Brooks Blog

Tuesday • April 11, 2017

Vertical Integration of Health Plans

HP vertical integrations

Payers expecting a more merger-friendly environment under the Trump administration were likely disappointed when the Department of Justice asked the Court of Appeals to block the Anthem/Cigna merger that was blocked by lower courts last month. That and Trump’s recent appointment of a former Anthem lobbyist to the antitrust division fo the Department of Justice provides mixed signals that payers are struggling to read.

Provider Acquisitions Trends are Mixed

Industry experts believed ten years ago that providers would be bought by efficiency-driven payers after passage of the Affordable Care Act (ACA). But the trend has been surprisingly rare with many payers who did buy providers choosing to sell them quickly. Likewise, large health systems like Catholic Health Initiatives and Tenet Healthcare Corp. are shedding their plans after giant losses last year.

Others are hanging on. Successful purchases by payers included Anthem’s 2011 purchase of a medical group in California (CareMore, now a health system). In the same year, UnitedHealth Group’s health services arm Optum purchased another California group, Monarch Healthcare. In 2013, Blue Cross and Blue Shield affiliate Highmark bought West Penn Allegheny Health System (now Allegheny Health Network) in Pittsburgh to compete with the dominant University of Pittsburgh Medical Center (UPMC) system.

Many Payers Supporting Providers

Despite these outliers, overall the trend over the last ten years has been towards alliances between the two industry groups rather than full financial integration, with a strong focus on data. For example, Capital District Physicians’ Health Plan (CDPHP) invested in electronic health record systems (EHRs) for physician groups in its network to ease the burden and support the data-sharing needs between the two. Even Highmark’s purchase of Allegheny Health Network began with financial support rather than a full purchase.

Growth of Provider-Owned Health Plans?

Meanwhile frustration could move the needle on provider-owned health plans as providers seeking to share risk find few partners in commercial insurers.

Future Landscape for Payers is Vertical

Payers are looking to data innovators to improve their bottom line in a landscape made less hospitable to them by increased consolidation of providers and hospitals and powerful pharmacy benefit managers. Whereas mergers between large payers face limits due to antitrust laws, we believe vertical integration will be key to the success of payers big and small going forward.  

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