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Payer Perspective on Healthcare Consolidation Activity

News  |  By Christopher Cheney  
   May 31, 2017

Payer activities focus on delivering value for both the employer groups and the consumer.

In the healthcare industry, the payer sector remains competitive despite being far more highly concentrated than the provider sector, the financial leader of a large Blue Cross Blue Shield affiliate says.

"Not every commercial payer is operating in every business segment in every market. While they have national scale, in some cases they choose not to compete in every segment in every market, so scale does not mean as much because the book that they have in a certain market is small enough to encourage competition," says Karen Hanlon, CPA, executive vice president and CFO of Pittsburgh-based Highmark Health.

Highmark Health is the parent company of Highmark Inc., a Blue Cross Blue Shield affiliate that markets health plans in Delaware, Pennsylvania, and West Virginia. Highmark Health also owns Allegheny Health Network, a health system with seven acute-care hospitals. In 2016, Highmark Health posted consolidated revenue at $18.2 billion and employed more than 40,000 workers.

Hanlon acknowledges the payer sector is highly concentrated, with a handful of large commercial insurance carriers that she calls "the nationals" such as Aetna, Cigna, Humana, and UnitedHealthcare, along with the nationwide constellation of nonprofit BCBS affiliates.

However, she says there is a significant level of payer competition across most of the country.

"In many markets, we still have effective competition between the Blues and the nationals. Everyone is looking for scale, without a doubt. Certainly, in some of the mergers that are out there, they are looking for complementary product offerings. They think they can grow their business by picking up a concentration of business in a certain segment where they might not have been strong before."

Highmark Inc. faces significant competition from commercial insurance carriers in the BCBS affiliate’s markets, Hanlon says.

"Our core markets are Delaware, West Virginia, and Pennsylvania. We are competing with the commercial payers in each of those markets." 

Although the federal Department of Justice has blocked two megamergers in the payer sector over the past year, Hanlon says health insurance carriers are likely to continue to seek new business opportunities, including consolidation deals.

"As we have thought about the various payer concentration activities out there, the focus for us has been to deliver value for the consumers in our market, and in terms of delivering that value, we recognize that cost is a key component for both the employer groups and the consumer. I am sure that is, in part, what the commercial payers are reacting to and trying to address as well. We are definitely going at it with different strategies than what those commercial
payers are pursuing, but they are trying to grow and evolve in a new world."

As opposed to seeking a major merger partner such as the Aetna-Humana transaction that was dropped in February after the DOJ nixed the deal in federal court, Highmark Health has been focused on developing new business lines and strategic partnerships, such as last summer’s launch of a postacute care company: HM Home & Community Services LLC. 

HMHCS focuses on care coordination and performance in postacute care settings, especially skilled nursing facilities and home-health agency care. HMHCS offers several postacute care services such as provider-network management consulting, boosting care coordination, scorecard monitoring, and data analytics.

Other commercial payers have capitalized on diversified business lines. UnitedHealthcare operates Optum, which offers a range of healthcare-sector services, including IT, wellness programs, and pharmacy management consulting. Aetna is the parent company of Accountable Care Solutions, which provides ACO consulting services to physician practices and other healthcare providers.

There is a high degree of uncertainty over whether the DOJ will loosen its payer-sector consolidation reins under the new Republican Party–dominated leadership in Washington, D.C., she says. "There was not a strong drumbeat on that point leading up to the election out of now-President Trump."

Christopher Cheney is the CMO editor at HealthLeaders.

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