Expanding Services Portfolios and M&A Defining Payer Landscape in Government Healthcare

The third generation of TRICARE contract RFPs celebrated turning four years old and the contracting process is still ongoing. While the initial contract awards were announced in 2009, heated negotiations are underway for the last remaining TRICARE contract. The last two weeks saw the five year $20B TRICARE West Region contract awarded to UnitedHealth Group – which was promptly counter protested from the incumbent, TriWest. Contract awards and protests are common, and to better understand the driving forces behind the highly combative and contentious atmosphere around TRICARE contracts, it is important to look at the broader market.

The Military Health System (MHS), which includes the TRICARE contracts, and the Veterans Health Administration (VHA) – represent the two largest opportunities for commercial health payers to expand their presence outside of Medicare and Medicaid. Unlike CMS, the MHS and VHA are relatively protected from government budget turmoil and political scapegoating. A decade of global military campaigns and higher combat survival rates have increased demands on DoD and VA care programs and driven combined spending to over $100 billion and counting, while persistent reimbursement challenges and healthcare reform uncertainties have spurred some payers to look elsewhere for diversification.

In order to better align with and pursue future opportunities in the government healthcare space, and recognizing the volatility of the TRICARE contracting process, commercial payers have revisited their government healthcare strategies and developed road maps for expansion going forward . With the most recent award to UnitedHealth Group, the three TRICARE contracts are all expected to be operated by large public commercial health plans, each with markedly different strategies for pursuing government healthcare expansion.

• Health Net operates a small portfolio of VA community-based outpatient clinics and has been a TRICARE North Region contractor since 2004.  It is also the contractor for the Military & Family Life Consultant Program, providing behavioral health and counseling services to youth and adults.  It wasn’t until this year that the Company identified the VA as a key opportunity and separate area of strategic focus going forward as it tries to diversify and expand beyond its TRICARE contract and grow its VA footprint.
• Humana has served as the TRICARE South Region contractor since 1996. Its MHS presence beyond that extends mostly to patient scheduling for some military treatment facilities. Within the VA, Humana has been a frontrunner in leveraging its expansive network of commercial providers to treat veterans through VA pilot programs Project HERO and Project ARCH.
  • Project ARCH (Access Received Closer to Home) is a VA care initiative designed to facilitate healthcare access for eligible Veterans by connecting them with care services closer to home.
  • Through Project HERO (Healthcare Effectiveness through Resource Optimization), Humana provides the VA with pre-screened networks of health care providers who meet VA standards for quality care when specific medical expertise or technology is not available inside the VA health care system. Critical for Humana in expanding its government presence will be continuing to find innovative ways to deploy its commercial expertise, and that of recent acquisitions Concentra and SeniorBridge, into government patient populations.
• While UnitedHealth Group may be the new kid on the block (its military and veterans services division was formed in 2007 to pursue the TRICARE opportunity), it has not spared expenses in clawing out a footprint. The recent TRICARE announcement was a massive strategic uplift for United, which had invested considerable time and resources since 2007 aimed at wresting a TRICARE contract from an incumbent.
  • UnitedHealth Group’s acquisition of Logistics Health Incorporated, a national provider of medical services to the federal government, instantly positioned the company as a government health leader.
  • At the time of LHI’s acquisition in June of last year, LHI’s operations were largely concentrated around the Reserve Health Readiness Program, providing medical evaluation and readiness exams to the military.
  • The contract win in March of last year to provide clinical disability exams to 31 VHA sites had a first year contract value of $120 million and a five year ceiling of $635 million.
  • With a substantial presence across the DoD and VA, a final decision on the TRICARE win would establish UnitedHealth Group as the undisputed government healthcare heavyweight.

The numerous program opportunities expected to enter the government health RFP pipeline in the next 6-12 months provide an impetus for commercial payers to aggressively expand their capabilities in the sector. Given the critical importance of past performance and quality of care in RFP processes, acquiring companies with government contract experience and a track record of superior results will be essential in expanding a government contract footprint in the healthcare sector.

TripleTree is closely watching a range of upcoming contracts to underscore any possible trend including:

• TRICARE for Life: $29B program providing supplemental coverage for two million TRICARE/Medicare dual eligible military/veterans projected to grow to $48B by 2021.
• TRICARE Overseas: TRICARE services for overseas personnel
• Military OneSource, a telephonic employee assistance program
• Reserve Health Readiness Program (RHRP), providing medical and dental readiness services to all Reserve forces

The competition for government contracts will increase in pace with government healthcare spending as more large-scale public players enters the market (i.e. Lockheed Martin’s acquisition of QTC) and the scarcity of independent quality assets with scale becomes more acute. The earlier and more meaningfully a payer is able to carve out a platform in the government healthcare services area, the more defensible such a position becomes down the road. We fully expect that in addition to the proactive interest defense contractors are displaying in expanding their healthcare presence, commercial players will continue to become more active and aggressive buyers as well.  Let us know what you think-

Marc Baudry

Marc Baudry is an analyst at TripleTree covering the healthcare industry specializing in government health, population health management, informatics, and facility-based services. Follow Marc on Twitter or email him at mbaudry@triple-tree.com.

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What About Patient Accountability?

The debate between payers and providers over the responsibility and accountability of healthcare costs certainly didn’t begin with the drafting and eventual passage of the ACA, nor will it end. Like the Hatfields and McCoys, a war of words (and figures) has been waged between these primary stakeholders in the healthcare industry for decades. There is a fundamental distrust and disagreement regarding who is responsible for the unsustainable growth in healthcare costs – and who should ultimately be responsible and held accountable for the standard “healthcare system” objectives of increasing efficiency, decreasing costs, and improving outcomes.

To bend the cost curve, many of the recent conversations and reform efforts have been focused on population health management, care coordination, compliance, and engagement. New technologies and regulations are emerging daily with a promise to increase the efficiency and effectiveness of healthcare. New business and care delivery models (and old ones with new names) are being developed and deployed, such as ACOs and Medical Homes. And, most of these new ideas and solutions are being described as “consumer-driven,” “patient-centric,” and “integrated,” yet most are failing to produce the results that politicians, employers, and consumers are aggressively demanding.

Meanwhile, the heavily scrutinized leaders of health insurance companies and hospital systems continue to blame each other for the meteoric rise in health care costs – and they should be – but not as healthcare executives but rather as healthcare consumers… and consumers of cigarettes, alcohol, hamburgers, and home entertainment.

To clarify this point, I recall my experience at the 2010 World Health Care Congress in Washington DC (April 12-14). It was the first major industry conference shortly after the ACA passed (March 23). A morning panel of shell-shocked CEOs from leading payers and providers engaged in a “healthy” yet intense discussion about conflicts of interest, cost-shifting, risk-sharing, accountability, insurance exchanges, consumerism, fee-for-service vs. value-based, supply/demand imbalances, the aging population, end-of-life, fraud and abuse, technology integration and interoperability, industry consolidation, regulations, EHRs and meaningful use, and the economy, among other timely topics.

As soon as the session ended, the industry leaders charged with creating solutions for our national healthcare crisis flooded out of the auditorium into the hallways of the convention center. I observed in dismay as many shuffled outside for a smoke break in finger-numbing temperatures while the masses consumed sugar-loaded pastries, donuts, coffee drinks, juices and soft drinks from well-catered tables. Did I mention that we had all been sitting in chairs all morning?

If we really want to get serious about “bending the cost curve,” then we need to address our society’s apathy regarding unhealthy behaviors and environments. There is overwhelming evidence that prevalent yet preventative consumer behavior, such as smoking, alcohol abuse, poor nutrition, and lack of physical activity, are imposing enormous costs on our society. Chronic conditions that are caused or worsened by unhealthy lifestyles, such as heart disease, diabetes, asthma, obesity, and cancer, account for more than seventy-five percent of U.S. healthcare expenditures. To truly solve our healthcare crisis, patients and consumers of healthcare must assume more accountability.

Surely, that is one thing payers and providers should agree upon!

Together, these key stakeholders need to redesign our healthcare system with new solutions that will drive patient accountability and reward healthy behavior. Just as banks utilize credit ratings and the automobile insurance relies upon driving records to help manage their risks, the healthcare payers and providers need a standard means to help manage their risks. It’s quite simple in these other scenarios I referenced. If we are financially irresponsible, then it costs us more to borrow money. If we drive irresponsibly, then it costs us more to purchase car insurance.

There is overwhelming evidence that individuals with unhealthy habits pay only a fraction of the costs associated with their behaviors. Most of the expenses caused by their decisions and lifestyle are passed on to the rest of society in the form of higher insurance premiums, taxpayer-funded government expenditures for healthcare, and disability benefits.

Many payers, particularly self-insured employers, are already leading the charge to shift the risk and responsibility associated with healthcare directly to individuals. A recent survey by Hewitt Associates found that nearly half (47%) of employers either already use financial incentives or plan to use financial incentives during the next three to five years to penalize and/or reward the health-related behavior of their employees.

Section 2705 of the Patient Protection and Affordable Care Act (ACA) is a provision that holds significant potential. In 2014, employers may apply up to 30% of the total amount of employees’ health insurance premiums (50% at the discretion of the Secretary of Health and Human Services) to provide performance-based wellness incentives. This represents an attempt by the government to rein in healthcare costs associated with unhealthy behaviors. The clear objective of this ACA provision and the political rhetoric behind it is to improve health-related behavior and reduce the prevalence of chronic disease caused by unhealthy lifestyles.

These incentive programs have drawn criticism from those concerned that holding individuals responsible for their health, particularly through the use of penalties, violates individual liberties and discriminates against the unhealthy. And, as someone whose mother suffered from Multiple Sclerosis, a dreadful chronic disease without a known cause or cure, I can surely understand their argument but there must be a logical set of conditions under which a new incentive-based system can be developed and deployed in a responsible, ethical manner to contain healthcare costs and encourage healthy behavior. This issue was central in the historic Supreme Court hearings on the constitutionality of ACA’s mandate that just wrapped-up.

Read our blog next week for a proposed measurement system that will help drive patient accountability and promote healthy behavior.

John Montague

John Montague is a Vice President at TripleTree focused on innovative companies and solutions that are shaping the future of healthcare. E-mail John at jmontague@triple-tree.com

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Would a Simplified Doctors Bill Reduce Patient Confusion?

With increasing frequency, the trend toward healthcare provider “transparency” is in the news.

One vocal and prominent proponent of the concept is Dr. C. Martin Harris of the Cleveland Clinic, whose goal is improved transparency and patient access across our health care system.  Conceptually it sounds great, but would a better patient understanding of the financial aspects of their care (i.e. bills) influence their behaviors when selecting a care provider?

Dr. Harris is pushing for the development and utilization of patient-centric financial management tools that will expose the true costs associated with patient care.  Such tools could allow patients (consumers) to analyze their “actual” medical costs as well as their insurance coverage to help them better understand, in real-time what is owed for a given treatment.

Dr. Harris is shining a light on the patient confusion surrounding what to pay, who to pay and when to pay it. His view calls for a simplified system of transparent billing (the financial side of healthcare transactions) which “would clearly optimize the value of care to patients.”

Approaches such as specialized cards that initiate any healthcare-related transaction and then connect to online portals might be a starting point; and could even include connections to Centers for Medicare & Medicaid Services (CMS) via its Consumer Assessment of Health Providers and Systems (CAHPS®).   But will that be enough to entice consumers (patients) to gravitate toward a specific healthcare provider if they could deliver:

• Better value (i.e., the same or better medical care for cheaper)
• Enhanced customer service (i.e., overall patient experience), or
• Improved medical outcomes?

These three post reform drivers seem to be reasonable predictors of consumer preference – however its less clear whether a consumer would compare two or more healthcare providers based on billing statement transparency (clarity) alone.

Provider billing transparency is for now likely a “nice-to-have” rather than “must have” component of patient experience – and without the urging of consumers or employers the solutions envisioned by Dr. Harris won’t likely emerge.   Rather, patient experience trends, improved outcomes and calculating value for healthcare dollars spent, will likely persist as the near term focus of vendors serving the healthcare provider market.

Let us know what you think.

Jamie Lockhart

Jamie Lockhart is a Vice President with TripleTree covering healthcare software and service providers with a focus on consumer directed healthcare.  You can contact him at jlockhart@triple-tree.com

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ACOs: Good News for Skeptics

As TripleTree continues to cover the rapidly evolving opportunities associated with health reform, I have remained an optimist about the potential for the many health reform experiments included in the healthcare reform bill to create meaningful healthcare savings in the long term.   In particular, I have been hopeful about the various shared savings programs to meaningfully impact cost and quality in the healthcare system, and momentum has continued to build, with CMS naming 32 organizations to the Pioneer ACO program in December.

This is what makes the recent news from CBO disheartening.  Last month, they released an analysis showing that ten different demonstration programs – six disease management and four value-based payment approaches – have usually not had any meaningful impact on reducing Medicare spending.    One of these value-based demonstrations “allowed large multispecialty physician groups to share in estimated savings if they reduced total Medicare spending for their patients.”

Sound familiar?  Troublingly, this program had little to no effect on Medicare expenditures.  (The only program of the four that did have an effect on costs used bundled payments for heart bypass surgeries.)

Adding to the bad news, Leavitt Partners released a study late last year showing that of the 164 accountable care organizations (ACOs) they have identified (note that the Leavitt definition of ACO overlaps with – but doesn’t perfectly align with – the CMS definition), were somewhat evenly distributed across 41 of 50 states.  However, these same 164 were found in just 144 of the 306 hospital referring regions (HRRs) – a benchmark of regional health care markets where patients are referred for care.   While a number of these HRRs had three or more ACOs, large swaths of the country had yet to see even one yet suggesting that perhaps ACOs are springing up largely to compete with each other, rather than focusing on finding geographic areas where a new care delivery model could meaningfully reduce costs.  This is one of the issues that skeptics of the model are concerned about, as my colleague highlighted recently.

In any case, critics of the healthcare reform have certainly gotten some new ammunition in the past few weeks – we’ll be keeping an eye out for some good news to highlight in a future post.   As before, I still remain optimistic about the change in mentality that CMS’s ACO program seems to have brought in how payers and providers are rethinking the traditional and rigid zero sum game of treatment and reimbursement, allowing new ways for commercial payers and care delivery organizations to partner to deliver quality care.

Let us know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

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Consumer Directed Health to Social Media…’Consumerism’ Has Become the Undeniable Force in Healthcare

Healthcare can no longer deny nor ignore the importance of social media.  As a communication platform, it’s being used to educate, engage and empower consumers about topics ranging from legislation, hospital rankings, and ER wait times, to patient satisfaction, chronic illness management and health improvement.  Collaborative applications around seeking, sorting, assessing and ranking health information and experience have become part of our connected culture.

As “consumerism” increasingly impacts the healthcare landscape – payers, providers and other healthcare stakeholders are investing in technologies ranging from collaboration and contact center tools, to next generation video and self service platforms.  Consumerism is forcing these organizations to change their cultural barriers to how customer interactions need to be supported, and the pace of legislative mandates is exposing the healthcare information systems that can’t nimbly react to creating new products, or support online conversations.

Blogger Ed Bennet tracks 1,188 hospitals which are proving their seriousness about social media usage as they update:

• 548 YouTube Channels
• 1018 Facebook pages
• 788 Twitter Accounts
• 458 LinkedIn Accounts
• 913 Foursquare
• 137 Blogs

The impact of social media in healthcare goes beyond just an inexpensive channel that targets consumers.  Social media is fundamentally changing how payers, providers, and healthcare stakeholders manage their brand and influence purchasing decisions.

• For payers its managing customer service touch points through insurance exchanges, one of the few ways for them to maintain loyalty.

• For providers its connecting care providers with patients and is no longer about a gadget or app, but for measurable opportunities to share knowledge, build loyalty and improve processes that can influence how they manage care and patient relationships.

• For other healthcare stakeholders it’s supporting their brand and customer interactions with thoughtful, engaged support allowing for the ability to listen in on conversations already occurring about the industry, products, news, issues, etc.

Social media is a powerful source of information for consumers, and an equally powerful communication channel for providers of health information and support services.  For payers, providers and other healthcare stakeholders, TripleTree considers social media the lowest cost enabler of consumerism with a technical heritage linking it to cloud-based CRM and collaboration platforms.  In addition, social media is a cornerstone for marketing and branding initiatives in many industries.   With social media in healthcare, the old models for marketing, sales and service have been transformed.

Let us know what you think.

Chris Hoffmann

Chris Hoffmann is a Senior Director at TripleTree covering Cloud, SaaS and enterprise applications and specializes in CRM, loyalty and collaboration solutions across numerous industries. Follow Chris on Twitter or e-mail him at choffmann@triple-tree.com.

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Can Consumer-Centric Technologies ‘Hang Ten’ on the Silver Tsunami?

In 2011, the first wave of the baby boomers will turn 65, and by 2030, there will be >70 million elderly Americans, more than double the number in 2000.  It has been well discussed that the current health care system does not have the necessary infrastructure to adequately support the complex needs of our aging population.  We continue to hear about the new and innovative technologies that are poised to fix our healthcare delivery system by keeping the seniors well monitored and living in their homes longer.  While technologies for senior care have clearly evolved, many of the challenges that have kept it from widespread adoption over the past twenty years still remain including:

• Slow adoption among seniors:  Seniors are slower-than-average adopters of technology, and this has contributed to a sense of untapped opportunity in the market.  The underlying reasons for this are not complicated – most products are not designed with the senior population in mind.  It is certainly plausible that seniors would use technology more readily if it were designed to meet their needs, but there is a natural avoidance from this population today.
• Out-of-pocket costs:  A lack of Medicare reimbursement for remote monitoring of patient care has pushed the costs to the consumers.  Emerging technologies must be able to provide outcomes and ROI studies which prove the value of their product/solution before reimbursement will be considered.
• Lack of defined sales channels: Because of reimbursement issues, almost all of these products have yet to penetrate a highly visible sales channel.  Until consumer electronics retailers, such as Best Buy start prominently displaying senior care technology solutions, most of these products will remain available only through a distributor or direct from the manufacturer.
• Regulation and lack of interoperability: The FDA has indicated that it intends to regulate the flow of health information and a lot of confusion still exists around what is and what is not health information.  A lot of attention is focused on the Continua Health Alliance, which will hopefully sort out some of the interoperability issues.
• Products instead of solutions:  In our view, a key problem in this market is that there are now dozens – if not hundreds – of technology products for the elderly and their caregivers, but very few full solutions.  Every day brings a new press release about a new product.  It seems to me that the future leaders in this market will be those that find a way to offer a fully integrated technology-enabled solution rather than a list of products.

Our team is assessing this pending “Silver Tsunami “and preparing a research publication for release later this quarter.  We’re still early in the seniors-focused technology curve and many ideas/companies will struggle (and fail) amid the challenges described above.  Those organization fortunate enough to grasp it, will thrive in this extremely large and underserved market. Thanks and have a great week.

Judd Stevens

Judd Stevens is an associate at TripleTree covering the healthcare industry, specializing in the impacts and transformation of health plans in a post-reform world.  Follow Judd on Twitter or e-mail him at jstevens@triple-tree.com.

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