Melding Provider and Payer Perspectives

With leadership responsibilities for both a large health insurance carrier and a large health system, the top financial executive at Highmark Health has a unique vantage point on efforts to transform the healthcare industry.

In her role as executive vice president and CFO of Highmark Health, Karen Hanlon, CPA, has a double vision of the healthcare industry.

Highmark Health is the parent company of Highmark Inc., which is one of the country's largest Blue Cross Blue Shield affiliates, and Allegheny Health Network, which is a health system that features seven acute-care hospitals. In 2015, Highmark Health posted consolidated revenue at $17.7 billion and employed more than 35,000 workers.

In a wide-ranging recent interview with HealthLeaders, Hanlon was asked to comment on consolidation in the healthcare industry and other timely topics.

For Highmark Health, she says the past year's failed attempts at payer megamergers—the Aetna-Humana and Anthem-Cigna deals—are more of a matter of curiosity than a pressing business concern.

"For us, in the markets we are in, provider consolidation has been a bigger and more real challenge than the payer consolidations. But every market is different—healthcare is local."

Highmark Inc. markets health plans in Delaware, Pennsylvania and West Virginia. Allegheny Health Network (AHN) serves patients mainly in western Pennsylvania.

The Department of Justice-initiated collapse of the Aetna-Humana and Anthem-Cigna mergers are unlikely to curb consolidation efforts in the healthcare payer sector, Hanlon says.

"I doubt that we have reached the end game. That does not have to mean that you take the top five and that gets concentrated to three. I think about it more broadly than that. If you think about all of the different health plan carriers throughout the nation, to a certain extent scale matters."

Highmark Inc. and AHN are focusing their business model strategies on delivering medical services with value in mind, she says.

"We look at provider consolidation through the lens of being able to deliver a lower cost of care and to deliver more value to our communities… Kaiser is a good example that people can point to as an operating model that is definitely trying to deliver at a lower cost. Geisinger here in Pennsylvania has regularly been held up as an example of a provider system that is focused on delivering high-value care."

Intelligence Report: The Road to Value-Based Care

Value-based care models are leaner financially than the fee-for-service business model that has dominated the healthcare sector for decades. Hanlon says this financial reality of the shift to value in the delivery of medical services poses a challenge for all healthcare organizations—even nonprofits.

"For us, we are a nonprofit; so we don't have to have a financial target. We don't have to report to Wall Street or meet shareholder expectations. We do need to make sure we are meeting our mission and our vision in terms of caring for those in the community and delivering high-quality healthcare. At the same time, we do have to be fiscally responsible," Hanlon says.

While Highmark Health is not beholden to the barons of Wall Street, the organization is keenly aware of financial considerations.

"We have ratings from three of the ratings agencies—they regularly are looking at how we are doing and want to make sure we are delivering appropriately against their expectations, and we do care about that. We have outside financing from banks and bond holders, and they also are monitoring us to make sure that we are performing in a fiscally responsible manner," she says.

"We do not have a number that we have to hit for shareholders, but we do triangulate on the expectations that other constituencies have of us; and we need to make sure we continue to meet those expectations, so that we are able to continue to offer products and services in the market."

These considerations come with concrete financial consequences.

"Without the appropriate ratings from the ratings agencies, our customers are not going to think as highly of us. Without good marks from the banks, we are going to have a tough time accessing capital," Hanlon says.