EXECUTIVE BRIEFING HOW FAR WILL HEALTH PLAN …

EXECUTIVE BRIEFING

HOW FAR WILL HEALTH PLAN CONSOLIDATION TRANSFORM THE VALUE CHAIN?First in a DRG series on how the Affordable Care Act is driving major changes in the healthcare value chain

AUGUST | 2015

© DR/Decision Resources, LLC2

The Affordable Care Act has provided millions of Americans with health insurance and expanded government entitlement programs by billions of dollars, ushering in the biggest changes in healthcare in the United States since Medicaid and Medicare were enacted 50 years ago. But beyond those changes, healthcare reform has had another, equally important effect: It has been a catalyst to drive major changes in the healthcare value chain.

For decades the value chain followed a logical continuum from payers to fiscal intermediaries to providers to purchasers to producers:

Payers

â

Financial intermediaries

â

Providers

â

Purchasers

â

Producers

• Government• Employers• Individuals

• Insurers• PBMs

• Hospitals• Physicians

• Wholesalers• Group

Purchasing organizations

• Others

• Drug manufacturers

• Medical device manufacturers

But now the lines along that value chain have blurred as the various stakeholders adapt their business models to work across different value activities. This has resulted in accelerated consolidation and vertical integration as hospitals form insurance companies, insurance companies shift risk to providers, GPOs advise hospitals on population health management, PBMs work with payers on care coordination, and life sciences companies seek to offer services to help providers transition to value-based contracting with insurers.

This report is the first in a multi-part series on how each sector of the health insurance industry is evolving since the Affordable Care Act was passed in 2010. We begin with managed care organizations, discussing how health plans have adjusted to the changing market and where they are headed in the next few years.

Health Insurer LandscapeThe Affordable Care Act changed everything for the health insurance industry. It brought millions of new paying customers into the insurance market, but it has also placed significant new regulations and operating-margin restrictions on individual and small business coverage—two segments that used to have the highest margins for commercial insurers.

In addition, the expansion of Medicaid eligibility boosted what was already a growth market as states continue to move Medicaid members into managed care organizations. The ACA’s focus on improving quality and outcomes also put a spotlight on the Medicare Advantage program, which now makes up a third of Medicare enrollment.

The national insurers have all increased revenues under the ACA, but with tighter operating margins they are pursuing mergers and acquisitions as a way to spread operating expenses and improve profits. While the largest MCOs have maintained fairly stable market share over the past five years, that will change dramatically if several proposed mergers are completed.


In both 2010 and early 2015, the top five players by membership, in order, were UnitedHealth Group, Anthem, Aetna, Health Care Service Corporation, and Cigna. They commanded almost 47 percent of total MCO medical enrollment as of January 2015. But if mergers between Anthem and Cigna, Aetna and Humana, and Centene and Health Net are approved, the top five MCOs will grow their market share to 54 percent, and Centene will move from No. 11 to No. 6.

Market share has been fairly static the past few years, but that is about to change

2010 Total Enrollment

Total MCO Market Share,

20102015 Total Enrollment

Total MCO Market Share,

2015Market share after mergers

UnitedHealth Group 27.1M 13.0% 33.7M 14.5%

Anthem 26.8M 12.8% 29.6M 12.7% 17.3%

Aetna 18.2M 8.7% 21.6M 9.3% 13.0%

HCSC 12.4M 5.9% 13.3M 5.7%

Cigna 10.7M 5.1% 13.2M 4.6%

Kaiser Foundation Health

8.5M 4.1% 9.4M 4.0%

Humana 5.5M 2.6% 8.7M 3.7%

Health Net 2.4M 0.9% 4.7M 2.0%

BCBS Michigan 4.1M 2.0% 4.3M 1.8%

Coventry 3.1M 1.5% (part of Aetna) (part of Aetna)

Centene 1.3M 0.5% 3.7M 1.6% 3.6%

Source: Decision Resources Group


Revenues are up for largest insurers, but margins are thinner for most

MCO 2013 Rev2013

Income 2014 Rev2014

Income 1Q 2015 Rev1Q 2015 Income

Aetna $47.29B $1.91B $57.9B $2.04 B $15.09 B $777.5 M

Anthem $71.0B $2.49B $73.87B $2.57B $19.05B $865.2M

Cigna $32.38 $1.48B $34.90 $2.10B $9.47B $533.0M

HCSC $1.15B $27.1M $1.29B $21.85M $355.2M $15.5M

UnitedHealth Group $122.49B $5.67B $130.47B $5.62B $35.76B $1.41B


In addition to the largest Blue Cross Blue Shield MCOS (for-profit Anthem and nonprofit mutual Health Care Service Corp.), 35 independent Blue Cross Blue Shield plans have a total of almost 49 million members. The Blue plans have reciprocal “BlueCard” agreements enabling them to use each other’s provider networks, giving them a national presence but allowing them to still capitalize on their local brands. The Blue Cross Blue Shield plans together enroll about a third of exchange members, including 1.9 million in the independent plans. In recent years some Blue Cross Blue Shield plans have expanded into Medicaid and Medicare Advantage as those sectors have grown. Previously, the Blue plans were so dominant in their commercial markets they had little incentive to play in the less-lucrative Medicaid sector.

Blue Cross Blue Shield plans are growing Medicare business, and in some cases, Medicaid business

Largest Independent Blue Plans

2010 Medicaid

Enrollment

2010 Medicaid

Market Share

2015 Medicaid

Enrollment

2015 Medicaid

Market Share

2010 Medicare

Enrollment

2010 Medicare

Market Share

2015 Medicare

Enrollment

2015 Medicare

Market Share

BCBS Michigan 20,417 0.07% 81,321 0.2% 108,696 1.0% 376,583 2.2%

Horizon BCBS of NJ 428,792 1.5% 800,678 1.7% 52,581 0.5% 26,517 0.2%

Highmark of Penn. 333,393 1.1% 362,629 0.8% 317,368 2.9% 362,513 2.1%

Florida Blue 9,905 0.03% 3,147 .007% 61,446 0.6% 146,636 0.9%

Blue Shield of California 63,425 0.2% 0 0% 48,130 0.3% 106,592 0.6%


The Medicaid and Medicare markets have been in flux over the past several years as those sectors grow and larger insurers acquire smaller ones. States continue to see managed care organizations as a way to get a better handle on costs for Medicaid, which on average accounts for close to a quarter of state budgets. The five largest Medicaid plans went from having 29.3 percent of that market in 2010 to almost 38 percent in 2015; the top five Medicare plans grew from 50 to almost 57 percent of the market in that segment. Those sectors will consolidate further under the proposed mergers.


The commercial market, stagnant since the recession, finally moved into growth mode with the opening of the exchanges in 2014. In their second year, the public health insurance exchanges have enrolled 11.7 million, offering more competition and more rational pricing than in 2014.

What follows are the five ways we see health insurers developing in the next few years as the result of consolidation, tighter regulations, and a growing individual market. We also offer case studies of the various MCO models currently and how we believe each group will evolve.

Commercial market has picked up, and enrollment in Medicaid and Medicare MCOs has grown dramatically

2010

155.7

28.9

11.0 16.8

46.6

168.6

20150

50M

100M

150M

200MCommercial MCO enrollment

Medicaid MCO enrollment

Medicare MCO enrollment



1. Diversification

National payers are pursuing a strategy of diversification to survive as healthcare reform reshapes the market. The largest MCOs have expanded their business to include a mix of commercial, Medicaid, and Medicare business, and all are growing their individual enrollment in the exchanges. For instance, Anthem has almost quadrupled its Medicaid business since 2010, both through the acquisition of Amerigroup and the expansion of Medicaid under healthcare reform.

The commercial market lost membership during the recession and remained sluggish until the healthcare exchanges began enrolling in 2014. In response, national insurers increased their footprint in Medicaid and ramped up their Medicare offerings, seeing those two sectors as growth generators for the next decade.

Aetna was mostly focused on the large group market five years ago. Now it serves Medicaid enrollees in 15 states and administers Medicaid plans on a nonrisk basis in three others. Its purchase of Coventry in 2013 bolstered its Medicaid and Medicare subsidiaries and gave it a much larger presence in the individual and small-group market. Aetna’s proposed merger with Humana would make it a leader in the Medicare market. Also on the Medicare front, insurers such as UnitedHealth Group and Humana are improving their Star Ratings to take advantage of higher reimbursement. UnitedHealth’s 2014 earnings reflect the changing climate of the healthcare business. As the population ages, Medicare has overtaken commercial insurance as UnitedHealth’s largest source of revenue, but the margins in both lines are shrinking. Medicaid has expanded by another 1 million members and, while still a low-margin business, still contributes solid margins of 4 percent to 5 percent.

Going forward, the national MCOs will continue to keep a diversified portfolio and migrate some of their large-group enrollment into private exchanges that function as defined benefit plans – employees get a set amount of money to pick the level of coverage they want. This helps MCOs avoid the hefty Cadillac tax that will be levied on individual plans costing above $10,200 ($27,500 for family plans) beginning in 2018.


2. Technology solutions and population health management

Beyond the traditional insurance business, MCOs are expanding into offering technology and population health management solutions for hospitals and physicians. There are several reasons; one is the movement toward value-based reimbursement, whose ultimate goal is to reward providers for improved quality and outcomes. To do that, hospitals and physicians need the tools to track population health, segment patients, and monitor outcomes. Another motivation for insurers is their more limited toolkit in benefit design. With health exchange plans somewhat standardized and required to offer a certain level of coverage, insurers are not as able to leverage unique benefit design to gain market share, but they can offer technology solutions to providers.

Part of Aetna’s acquisition strategy, like those of other national insurers, has been to buy IT companies that boost its ability to share information and coordinate care in these new contracting models. Aetna acquired the technology company Healthagen in 2011 to provide technology and analytics to ACOs, physician groups, medical homes, and hospital systems. Aetna often becomes the insurance provider for the hospital systems it deals with, and it has more than 665,000 hospital employees served through its national accounts business. Aetna is also selling its technology to health systems that want to form their own insurance companies. “We’re approaching every provider that owns a health plan and (saying), if you insist on being in the health plan business, let us power it; let us be the Intel inside your health plan, which then gives us the ability to launch Aetna Whole Health provider-branded products,” CEO Mark Bertolini told investors in 2013.

UnitedHealth continues to push into other sectors of the healthcare business through its Optum subsidiary. Its pharmacy benefit management unit, OptumRx, serves as UnitedHealth’s PBM and also serves external PBM contracts that cover more than 6 million consumers, making it the third-largest pharmacy benefit manager in the nation. Optum’s revenues were up by more than 25 percent in 2014, largely owing to UnitedHealth’s consolidation of its commercial pharmacy business under OptumRx and its growing physician practice management business. In March, OptumRx announced an agreement to acquire Catamaran, the fourth-largest PBM, also publicly traded. Since the announcement, executives with Cigna—Catamaran’s top MCO client—have been cagey about whether the insurer would stay with Catamaran after the merger. The reason for the evasion became clear when Cigna and Anthem revealed that they were discussing a merger. Anthem has its own in-house PBM, Anthem Pharmacy Services, which is administered by Express Scripts.

Scale is crucial to meaningful analytics, pharmacy benefit management, and population health management. MCOs with the capital and established footing in technology solutions will continue to grow that part of their business in the coming years.


3. Vertical alliances

Health insurers are branching out into relationships with providers that may stop short of ownership but more tightly integrate the two entities. UnitedHealth Group has been quietly acquiring physician management companies for the past several years. California’s laws prohibiting corporate ownership of physicians preclude it from owning physician practices in that state, but UnitedHealth Group manages numerous practices through its physician practice management companies there. Its purchase of Sierra Health Services in 2008 made UnitedHealth the leading carrier in Nevada and the owner of the state’s largest physician practice, Southwest Medical Associates. In recent years, UnitedHealth’s medical practice purchases have focused strategically on large, multispecialty provider groups in very competitive markets where providers may not feel that they need to make concessions to UnitedHealth in order to operate. UnitedHealth Group’s Optum Health directly employs or contracts with 16,000 physicians providing local care delivery.

Commercial insurers have in some ways moved ahead of Medicare in the formation of accountable care organizations, which reward physicians and hospitals for improving quality and keeping costs below a certain level for specific populations. The five largest MCOs – UnitedHealth Group, Anthem, Aetna, HCSC and Cigna – have hundreds of ACO arrangements with hospitals and physicians across the country. Under Medicare ACOs, CMS pays providers directly, but providers are unable to force patients to stay within their ACO networks and benefit from care management. But commercial ACOs, often done in conjunction with self-insured companies, reward providers for improving care and reducing cost increases within the insurer’s membership, which is a captive group. The commercial insurers’ ACOs have been a launchpad for new products and expanded markets. For example, Aetna’s aggressive ACO strategy has paid off heavily in Texas, where its five large hospital-system ACOs have enabled the insurer to launch its Aetna Whole Health narrow-network products in a footprint that takes in most of the state’s population. Those products are also offered to most members of the Teacher Retirement System of Texas, Aetna’s largest public-employee contract.

Perhaps the most radical vertical alliance is Highmark’s purchase of West Penn Allegheny Health System in western Pennsylvania. The purchase was a defensive move against UPMC, the well regarded health system which owns its own health plan and was unable to come to terms on reimbursement with Highmark.

Vertical alliances will serve insurers well in some cases, but in others the MCOs may be getting into sectors where they lack expertise and experience.

4. Reinsurance

The jury is still out on whether the new hospital-owned health plans that have sprung up will survive, but in the meantime numerous hospitals are stopping short of being insurers by taking on clinical risk in their contracts but leaving insurers with overall actuarial risk.

Aetna’s strategy involves finding hospital systems that are ready to move into integration and risk-bearing in order to offset any losses resulting from lower hospitalization rates, but may not be ready or willing to take on all risk. And as mentioned earlier, when hospitals do want to form their own health insurance plans, Aetna offers its technology solutions to operate them.


5. Specialization

While the national and Blue Cross Blue Shield plans continue to diversify their customer mix, some insurers are still focused on particular sectors. This includes some of the new plans organized to serve the state healthcare exchanges and some payers focused solely on Medicaid.

Molina Healthcare, the nation’s fifth-largest Medicaid managed care organization, saw a significant increase in members in 2014 as a result of Medicaid expansion under the Affordable Care Act. The company also sees opportunity in providing low-cost plans in the public health insurance exchanges, providing a way to retain members who transition into and out of Medicaid programs. Molina’s experience as a successful Medicaid MCO makes it attractive to states with a growing Medicaid population or states transitioning aged, blind, and disabled or long-term services and supports members into managed care.

A number of new health plans emerged to serve enrollees in the health insurance exchanges, including the nonprofit cooperatives that obtained start-up loans from the federal government. However, more than half of the 23 cooperatives have closed, including the three largest, due to solvency problems. The coops offered some of the lowest-cost premiums and were successful in enrolling members, but were counting on higher payments from the ACA’s risk corridors program intended to reduce financial risk on the exchanges. More insurers sought payments for 2014 than paid into the program, leaving the government to pay just 13% of the risk corridor claims. As start-ups, many cooperative plans had no other ways to mitigate losses. Unlike private insurers that can diversify their products and choose their markets, the coops are limited to the exchange markets.

Specialization is a good strategy for strong players like Molina, which has a successful track record of caring for Medicaid enrollees. But national payers will continue to target some of these successful organizations as potential acquisition candidates. In the coming years, as federal and state government works to harmonize regulations among commercial, Medicare and Medicaid plans, specialization will be harder to achieve and the focus will be on volume, making mega-insurers even more attractive.


What all of this means for Life SciencesPower will be more concentrated: The health insurance industry has been undergoing consolidation for decades, but the latest mergers give the future mega-MCOs unprecedented power in contracting and forming networks. It will take them a while to digest their acquisitions, but once they do, they will be focused on leveraging their size to cut costs and achieve economies of scale, putting downward pressure on pricing, particularly for expensive specialty drugs.

MCOs will rule government sector: Already the majority of Medicaid enrollees are under managed care plans; Medicare is headed in the same direction. MCOS will eventually be controlling formularies, utilization management, and disease management programs for most of the government sector. Dealing with numerous MCOs will make contracting a challenge but also open up opportunities for partnerships on keeping patients compliant with their medications and improving outcomes.

MCOs are focused on population health: Rather than just focus on discrete diseases, all payers are looking at ways to manage populations and allocate resources for specific clusters of patients, based on their interactions with the healthcare system. Payers’ biggest focus will be on keeping down overall costs, leaving them open to considering more-expensive brand drugs if those drugs lower the long-term cost of treatment.

Consolidation will continue: Expect more acquisitions of specialized insurers in five to 10 years as benefits become more harmonized across commercial, Medicare and Medicaid plans. Right now plans such as Molina are growing and profitable because of their experience in serving a growing sector (in Molina’s case, Medicaid). But as regulatory measures are harmonized and the differences blur among the different sectors, the focus will be on mega-volume, making it likely that such plans will be acquired by bigger, more diversified organizations.

Mergers will reshuffle the industry leaders, making the combined Anthem/Cigna bigger than UnitedHealth Group (membership in millions)

UnitedHealth Group

Anthem

Health Care Service Corp.

Independent Blue Plans

Aetna

Cigna

Kaiser

Humana

Other

33.7

66.7

29.6

8.7

9.4

13.2

21.645.0

13.2

33.7

42.8

13.2

45

30.3

9.4

66.7

Before mergers After mergers



Case Studies of Insurance ModelsNational insurer: Aetna

Diversification Technology Solutions Vertical Alliances Reinsurance

Enrollment: 21,617,704

Focus: Commercial, Exchanges, Medicare, Mecdicaid

Membership mix: Commercial, exchanges, Medicare, Medicaid, individual

Acquisition strategy: Acquired Coventry two years ago; recently announced plans to acquire Humana, which would make it a dominant player in Medicare. Aetna contracts with CVS/caremark to be its third-party-administrator for Aetna Pharmacy Services. Humana also has its own PBM, Humana Pharmacy Services, administered by Argus. After the merger was announced, the two health plans mentioned in a conference call that they were considering creating their own in-house PBM. That could either take Aetna’s business away from CVS/caremark or increase its role as administrator. In any case, Aetna’s contract with CVS still has years to run.

Medicaid strategy: Serve high-cost, high-acuity Medicaid population, whose higher reimbursement rates create a greater opportunity for care coordination, cost-savings, and profit. Aetna serves high-acuity Medicaid populations in Florida and New Jersey, as well as programs for dual-eligibles in Illinois, Michigan, New York, and Ohio. Aetna manages the pharmacy benefit for its Medicaid enrollees in all of its Medicaid states except for Nebraska and Missouri, where the states have carved out the pharmacy benefit.

Medicare strategy: Focuses its Medicare Advantage expansion plans in regions supported by provider collaborations or accountable care organization (ACO) arrangements. The company estimates that it gained 90,000 new Medicare Advantage members in the open-enrollment period for 2015. It has kept many of Coventry’s successful legacy Medicare Advantage plans, marketed under the Advantra and Total Care brands, primarily in the Midwest and Mid-Atlantic states. Coventry’s members still haven’t transferred to Aetna’s PBM, CVS/caremark. The last Coventry lives are scheduled to move away from Express Scripts in 2017.

Reimbursement/risk-sharing strategy: Aetna had 25 percent of its medical spending through value-based provider agreements as of year-end-2014, including shared-risk agreements, ACOs, capitation deals, and joint ventures. It has pledged to have half of its medical spending under value-based contracts by 2018, putting more of its network providers at full or partial financial risk for the treatment cost of their Aetna patient population. Such arrangements have the potential to drive up pharmacy utilization while lowering hospitalization and controlling cost variables such as site of care.

At year-end 2014, Aetna had 60 ACO arrangements in 12 states, and four more risk-based ACOs were announced in the first three months of 2015. In total, the ACO arrangements coordinated care for more than 900,000 Aetna members. The company anticipates that several large providers will move to a payment scheme that gives them a percentage of Aetna’s global premium, or to monthly global capitation or other risk-bearing models during 2015.


Population health management/Information technology strategy: As described earlier in this report, Aetna has been buying up technology companies that boost its ability to share information and coordinate care in new contracting models with providers. This enables Aetna to offer ACOs the use of electronic health records, population health functionality, and the tools and systems needed for the ACO to function and manage risk. Aetna’s care management capabilities won the company a population health management contract to serve 650,000 North Carolina state employees and dependents. The state’s insurance carrier is Blue Cross and Blue Shield of North Carolina, while Aetna’s ActiveHealth system forms the backbone for its population health management program.

Partnering with hospitals and physicians: Aetna partners with numerous hospitals and physicians on ACOs. In Virginia, its three ACOs support Aetna’s contract to serve Virginia state employees and federal employees in that state. Its first joint-venture ACO partner is northern Virginia’s Inova Health System, which formed Innovation Health Plans with Aetna in 2014. The company wants to form similar joint-venture partnerships with its other ACO partners, provide the operating and technical infrastructure for risk-taking, and then ultimately share in the entity’s risk margins when it contracts with other insurers for ACO-type risk-sharing deals.

“We’re leveraging our technology by giving it up—most of the time for free in exchange for a partnership where we get a better return. Because it’s about the economic model of generating underwriting margin and less about getting fees,” CEO Mark Bertolini told investors. “Why not get the providers doing more of their own case management? Why not share with them the intellectual property and the data necessary to manage it? And if it lowers the price point, we’re all in a better place.”

Narrow-network products: In addition to the ACOs, Aetna has a provider tiering system called the Aetna Performance Network available in many of its markets and incorporated as a cost-saving feature in many of its health plans. Members can lower their copays when using the high-performance network hospitals and specialists, which are chosen by Aetna based on cost and quality criteria. Members can check network status through Aetna’s DocFind online provider directory.


Blue Cross Blue Shield insurer: Florida BlueDiversification Technology Solutions Vertical Alliances


Focus: Commercial, Exchanges, Medicare

Membership mix: As the fourth-largest independent Blue plan in the nation, Florida has a mix of commercial, Medicaid, and Medicare members, and enrolls more exchange members (324,000) than any other plan in the state. Florida Blue is also one of 13 Blue Cross Blue Shield plans that together own their own PBM, Prime Therapeutics.

Organizational changes: In 2014, Florida Blue reorganized as a nonprofit mutual insurance holding company, which gave the insurer greater flexibility to make acquisitions and included a provision that keeps the insurer from being acquired by a larger company. Under the new mutual holding company, Florida Blue is the insurance division, alongside divisions dedicated to healthcare delivery, healthcare consumerism, and claims processing for government healthcare programs.

Population health strategy: Florida Blue has said it is repositioning itself as a “healthcare transformation company.” The insurer leverages its health information network, Availity, which provides a secure data exchange between multiple healthcare stakeholders. The network, co-owned with Humana, includes more than 350,000 providers, 2,700 hospitals, and health plans across the country and connects physicians to every payer in the nation.

Vertical integration/patient engagement: Has 18 retail centers, an emergency clinic near Orlando, and a partnership with a Latin American company (Organizacion Sanitas Internacional) to open three primary-care clinics in south Florida.

Reimbursement/risk-sharing strategy: Numerous accountable care organizations with physician groups owned by large health systems as well as single-specialty practices, including two oncology ACOs in South Florida and Tampa. It also has clinical integration agreements with systems in Tampa Bay and South Broward County.

Florida Blue is also working with physicians unaffiliated with health systems. The insurer expanded a collaborative care agreement with 70-physician Medical Specialists of Palm Beach in March 2014, forming a jointly held management services organization to coordinate care services for Medicare Advantage members in Palm Beach County.

Specialized insurer: Molina HealthcareVertical Alliances Specialization


Focus: Medicaid, Exchanges

Membership mix: Molina is the nation’s fifth-largest Medicaid managed care organization and also enrolls dual eligibles and exchange members.

Niche within a niche: Molina is deliberately focusing on Medicaid patients with the greatest healthcare needs, offering long-term services and supports in California, Florida, Illinois, New Mexico and Ohio. The company is involved in dual-eligible demonstrations in six states, where it manages risk for members with complex needs and multiple chronic illnesses.


Acquisition strategy: Over the years Molina has expanded its geographic reach with a dozen acquisitions in the Northwest, West, Midwest, and Southeast. The company announced the latest in August: Integral Quality Care, a nonprofit, provider-sponsored corporation that serves 90,000 Medicaid beneficiaries in northwest and southwest Florida.

Vertical integration/patient engagement: Molina operates 30 company-owned health clinics in six states. Most clinics are in Molina’s Medicaid states, although it operates three county-owned clinics in Fairfax County in northern Virginia, where the company does not operate a health plan. It wants to develop its primary-care clinic presence as a way to ensure that members have access to care.

All Molina clinics have Spanish language speakers, and some of its California clinics employ people who speak other languages, such as Cambodian, Russian, and Ukrainian. Many of the California clinics also offer free shuttle services to help members get to and from appointments.

“We are focused on people that receive government assistance; very narrow focus. We are not in the commercial world. We are not going to be,” CEO Mario Molina said in the company’s February 2015 investor conference.

Reimbursement/risk-sharing strategy: While much of its provider contracts are based on fee for service, Molina is moving toward coordinated-care models that will require capitated contracts and partnerships with physician groups. Molina also wants to carve more services into its managed care contracts, such as behavioral health and transportation for patients who need it. The company is building its own behavioral health network by hiring psychiatrists and others with experience in the behavioral health field. Most pharmacy expenses go through Molina’s pharmacy benefit manager, CVS/caremark; otherwise, most drug and injectable costs are fee-for-service.

In Utah, Molina participates in the state’s accountable care system for its Medicaid program. The program, in place since January 2013, uses a combination of physician incentives and client engagement efforts. Medicaid HMOs in the state offer incentives to physicians for providing quality, cost-effective care.

In New Mexico, Molina offers a primary-care medical home program for its Medicare members designed to reduce hospitalization and readmissions. One study showed that readmission rates for Molina’s members were 5 percent among non-PCMH members versus 2 percent among those in the program.

As it matures in its new markets, such as Florida, Illinois, Puerto Rico, and South Carolina, Molina could see improved margins, particularly if states adequately recognize the cost pressures of caring for higher-acuity members. More members from the health insurance exchanges could also boost its bottom line. The company plans expansion to more state markets and expects additional acquisitions, some focusing on the needs of home-health patients.


New health system-owned insurer: North Shore-Long Island Jewish

Vertical Alliances

Enrollment: 37,458

Focus: Exchanges, Commercial

Health system: North Shore-Long Island Jewish has 16 acute-care hospitals in the New York City area, and began selling narrow network commercial insurance plans on and off the state health insurance exchange in 2013 under the brand name North Shore-LIJ CareConnect.

Strategy: Expanded offerings for 2015 and added several hospitals to its network. The CareConnect Alliance, formed in October 2014, includes 25,000 members and 20,225 provider locations throughout downstate New York. The alliance includes seven provider organizations.

Contracting/partnering with insurer: North Shore-LIJ partnered with UnitedHealth Group a couple of years ago to offer the UnitedHealth Group North Shore-LIJ Advantage Plan to small and midsize employers in Nassau, Queens and Suffolk counties. The narrow network plan includes lower cost-sharing for members who receive care from providers affiliated with North Shore-LIJ and higher cost-sharing for members who receive care from providers in the UnitedHealth Group Choice network. Reimbursement includes a value-based approach, allowing North Shore-LIJ to earn financial incentives based on outcomes.

Vertical alliance: North Shore-LIJ physicians serve as medical directors for CVS/minuteclinic locations in Bellport, Syosset, and Staten Island, and North Shore-LIJ facilities and affiliated physicians accept MinuteClinic patients who need a higher level of care. In September 2014, North Shore-LIJ CareConnect Insurance Co. added MinuteClinic to its network. North Shore signed a clinical collaboration agreement in 2013 with CVS/minuteclinic, which is the retail healthcare division of CVS Health.


Appendix: The changing government sectorAnthem’s acquisition of Amerigroup made it No. 1 in Medicaid enrollment, but Centene’s merger with Health Net will make it a close second

Largest Medicaid

MCOs

2010 Medicaid

enrollment

Total 2010 Medicaid

market share2015 Medicaid

enrollment

Total 2015 Medicaid market

share

Market share difference, 2010-2015

Post-merger market share

Anthem 1.28M 4.4% 4.9 10.5% ã 10.6%

UnitedHealth Group

2.8M 9.7% 4.4M 9.4% ä 9.4%

Centene 1.3M 4.5% 3.5 7.5% ã 10.4%

Molina Healthcare

1.2M 4.2% 2.4 5.2% ã 5.2%

WellCare 1.3M 4.5% 2.3 4.9% ã 4.9%

Aetna will move to the top in Medicare share once its merger with Humana is finalized

Largest Medicare

MCOs

2010 Medicare

enrollment

Total 2010 Medicare

market share2015 Medicare

enrollment

Total 2015 Medicare market

share

Market share difference, 2010-2015

Post-merger market share

UnitedHealth Group

2.0M 18.1% 3.4M 20.1% ã 20.1%

Humana 1.7M 15.5% 3.1M 18.3% ã (being acquired)

Kaiser Foun-dation Health

0.95M 8.6% 1.28M 7.6% ä 7.6%

Aetna 0.41M 4.1% 1.2M 7.1% ã 25.4%

Anthem 0.43M 3.9% 0.6M 3.6% ä 6.5%


855.380.4850 [email protected]

About the authors:Sheri Sellmeyer is a Consultant and Managed Care Specialist with DRG’s Global Consulting Services Division.

Paula Wade is Principal Analyst with DRG’s Insights Division.

Brian Corvino is Senior Vice President and Managing Partner of DRG’s Global Consulting Services Division.

About Decision Resources Group: Decision Resources Group offers best-in-class, high-value data, analytics and insights products and services to the healthcare industry, delivered by more than 900 employees across 14 global locations. DRG provides the pharmaceutical, biotech, medical device, financial services and payer industries with the tools, insights and advice they need to compete and thrive in an increasingly complex and value-based marketplace.

DRG’s Global Consulting Services team accesses 200+ domain experts and the full spectrum of DRG data and information assets.

Contact information:Sheri Sellmeyer615-369-4834 Office615-522-1293 [email protected]

Brian Corvino215-968-9922 Office 215-622-5092 [email protected]

For more information:www.DecisionResourcesGroup.com

EXECUTIVE BRIEFING HOW FAR WILL HEALTH PLAN …

Documents

Transcript of EXECUTIVE BRIEFING HOW FAR WILL HEALTH PLAN …