursement Strategy
February 5, 2016
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“Centene[..] said it agreed to
buy Health Net in a cash-and-
stock deal valued at $6.3
billion…Centene expects the
deal to make it one of the
largest Medicaid managed
care organizations in the
country with about 6 million
members.”
-Chelsey Dulaney, Wall
Street Journal
“Both of these proposed deals [Aetna/Humana, Anthem, Cigna] raise serious
competitive concerns and in addition to conducting a market-by-market analysis, I
believe that the Department of Justice also must scrutinize these mergers together -
all together - as part of a single, national healthcare market. And the goal has to be to
sustain - and enhance, if possible - competition and protecting consumers.”
-Senator Richard Blumenthal (D-CT), Senate Judiciary
Committee hearing on the Changing Health Insurance
Market Landscape
“The concerns about consolidation may be overblown.
When two of the largest companies offering prescription
drug benefits, Express Scripts and Medco Health
Solutions, merged in 2012, many experts were worried
that the market would be significantly less competitive,
many of the fears that were advertised did not come to
pass.”
-Reed Abelson, New York Times
The Pundits’ Take on Mega-Mergers
“More than a dozen state attorneys
general have joined the U.S. Justice
Department's investigation of the
proposed acquisitions of Humana by
Aetna and of Anthem's bid for Cigna
Corp”
-Grace Schneider, USA Today
“Payer consolidation will hurt quality of care.
Unless it Doesn’t. Narrower networks of
providers and increased premiums could erode
quality. Or patient outcomes could improve if
insurers are as interested in quality of car as they
are in market share. It’s complicated.”
-Janet Boivin, RN, HealthLeaders Media
“Anthem just paid $54B
to buy Cigna. No one
knows what will happen
next…America’s health
care system is in
uncharted waters.”
-Dan Diamond,
Forbes
Why All the Buzz?
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“Following a merger, economies of scale will allow
fixed costs to be spread across a larger customer
base and that unit costs per customer for medical
care and pharmaceuticals will be lower for the
merged entity, compared to what they would have
been for the original two entities.”
--Daniel Durham, EVP, America’s
Health Insurance Plans, testimony before the
House Judiciary Committee, September 10, 2015
Sources: Large Carriers and Market Concentration in
Each State, ASPE, HHS, June 7, 2013; Gaynor M.
Town R., Competition in Health Care Markets,
Handbook of Health Economics, Vol. 2, 2012; Hervey
D. et al., How Might Proposed Payer Mergers Impact
State Insurance Markets, Health Affairs, Dec. 2015;
HHI Analysis, Leavitt Partners, 2015.
Min. HHI Score for Highly Concentrated
Markets
0
1,000
2,000
3,000
4,000
5,000
2008 2009 2010 2011 2012 2013
Commercial Health Insurance Markets are Historically Concentrated
National
Increases in HHI
6%-12%
2.5%-3.7%
1.1%-1.8%
.6%-.9%
.3%-.5%
.1%-.2%
0%Includes: Aetna+Humana, Anthem+Cigna, Centene+Health Mergers
Post-Merger Commercial Concentration is Marginal
Nationally, Regionally Disbursed
Tectonic Drivers of Consolidation: Health Reform
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2014-2015 Net Change in Issuers*
2+ 1 0 -1 -2
* State-based HIMs
Excluded
ACA FFMs—Accelerating Issuer Competition
“Today, one of the Company’s competitors announced significant reductions in the performance of their Health Insurance
Marketplace business. […] [Centene’s] Health Insurance Marketplace (HIM) business, primarily focused on individuals below
250% of the federal poverty level, continues to perform in line with expectations.”
-SEC Form 8-K Filing, Centene, referencing UnitedHealth’s comments regarding unprofitability of United’s HIM
book of business, November, 2015
Special Enrollment Skews Markets and
Increases Issuer Risk and Expenses
~6.7M people are eligible for ACA-based
special enrollment on an annual basis.
950K people used special enrollment to get
federally-facilitated coverage in 2015
20%-55% more services are used by special
enrollment beneficiaries than are used by their open
enrollment counterparts
4 Months is the average tenure for a special
enrollee vs. 8-9 months for a the general population
Sources: 2015 Special Enrollment Period Report – February 23 – June 30, 2015, CMS; Sheingold S. et. al., Competition
and Choice in the Health Insurance Marketplaces, 2014-2015: Impact on Premiums , ASPE, HHS, July 30, 2015.
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Tectonic Drivers of Consolidation: Health Reform
27%
22%
42%
9%
Medicaid/Subsidy Expansion—Prioritizing Efficient Management of Newly Subsidized Populations
Medicaid Eligible
Tax Credit Eligible
Ineligible forAssistance
Coverage Gap
Eligibility status of Nat’l
Uninsured Pop. in 2015:
2014
2015
Not ReceivingFinancialAssistance
ReceivingFinancialAssistance
Marketplace Enrollees Represent a Newly
Subsidized Population
“Typically, younger, healthier adults […] need a tax credit to entice them to enroll. When these individuals sign up
for coverage, they improve the risk pool and bring premiums down.”
-Eibner C., Saltzman E., How Do ACA Tax Subsidies Affect Premiums and Enrollment? RAND Corporation
Research Brief, 2015
Sources: Total Marketplace Enrollment and Financial Assistance, Kaiser Family Foundation, 2015.
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Tectonic Drivers of Consolidation: Market Evolution
Top 7 States by Provider-Sponsored Plan (PSP)
Market Share, 2014
OR
27%
UT
36%
AZ
20%
NM
28%
WI
32%WA
19%
MI
19%
10% Average PSP
market share in line of
business
54% of recent
Medicare Advantage plan
entrants are PSPs
28% of hospitals
intend to launch PSPs by
2018
~140K Average
PSP enrollment for top
financially performing
entities
2.4%2.5%
2.6%2.5%
-1.1%
-.8%
Underwriting Margins of Top Performing PSPs vs.
Traditional Issuer Performance
2012
2013
2014
Top PSP
Performance
Traditional Issuer
Performance
“Based on our findings, it appears that some of the most
challenging populations to serve, the elderly and low
income populations, can be successfully managed more
efficiently in a PSP.”
-Provider-sponsored health plans Positioned to
win the health insurance market shift, Deloitte
Market Report, November, 2015
Source: Provider-Sponsored Health Plans, Positioned to Win the Health Insurance Market Shift, Deloitte, 2015;
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Tectonic Drivers of Consolidation: Market Evolution
Growth of Large Employer Direct Contracting
Arrangements
11% 28%
In varying
degrees, currently
directly contracting
with providers and
health systems
Directly
contracting
in 3-5 yrs
53%
Do not intend to
directly contract
Monitoring
8%8%
“[Direct contracting makes a lot of sense to move your insured employee
population to the provider and give the financial incentives to manage them
effectively, which will lower your total costs,[…] there will be a significant
increase among [employers that are large enough.”
-David Muhlstein, Sr. Director, R&D, Leavitt Partners, Leavitt Partners
Report, “Moving Closer: Employers Directly Contracting with
Providers”
Intel + 1 ACO
ACO Expansion Contributes to Growth in
Direction Contracting
Boeing + 2 ACOs
Medica + 4 ACOs
Source: 2014 Health Care Survey, Aon Hewitt;
Analyzing Consolidation by Lives & Contribution
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Payer
Covered
Commercial/
Medicaid MCO
Lives
(In Millions)
Medicare Advantage
Lives
Anthem + Cigna 52.5 Anthem ~ 516K
Cigna ~ 499K
Aetna + Humana 29.0 Aetna ~ 1.3M
Humana ~ 4.0M
UnitedHealthcare 30.5 ~ 4.0M
Kaiser Permanente 8.7 ~ 1.3 M
BCBS Affiliate Plans
(-Anthem BCBS
Plans)
66.7 ~ 812K
37%
39%
11%
11%
2%
Example: COPD Payer Mix
CommercialInsurance
Medicare
Medicaid
Uninsured
Tricare/VA
Further analysis should
discern contribution by
payer; Establish low, base,
high case scenarios for
merged entities
Key considerations:
1) 101: Lives = potential/actuals; contribution=actuals
2) Second tier payers, as measured by membership,
will grow in depth and breadth as merger-related
divestitures are placed with smaller entities and as
smaller entities seek to counterbalance dominant
players
Sources: AHA, Aetna, Humana, Anthem, Cigna merger statements
and earnings reports; COPD Payer Mix, Avalere, 2015.
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Analyzing Consolidation by Book of Business
Post-Merger Commercial Concentration
6%-12%
2.5%-3.7%
1.1%-1.8%
.6%-.9%
.3%-.5%
.1%-.2%
0%
Increases in
HHI
Analyses Include: Aetna+Humana,
Anthem+Cigna, Centene+Health Mergers
34%-38%
11%-19%
5.8%-8.6%
2.4%%-4.8%
1.1%-1.8%
.05%-.09%
0%
Increases in
HHI
Post-Merger Medicare Advantage Concentration
State Change in HHI
Kentucky +18%
Texas +6%
Florida +4%
Illinois +3%
Virginia +1%
Post-Merger Managed Medicaid Concentration*
*For the majority of states, payer concentration in Managed Medicaid will
remain largely unchanged; however, several states will see marginal shifts
Source: Hervey D. et al., How Might Proposed Payer Mergers Impact State
Insurance Markets, Health Affairs, Dec. 2015; HHI Analysis, Leavitt Partners, 2015.
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Conducting a Comprehensive & Integrated Impact
Assessment
Integrated Account Impact
Assessment
PBM/ Trade
Clinical Management--Medical /
HEOR
Employer Relations
HIT/HIE Engagement
Value-based
System/
Institutional Teams
Payer Access-Sales
HCP Sales
Contracting “There's significant value and opportunity for
the combined company [Anthem/Cigna] and
our customers from a better pharmacy
contract. […] That said, we think the timing
couldn't be better for us related to our
Express Scripts agreement coming to close
in 2019, and some key decisions to be made
related to that and Catamaran.”
-Joseph Swedish, Anthem CEO,
Commenting on the likelihood that the
merger with Cigna will prompt
changes in their pharmacy
management and PBM relationships
Considerations for the Road Ahead
• Mergers beget mergers
– Provider-payer tit-for-tat is likely to continue in to the future and to impact patient and market access
• Assess the impact of consolidation for your patients
– Higher premiums are likely to contribute to an increase in high deductible health plan (HDHP) enrollment
– In certain patient populations, HDHPs exhibit significantly higher reversal rates
• Organizing market access teams for the future
– What is the makeup of an effective account team for payers that are increasingly integrated into care
delivery?
– When do certain customers become too big to deny?
– Don’t under estimate the power and reach of regional concentration
• Assess the second tier, as measured by membership, for opportunities based on their position in
the evolving market
– Small and mid-size customers are likely to merge to counterbalance the outsized three
– Unique populations will continue to demand distinctly positioned payers (e.g. PSPs)
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