ACO Update: A Third Horse Enters the Race

A few months ago, we noted that the release of regulations for ACOs would trigger an ACO services race across the healthcare landscape, where market participants would be sprinting to create service offerings that would help hospitals and physician practices become compliant with the CMS ACO regulations for sharing financial risk and the rewards.  So where do things stand six months later?

Just like earlier this year, the “Big Two” – Optum and Aetna – seem to be squarely in the lead of creating a turnkey ACO solution.  And in the last few weeks, we’ve seen a couple items of note from these two.  The first was an interview with Charles Kennedy, CEO of Aetna’s ACO division on HISTalk.  In the interview, Kennedy talks about how Aetna is pursuing the ACO opportunity via three go-to-market offerings:

• Clinical integration (basically an HIE via Medicity)
• A population-based approach with chronic disease management tools that typically rolls out to hospital employees as a way of deploying a light version of an ACO
• A full, private-label health plan, where a delivery system has their own health plan “powered by Aetna”

Last week, Optum announced that it has brought together its own ACO division with more than 700 people (!) focused on enabling “Sustainable Health Communities,” which is Optum’s version of the ACO concept.  Optum’s press release calls out its own five-part strategy:

• Patient and population health management
• Informatics, analytics, and technology
• Clinical integration, network development, and physician change management
• Payment model, contracting, and actuarial expertise
• Operating expertise

Interestingly, the press release also mentions that Optum is also bringing solutions to market targeted at commercial health plans and government payers – the other side of the ACO/shared risk/bundled payment equation.

The big question we have been trying to figure out here at TripleTree is who is going to follow “the Big Two” and their industry-leading ACO partnership announcements (specifically: Optum with Tuscon Medical Center and Aetna with Carilion Clinic)?  Where are the other healthcare companies that are going to pursue this mammoth opportunity?  Wellpoint’s acquisition of CareMore, McKesson’s acquisition of Portico, and Harris Corporation’s acquisition of Carefx certainly point to their interest in this market, as does Premier’s burgeoning alliance with IBM – but we have yet to see any of these or other players signal their interest in developing a broader set of provider-focused bundled payment service offerings.

This past week we think have finally seen another company unequivocally throwing its hat in the ring:  The Advisory Board Company announced the creation of a new company called Evolent Health, in partnership with the UPMC Health Plan.  Evolent intends to provide a platform for population and health plan management to leading health systems as they develop their value-based care strategies.  This follows ABCO’s earlier acquisitions of Crimson, Concuity, and Cielo MedSolutions – all earlier signals that the company was pursuing the hospital analytics, contracting, and registry marketplaces in a big way.

It makes perfect sense for The Advisory Board to do this – with nearly unparalled access to hospital c-suites across the country, it was only a matter of time before they launched a solution to address the many, many requests they must be getting to help with hospitals’ new risk-sharing strategies.  We see this as a welcome development in this space, and hope to see other HCIT players, undoubtedly facing their own questions from their healthcare clients, enter the fray as well.  Where are you, Accenture, Microsoft, and Elsevier?

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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Medicare Advantage…Here Today, Here Tomorrow…

CIGNA put a stake in the ground for the long term prospects of Medicare Advantage (M.A.) with its recent announcement that it would be acquiring HealthSpring for $3.8B (a 37% premium over its closing price prior to announcement).

HealthSpring primarily operates as a M.A. plan covering over 340K lives across 11 states (including over 800,000 Medicare Part D members).  CIGNA previously had a very limited presence in M.A. with ~44,000 lives entirely in Arizona.

CIGNA has been focused on diversifying its core US healthcare presence, so the move isn’t too much of a shocker, although many thought its approach would include international expansion versus a bold move into the government market.  It’s likely the HealthSpring business model was too alluring for CIGNA to pass on when you consider HealthSpring’s:

• Tight integration with network physicians including a high level of capitation and risk sharing;
• Strong leadership team lead by Herb Fritch whom possess the experience and know-how to operate a unique, physician-centric, coordinated care model; and
• Consumer brand presence within the senior market.

There is a large opportunity for CIGNA to leverage and replicate HealthSpring’s coordinated care model across their commercial book of business to drive efficiencies and deliver better care.  Additionally, CIGNA will benefit from its ability to cross-sell HealthSpring into new markets.

CIGNA is not the only health plan making moves in the M.A. market – recent M&A activity within the sector over the past 18 months include:

• Wellpoint – CareMore (2011)
• Aetna – Genworth’s Medicare Supplement (2011)
• Humana – MD Care (2011) and Arcadian Management Services (2011)
• HealthSpring – Bravo Health (2010)

HealthSpring was one of the few remaining M.A. plans with size and scale, and CIGNA’s move could prompt additional consolidation within the sector over the coming 12-18 months.  The list of targets with viable M.A. populations (100K+ lives) is becoming quite limited.  Some of these include Universal American and Wellcare, public M.A. plans with 100K+ lives; and XL Health, SCAN, Aveta and Universal Healthcare as examples of private M.A. plans with scale.

There have been recent headlines about increased pressure on reimbursement rates and minimum medical loss ratio (“MLR”) requirements posing a threat to the future of M.A.  My view, however, is that M.A. will not only survive, but thrive going forward and recent M&A activity would suggest the same.  Let me know what you think.

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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Insurance Exchange Enablement Heats Up as the Clock Ticks Down

Today’s news that Wellpoint and two other Blues (HCSC and BCSB MI) acquired a 78% stake in Health Insurance Exchange vendor Bloom Health is not the first – and won’t be the last – move in what is sure to be a consolidating market.

The Accountable Care Act (ACA or Obamacare) requires each state to establish an online shopping portal, known as a Health Insurance Exchange (HIX) for individuals and small groups to purchase health insurance no later than January 1 2014. We have written and blogged extensively on the topic. In our estimates, HHS and the states will need to spend in the neighborhood of $4-$6 billion dollars on technologies order to create these exchanges. In addition to the ACA HIX, there is perhaps a bigger market opportunity in the private sector to create non-government sponsored insurance exchanges, creating even a bigger market opportunity. Bloom Health is one of many vendors specializing in the private exchange market.

Wellpoint, the Blues, and in fact all health insurance companies are making the individual and small group markets a top priority for new business and growth initiatives. These markets will explode in growth due to the Obamacare legislation and the carriers recognize the opportunity and the challenge with tapping this market.

The insurance exchanges, both public and private, will be the primary vehicles to reach into the individual and small group markets. Wellpoint’s move on Bloom, and Optum’s acquisition of Connextions, is recognition of this fact.

In addition to the Connextions and Bloom transactions, the vendor community is also coming together to help create insurance exchanges. Accenture’s acquisition of Duck Creek, announced partnerships from Oracle, Microsoft, CSC and others such as Maximus’ partnership with Connecture, portend of additional transactions to come in the space.

Insurance companies need help in positioning into the individual market, and also need technology to help them more effectively participate in the public and private exchanges.  Several vendors are positioning into the market but only a few have broad, proven experience with exchanges.

Companies like eHealth and Extend Health, which have consumer engagement and online shopping capabilities from market adjacencies (a leading online brokerage for eHealth and a robust Medicare exchange from Extend) will be important players in the new world of insurance exchanges. Other players like DestinationRx are similarly active in the exchange marketplace, working with HHS and multiple insurance plans, and will have a meaningful impact on the public and private HIX marketplace.  These vendors already have a head start in exchange operations, plan comparison features and tools to help consumers sort through the confusing world of insurance costs and coverage.

TripleTree’s recent HIX research report lays out a number of vendors that are currently engaged in HIX solutions. The report concludes that no vendor provides a complete solution.  Given the importance of the exchanges and the immediate market opportunity, no doubt consolidation will continue.

Have a good week.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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Does Highmark’s Move Portend a Payers’ Path to Financial Health?

The  recent acquisition by Highmark, Inc. of the five-hospital West Penn Allegheny Health System brings into focus an emerging healthcare provider model in which payers are assuming direct control of medical facilities. Payers, seeking to curb costs amid U.S. health reform are motivated by numerous factors, including:

• Gaining an early leadership positioning in developing a self-sufficient ACO model that can be leveraged nationwide.
• Providing direct insight into best practices they can use in contracting with other medical groups.
• Allowing the capture of new efficiencies in the healthcare system by accruing part of the costs that would have gone to providers

Over the years, payers have attempted a number of different cost control mechanisms ranging from preferred drug lists to performance incentives – but have had minimal success. This feet-on-the-street approach is their most direct attempt to control spending through managing the doctors directly. The thought is that the Payer-Provider Facility strategy will truly “incentivize” doctors to control spending as it affects their direct employer; as opposed to other historical financial incentive arrangements that have failed to hold ground.

In the mid ‘90s managed care failed in its attempt to take a greater role in the care delivery as consumers rebuffed limits on provider choice and treatment options. This time around (and as depicted the graphic below), insurers adopting this strategy appear to be focused on the controlling the provision of services and owning providers as opposed to network or treatment restrictions.

Source: TripleTree, LLC

A recent Washington Post article analyzes the ongoing transition of the major managed care players – namely UnitedHealthcare, WellPoint, CIGNA and Humana – into the provider space.  Further analysis by TripleTree underscores that the strategy appears to be driven by the insurers’ desire diminish the financial pressure of health reform, however, this could also viewed as a long-term strategic move by insurers to position themselves as the central hub of future ACOs.

Source: TripleTree, LLC

Highmark’s acquisition is unique in that it is one of the only significant payer-hospital acquisitions to occur in well over a decade.  Payers (such as Humana and Wellpoint) have routinely purchased clinics in recent years in an effort to push care further outside of the hospital towards more efficient, less costly outpatient settings. The acquisition represents a bold strategy to align Highmark with their hospital provider base. However, the move also poses the risk of competitive backlash from competitors who choose to not use West Penn and withdrawal from customers fearing provider choice and location limitations.

In the coming months, TripleTree will be spending a considerable amount of time monitoring the movement of payers to reposition themselves as “clinical” and “provider-focused” as ACOs develop.   In addition, we will also be analyzing how each payer’s provider strategy aligns with their efforts to expand their clinical technology platforms into the provider market.

Let us know what you think.

Joe Long

Joe Long is an analyst at TripleTree covering the healthcare sector, with a focus on the approaches and technologies surrounding health insurance exchanges.  You can email him at jlong@triple-tree.com.

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B to C Marketing, Sales and Service: The New Battlefield for Health Plans – 09/17/10

Historically, commercial health plans have leveraged a traditional “B to B to C” model for marketing, selling and servicing health insurance products to their members. The breakdown for this distribution model is as follows – Health plans “B” create a product catalog for their broker network “B”; and brokers in turn sell to employers or groups “C”.

The pressures of a post-reform world are forcing a shift in the sales strategies of payers. Medical Loss Ratio compliance rules for example, are pinching the income statements of health plans so significantly that getting closer to the member (i.e. eliminating the broker) will be table stakes if they choose to remain competitive. Net result? The traditional model will fade and be replaced by a direct-to-consumer (“B to C”) strategy.

This threat to the broker-driven sales model is compounded by consumer “connectedness” (everywhere-WiFi + prolific mobile devices + social applications) where empowered individuals are becoming engaged relative to researching, monitoring, communicating and paying for their own health care.

Around our shop, we’re referring to this shift as ‘consumer engagement’; a concept pioneered by a few BlueCross organizations who successfully cultivated direct-to-consumer messages via TV, radio, print and online media for some time. Early on these consumer-direct campaigns were an anomaly, but we’re now seeing this approach take hold more broadly. This is more than simply educating potential members about “the right health plan” – it’s a 1:1 marketing approach with messaging the places the health plan in a new light as an entity capable of tailoring health and wellness services (bundled inside of health insurance) to individuals.

Consider what UnitedHealth Group did during this summers’ PGA Masters Tournament. The health plan behemoth aired variations of its “Heath in Numbers” television spots to showcase an optimized health experience for their members thanks to uniquely intelligent tools and services.

If Cigna, Aetna, Wellpoint and others haven’t taken note, they will – and rest assured the big ad agencies will be quick to offer them ideas honed from decades long slugfests in industries like consumer retailing and banking. These health plans are stepping onto a new competitive battlefield, and will likely find themselves trying to out-market the likes of Walmart and Target.

TripleTree is way out in front of other strategic advisors on this topic and has strong viewpoints on where the next set of industry inflection points will occur. Principally, we’re convinced that the health plans can’t go it alone successfully – they lack the internal resources and specialized skills to tackle consumerism, much less the turn-key solutions need to support the state health insurance exchanges.

We’d like to know what you think, and have a great week!

We’d also like to invite you to participate in our one question survey:
Given the momentum around consumer engagement, prioritize the five initiatives below relative to your experience as a member of a health plan.

Chris Hoffmann & Michael Boardman

Chris Hoffmann is Research 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.

Michael Boardman is an associate at TripleTree covering the healthcare and technology industries, specializing in clinical software solutions.  Follow Michael on Twitter or e-mail him at mboardman@triple-tree.com.

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