Physicians and medical practices should anticipate at least three consequences from possible mega-mergers of health insurers.
StoneThe recent mega-mergers in the payer industry are creating concern among healthcare providers across the country and leading them to ask how far this trend will go and how they can respond. The drivers of payer consolidation have been well-discussed and providers should recognize that the trend is not yet played out. Moreover, its impact will be felt on a market-by-market basis, and strategic planning should consider whether providers are contributing to the trend or mitigating the downside risk of it. For now, providers should anticipate at least three consequences of this trend:
Fee-for-service (FFS) rate increases will be reduced. The most obvious impact is that payer consolidation aggregates buyer power, thereby lessening providers’ negotiating leverage. This means that some providers will see fewer (and smaller) rate increases in an already very challenging reimbursement environment.
Corporate integrations will be consuming payers’ attention. Partnering to create solutions with payers is going to be harder while payers are undergoing the gritty work of integrating operations among merged companies. Providers should expect that new collaborations, particularly those requiring customizations on infrastructure such as IT, may be delayed or deferred.
Encroachments on provider roles may accelerate. One of the drivers of payer consolidation is payers’ desire to develop complementary capabilities, including population health and provider-like capabilities. For example, Humana has been building its portfolio of employed physician practices, while Aetna has long invested in care management. Together, these can form a more comprehensive portfolio of assets with higher performance potential if properly integrated. Pursuit of and investment in these capabilities may lead to reduced patient volumes for providers, higher barriers to providers thinking of expanding their own services, and customer confusion where both the payer and provider are pursuing those functions.
BachProviders should consider the following responses to the trend of payer consolidations:
Accelerate the move to population health – In a concentrated payer market, superior population health management makes it more difficult for payers to exclude you from the network, and can go a long way toward mitigating downside consequences of payer consolidation. Partnering with payers to accelerate the move to population health shifts the conversation from traditional FFS dynamics to creating a new operating model. Payers and providers that collaborate on the shift and successfully build out roles beyond each other’s traditional functions will realize significant benefits from improved competitive differentiation and reduced need for consolidation.
Accelerating the move toward population health may also create a silver lining to payer consolidation in some markets. Where the lead payer in consolidating the market is a good partner and invests in capabilities that are complementary to providers’ population health efforts, the consolidation will drive scale in those capabilities and enable more market lives to be shifted faster to the new model.
Consider strategic ventures into the payer space more carefully: Many providers are considering venturing into the payer space through acquisition of a health plan or at least a health plan license. While this makes strategic sense for some providers, leaders should consider that actions that further disrupt the payer marketplace and make it more difficult for payers to succeed may catalyze consolidation in the local market or force lower-performing plans to exit.
Align or merge with the right provider partners: Payer and provider trends are, for better or worse, mutually reinforcing. A natural provider response to payer consolidation is to follow in kind and merge with other providers. Provider mergers aim to create or capture more value through aggregation of supplier power, improvement in care outcomes via clinical integration, reduced overhead from scaling back office functions, and stronger revenue streams via tighter referral relationships. Providers considering a merger should: (1) search for partners with complementary capabilities that improve likelihood of long-term success; (2) invest in integration to achieve quality and cost savings and don’t shy from responsibly disrupting existing structures to do so; and (3) recognize that this strategy does not always pay off, as regulators are growing increasingly willing to force providers to unwind mergers years later if they lead to higher rate increases.
Focus resources appropriately: Enhanced market pressure raises the risk of spreading resources too thin. Know which lines of business and capabilities will lead to long-term success, which are reinforcing around the core business, and which are non-essential. Take this opportunity to elevate organizational discipline and strengthen areas most critical for success.
Terry Stone is the global managing partner of Oliver Wyman’s Health & Life Sciences practice group, specializing in the development of differentiated growth strategies for health payer, provider, pharmaceutical, and biotech clients, as well as health enablement companies.
Bryce Bach is an engagement manager at Oliver Wyman and a member of the Health and Life Sciences practice, focusing on issues of value-based healthcare strategy and transformation for health systems and health insurers.