by Matt Nolan, Vice President, Lumeris
This Perspectives series looks at why healthcare organizations must move to value-based models. Part 1 focused on economic forces driving change. In this second segment, we’ll examine why Medicare Advantage is critical for a successful value strategy.
While providers uniformly agree that transitioning to value is the right thing for patients, it is unclear to most how they can make the transition without negatively impacting financials in a primarily fee-for-service industry. As a result, many organizations have been resistant to pursuing a value strategy, preferring to commit resources to those areas where—historically—a return on investment was realized. The evolving dynamics of the healthcare market, however, are causing significant industry disruption and are putting tremendous pressure on provider organizations to innovate and adapt or risk their long-term viability. In developing their strategies to respond to these trends, many health systems are realizing that Medicare Advantage (MA) must be a key component to their long-term success. Of the various reasons for health systems to pursue a MA-focused strategy, two of the most commonly cited are:
- It is a diversification play to address demographic trends and create new opportunity for margin generation.
- It is a defensive play to gain a meaningful position before new entrants, like major commercial insurers or national physician aggregators, move into the market.
Diversification Play
Payer mix shifts, specifically Commercial patients aging into Medicare, will accelerate over the next 5-10 years as the baby boomers continue to turn 65 years-of-age. These shifts will erode the financial performance of many provider organizations as non-privatized Medicare products, both fee-for-service and some value-based, produce limited or negative margins, especially over the long-term. This growth of the Medicare population will lead to margin degradation in healthcare providers that maintain the status quo. These demographic shifts coupled with other market dynamics, like stagnating reimbursement rates, will require health systems to diversify to maintain viability.
Our analysis shows that Medicare Advantage, on the other hand, provides organizations with revenue opportunities three to five times greater than existing Medicare value programs (e.g., CPC+ and MSSP). Through enhanced quality and access, better patient management, coordinated preventive care, and accurate and complete coding, providers have significant opportunities to share in a portion of the premium dollar with MA. In addition, MA is a true consumer product that seniors increasingly prefer. Member satisfaction hovers around 90 percent due to the plans’ low cost (average premiums will fall from $31.91 in 2017 to $30.00 in 2018), high quality and added benefits (vision, Silver Sneakers, hearing and dental are commonly included). All signs point to increasing MA enrollment in the foreseeable future, particularly as it enjoys bipartisan political support. And in a recent survey conducted by The Health Management Academy (The Academy) and Lumeris, 75% of health system respondents who do not currently operate a health plan stated that they intend to offer a Medicare Advantage product in the next 9-15 months.
Defensive Play
Aware of the evolving dynamics and opportunity with Medicare Advantage, the country’s major health insurers are jostling to gain bigger shares of the MA market, and further, to exercise increased control over the full premium dollar. This is most evident with the trend of insurers purchasing physician practices. Recent examples include:
- Optum, UnitedHealth Group’s health services company, announced in December 2017 that it is acquiring DaVita Medical Group which manages physician practices in six states (California, Colorado, Florida, Nevada, New Mexico and Washington) and serves approximately 1.7 million patients per year. Prior to this announcement Optum’s affiliated physicians numbered 30,000.
- In February 2018, Humana announced the formation of a new company, Conviva, to serve as the integrated physician platform as it continues to grow its clinical footprint nationally and focus on senior care. Conviva will serve patients in South Florida and Texas. Currently, Humana has 1,500 employed or affiliated physicians.
- Centene announced on March 5 that it had signed a definitive agreement to acquire Community Medical Group, a leading, at-risk primary care provider serving over 70,000 Medicaid, Medicare Advantage, and Exchange patients in Miami, Florida.
- Anthem completed an acquisition of HealthSun, a Medicare Advantage health plan and health care delivery network serving members in the southern Florida counties of Miami-Dade and Broward. Anthem also acquired America’s 1st Choice which offers MA plans in Florida and South Carolina.
The trend of insurers acquiring physician practices is prominent in well-established Medicare Advantage markets like South Florida and Texas. However, in areas with moderate to low Medicare Advantage penetration rates, health systems are recognizing that their markets are not immune to these strategic takeovers—OptumCare has stated its goal is to expand from 30 to 75 markets. These systems are responding with proactive steps of developing relationships with collaborative MA payers in their markets and creating high performing physician networks by investing in the infrastructure, services, and competencies to ensure the networks deliver on those arrangements. In so doing, they are positioning themselves as a financially aligned partner, not as a competitor.
Going Forward
Health systems must transition to value-based models that allow them to deliver improved outcomes while maintaining financial viability. Medicare Advantage is the most compelling model due to structural benefits, reinforcing market trends, and significant premium revenues. Finding collaborative payers in this space enables provider organizations to fund the investment needed to unlock more of the healthcare dollar.
In Part 3 of this series, we’ll identify what makes Medicare Advantage challenging and what it takes to “do it right.”
