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Managing Relationships

Brad Cain, for HealthLeaders News, December 12, 2007

There are primarily two paths to growth in this or any industry. There's the organic variety whereby you grow your business through marketing, outreach and expansion into new regions. And then there's the fast-track approach of growing through acquisition.

The former entails a process of building relationships with business partners--be they providers, employers or individual enrollees--while the latter is based on acquiring a set of ready-made relationships. Success via the acquisition route, however, is dependent upon the successful integration of these relationships into your own operations. And there's the rub.

Officials with the Minnesota-based UnitedHealth Group issued a mea culpa of sorts recently, conceding that they mishandled the integration of some of their recent acquisitions. The result? A serious backlash from providers and enrollees alike--particularly in its PacifiCare operating unit--that is costing the company over a half million members.

"We pursued too much change, too fast, and the results were too disruptive," said David Wichmann, executive vice president at UnitedHealth, assuring analysts and investors that the most disruptive portions of the integration have already been completed. Wichmann says providers and consumers alike were alienated by the company's integration process, which included moves to shift call center operations overseas and to centralize provider relations rather than maintaining a network of regional representatives. Those moves are now being reversed, but much of the damage has already been done.

Ken Burdick, president and CEO of the company's UnitedHealthcare division, noted that the integration woes and other customer service problems would cause the United's membership rolls to shrink by over half-million members at the beginning of 2008--350,000 in risk-based membership and 200,000 in fee-based membership.

The member flight problem was most acute among those covered by its PacifiCare unit. In his presentation, Burdick noted that the unit is on target to lose 305,000 members this year and another 215,000 next year. The PacifiCare unit lost 135,000 members in the first year following the merger for a three-year total of 640,000 members.

Still, Wichmann and Burdick were optimistic that the company has turned the corner. Burdick said United is on track to boost its risk-based membership by 100,000 and its fee-based membership by 150,000 by the end of 2008. And Wichmann noted that the company has adopted a new attitude toward provider relations. "We understand relationships and we recognize that this is a health system that needs to work for everyone, not just for us," he said. "We're approaching negotiations in a much more inclusive and collaborative fashion and we're achieving comparable economic results."


Brad Cain is editor of California Healthfax and executive editor for managed care with HealthLeaders Media. He may be reached at bcain@healthleadersmedia.com.

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