Monday, January 21, 2013

2013 Outlook: MA Consolidation May Accelerate As Providers Take Growing Role

Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care.
By James Gutman, Managing Editor
January 10, 2013 Volume 19 Issue 1
Perhaps one of the best indicators of what the Medicare Advantage industry may be in store for in terms of new competition, as well as the impact of further consolidation in MA, might have come Dec. 17 from Piedmont Healthcare and WellStar Health System in the Atlanta area. The two provider organizations then unveiled a partnership to develop a “health-system-based health insurance plan,” including MA, to launch in 2014.
The move is a different version of deals last fall, when integrated delivery system Catholic Health Initiatives unveiled plans to acquire MA plan Soundpath Health (MAN 11/1/12, p. 1), and earlier last year, when Partners HealthCare acquired Massachusetts-based Neighborhood Health Plan, although this combined firm is not in MA for now.
Providers’ Motivation on MA Has Changed
“What we’re seeing is providers seeking licensure” as insurers and not for the reasons they used to, says Stephen Wood, senior vice president, development at MA plan operator Universal American Corp. They now are doing it for “survival,” Wood tells MAN, and no longer “to cut out the evil middleman.” Providers dependent on government programs, he adds, also are “terrified” about health plans in that arena, albeit more perhaps in Medicaid than in Medicare, and “don’t want to be beholden to them.”
But Wood also predicts that the deals involving provider organizations and MA will be “all over the place” and not limited to providers doing the acquiring.
John Gorman, chairman of consulting firm Gorman Health Group, LLC, makes similar points in forecasting that the pace of MA-related deal making and consolidation will accelerate in 2013. Among the reasons for this, he tells MAN, are that the elections and the uncertainties related to them now are over and that the MA industry now will be “hurtling toward the rate [cut] trough” specified in the health reform law.
Gorman envisions a lot of MA deals between now and 2016 as many “small plans realize they can’t handle” what is needed to prosper in the post-reform environment. And MA now is heading into a period, starting in 2015, when CMS has said “it will drag sub-three-star plans into the street and shoot them,” he quips, referring to the agency’s plan to cease contracting with plans that have quality ratings of less than three stars for three consecutive years.
Some of the coming consolidation push will involve provider organizations buying MA plans, he acknowledges, but more will involve plans buying providers. Gorman adds that he never has seen “so much investor interest” in MA as there is now, and foresees this translating into “a lot of action in investor-backed acquisitions.”
Transactions involving insurers consolidating with other insurers, however, will have to be just “opportunistic” from now on, suggests Wood, since there are only “a few” MA insurers left to be acquired. The MA market, he says, is getting big and attractive enough that insurers know they will have good business opportunities, especially given the expected rapid growth in the Medicare-Medicaid dual-eligibles sector (see story, p. 1).
As a result of trends such as this, Universal American, which itself has been mentioned often as a potential acquisition target, recently has been focusing much of its attention on working more closely with providers that want to take on insurance functions. “That’s where we come in,” he explains, as Universal American can supply insurance expertise and capital to providers that seem to have good chances of success. The company characteristically will take a position with such providers in which it holds debt securities that can be converted into equity if it chooses, Wood says.
He adds that the MA market now is “becoming bifurcated,” with the “big boys slugging it out” at the same time a “cottage industry” of MA startups also takes root.
But the consolidation trend doesn’t mean that smaller MA plans will need to get acquired by or become debtors of larger ones, according to Meg Murray, CEO of the Association for Community Affiliated Plans (ACAP), which represents so-called “safety net” MA and Medicaid plans. While a few of ACAP’s members have been acquired, including Health Plus by Amerigroup Corp. and Neighborhood by Partners last year, Murray tells MAN that the trend seems more toward partnering than acquiring. She cites as examples the new alliance of CareSource with Humana Inc. (MAN 3/29/12, p. 1) to seek duals business and of Boston Medical Center HealthNet Plan with Harvard Pilgrim Health Care.

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