13 July 2012

Managed Care's ACO Scramble

Health reform is upon us.   As managed care companies struggle to adjust their business models to compensate, there is a frantic race to become integrated service providers by moving downstream.  They are making blockbuster acquisitions in the consumer and provider care space in order to move towards "accountable care organization" models that bring together patient care, reimbursement, and facilities all under one roof.  Will these managed care companies be able to pull it off? And more importantly, is it better for all of us in the end?

The deal activity is flourishing .  Wellpoint has announced several recent acquisitions including direct to consumer company 1-800 Contacts.  Examples such as Humana's deal for urgent care provider Concentra and UnitedHealth's purchase of physician network Monarch HealthCare further illustrate this growing trend.  On paper, these deals make a lot of sense.  If you control the consumer or provider, you can cut out inefficiencies, control costs, and reign in the current layers of external profit margins.  The downside is that they run the risk of alienating their third party panel in addition to the significant execution risk of historically pure play insurers successfully moving into patient care.  There is very little choice but to try however;  the stand-alone insurer model will face meaningful price reductions as part of the health care overhaul. 

But can this be good for end users?  On the one hand, these integrated models can help us move away from the current fee for service model that seems to be the underlying flaw of today's health care system.  It makes no sense to pay per procedure without any concern for medical results. By merging patient care with reimbursement vehicles, there is a greater incentive for preventative care measures and alignment with patient interests.  On the other hand, Americans are not accustomed to a closed network's perceived lack of choice.  The HMO model didn't work in the 80's and there is not a mad rush to go north of the border for medical treatment. 

Many think the integrated approach is the way to go and point to Kaiser Permanante as the poster child.  Kaiser's roughly 9m lives have been utilizing the provider's own doctors, hospitals, and insurance plans for many years now with many clinical measures of success.  They have yielded an improvement in patient care, a decrease in costs and emergency care, and a relatively healthy profit margin to boot.  Not having any firsthand experience with Kaiser, I can not comment on how the model is working from a consumer perspective.  But if the Kaiser approach is the right model, is it scalable?  And if so, isn't it the similar to the nationalized health care policies that so many countries are struggling with?

Although some of the latest moves by large managed care companies are potentially very interesting if done right, I am skeptical that all of them will be able to successfully transform from actuarial based businesses to ones that actually take care of patients. It almost seems to make sense to move from the other direction (ie. patient care to insurance), but providers lack the necessary resources as they are smaller and more regional in nature.  If Kaiser and the ACO model can yield even marginal improvements to the cost side with improved medical results, it would be vastly better than the unsustainable course of our current system.  And of course, amidst all the chaos and uncertainty, look for shareholders of provider and consumer networks to continue to cash in.

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