One particular type of consolidation has unique implications in a number of markets – the merger of insurers and provider organizations. Here are a just a few of these recent combinations:
One of the largest of these combinations is the recent creation of the Allegheny Health Network, an integrated delivery care system created through an affiliation between Highmark and the hospitals and provider organizations in the West Penn Allegheny Health System (WPAHS) (see Pennsylvania Approves Highmark & West Penn Allegheny Affiliation To Create Integrated Delivery Network). The agreement – from which Highmark will acquire the struggling hospital operator for $475 million over the next four years – will allow Highmark to offer a preferred “tier” for the services it owns (see Integration At A Whole New Level all members).
The drivers of these partnerships of unusual bedfellows? According to Bob Edmondson, former vice president of strategic planning and business development at West Penn Allegheny Health System (see Payor-Provider Integration: Anatomy of the Highmark-West Penn Deal, in Becker’s Hospital Review), there are five driving forces behind insurer/provider mergers:
Payers are developing new models to meet medical loss ratio limits. The Patient Protection and Affordable Care Act now requires insurers spend no less than 80% on health care services – and insurers want to invest in these services.
Insurers will be competing with ACOs – and they have key ACO competencies. “If you can’t beat them, join them and sell them services.” The combination of insurers and ACOs is building some formidable local competitors.
ACO need start-up capital at a time hospital revenues are flat or declining. Insurers’ investment in hospital systems can fuel ACO development.
Physicians are the core of the accountable care organizations. ACOs may increasingly be responsible for population risk, but they need primary care organizations to manage consumer care at the medical/health home level. Ownership of primary care organizations provides ownership of consumer care management at the ground level.
Provider organizations are assuming greater population risk. Whether ACOs or medical/health homes, whether capitation or case rates or bundled payments, provider organizations are increasingly reimbursed using value-based reimbursement models. The roles of payers and providers are “starting to blur” – making these mergers inevitable in some ways.
Will these insurer/provider combinations last? Like all mergers, some will likely be winners and others not. But successful or not, as they happen, they will shape their local markets.
For another free resource, see: Why The Mergers? all members