As they adapt to reform, insurers court historic adversaries: physician practices
They say politics makes strange bedfellows. The rapid transformation of healthcare is making strange ones too.
High-profile deals between major health insurers and physician practices are a prime example. In recent months, multiple insurers have moved to acquire physician practices. In November, UnitedHealth Group's Optum business closed on its acquisition of Irvine, Calif.-based Monarch HealthCare, an independent practice association with 2,300 physicians, for an undisclosed sum.
In August, rival WellPoint completed its $800 million acquisition of CareMore Health Plan, a Medicare Advantage plan in California, Nevada and Arizona that operates 28 neighborhood care centers. WellPoint said it plans to expand the care-center model to other markets it serves. In November, Humana said it would purchase SeniorBridge Family Cos., an in-home chronic-care manager with 1,500 care providers, for an undisclosed sum. That acquisition came about a year after Humana scooped up Concentra, which operates urgent- and occupational-care clinics, for $790 million.
The deals are raising eyebrows among physicians and raising the hackles of some competing health plans in affected markets. Although some analysts decline to call it a trend, it is clearly a move by insurers and physicians to gain competitive advantage.
“I think this is largely symptomatic of the disruption in the healthcare system,” Dr. Glen Stream, president of the American Academy of Family Physicians, said of the insurer-physician deals. “What we are really seeing is a lot of stress in our healthcare system and various attempts to respond.”
Federal healthcare reform—which includes programs that aim to give patients better care coordination and outcomes for a lower cost—accelerated the trend, but it started well before, Stream said. “The complexities of healthcare finance are what's driving this,” Stream said, as well as the move away from solo and small group practices.
Analysts caution that the deals are not part of some larger scheme for payers to directly deliver healthcare. UnitedHealth Group executives said as much at their investor day in December.
“It isn't so much about them getting into the business of care delivery as it is creating access for their members,” said Bridget Maehr, senior financial analyst at A.M. Best Co.
Whatever the motivation, valuations will go up with insurers and hospital systems on the hunt for physicians to acquire, A.M. Best analysts said. Large insurers, such as UnitedHealth Group, have accumulated a lot of cash and are willing to pay top dollar.
Maehr said insurers are especially keen for their members to have access to primary-care providers. This is because millions of uninsured Americans are expected to gain access to coverage through state-based health insurance exchanges launching in 2014. Under the healthcare reform law, nearly all Americans will be required to carry health insurance in 2014 and insurers will no longer be able to deny policies based on pre-existing medical conditions. “There's already a primary-care provider shortage,” Maehr said. “Health plans are saying, we need to create access points for our membership.”
While that may explain why insurance companies would pursue physicians, it may be harder to answer why physicians would indulge those advances rather than form alliances with other physician groups or hospitals and health systems.
When Monarch HealthCare began putting out feelers to potential partners, “Everyone you can imagine contacted us,” Dr. Bart Asner, CEO of the California practice association, said. “Then Optum showed up on our doorstep.”
Asner said the organization concluded that UnitedHealth's Optum will be able to deliver on what the physicians need to be successful moving forward. More broadly, Optum has “the same vision and values of caring for our patients,” Asner said.
The Monarch board of directors, which is entirely composed of physicians, decided they would need three things to deliver superior care to their 76,000 HMO patients: upgraded technology, clinical programs and capital for growth.
Monarch has been rolling out electronic medical records, but the financial commitment to do so has been high. “As fast as we are doing this, we need to do it faster,” Asner said. “Optum has the capital to do that.”
Monarch also is seeking to expand its clinical-care programs. “Optum has expertise in mental health programs, which is not a source of strength for us,” Asner said. An Optum division called Inspiris offers care to homebound patients, which was attractive to Monarch, Asner added.
Monarch physicians conducted site visits at other Optum-owned physician groups to see what the company could offer. Asner personally visited Lifeprint, an Optum-owned network of 450 physicians and hospital partners in Phoenix, and came away impressed. “They've put together a state-of-the-art chronic-care clinic with telehealth,” he said. “I've never seen anything like it.”
Optum's business includes integrated care delivery, care management, consumer engagement, health information technology (including Insight, formerly called Ingenix), pharmacy benefit management and health financial services. Optum owns independent practice associations and medical groups in five states: Arizona, California, Florida, Nevada and Texas. These practices, including Monarch, are folded into the company's OptumHealth Collaborative Care delivery system branch, Asner said. Optum referred all questions about its acquisition of Monarch to Asner.
Analysts say UnitedHealth Group is doubling down on its Optum line of services. “It's clear to us that United will continue to make strategic investments in its Optum business,” Citigroup senior analyst Carl McDonald, said in a recent investor note.
UnitedHealth Group has estimated that the total market of its Optum business represents a $500 billion opportunity and that Optum only has 6% of that market share. The company is projecting that it can grow its market share at 9% a year by 2020, McDonald wrote. Optum accounted for about 7.6% of total UnitedHealth earnings in 2010, or $610 million. Meanwhile, UnitedHealth Group has the capital to invest in providers. The Minnetonka, Minn.-based insurer has about $5 billion available in 2012 for mergers and acquisitions and other capital needs, according to Citigroup.
Asner stressed that Optum has autonomy from UnitedHealth Group's insurance division, UnitedHealthcare. “Optum has its own infrastructure and leadership separate from the insurance piece,” he said. “We contract with every major health plan in California. The health plan side (UnitedHealthcare) didn't even know about this until it was announced.”
But other payers are skeptical about the firewalls between Optum and the insurance side. On Dec. 1, Blue Shield of California, a San Francisco-based insurer, announced it would no longer contract with Monarch physicians effective May 1, 2012.
“By assigning its contract with Blue Shield to United without Blue Shield's consent, Monarch effectively breached the contract,” Blue Shield said in the statement.
Blue Shield is now alleging that Monarch physicians were refusing to make appointments with Blue Shield members and that Monarch is urging Blue Shield members to switch health plans via recorded phone calls.
“These actions have confused and frightened patients and are clear violations of Monarch's contract with Blue Shield,” the health plan said in the statement. “In light of these breaches, Blue Shield is preparing to take legal action against Monarch.”
About 20,000 Blue Shield members have a primary-care physician affiliated with Monarch, according to the insurer.
For his part, Asner called Blue Shield “an outlier” and said all other major carriers plan to continue to contract with Monarch. The IPA added a carrier recently, with Humana signing on starting in 2012, Asner said. “It's absolutely baffling to me,” he said of Blue Shield's decision to pull out. “It's illogical. Their decision is going to create disruption for patients and I just think that's not right.”
Blue Shield declined to comment further beyond its statement.
Another carrier has also changed course since the Optum buy. Anthem Blue Cross of California, which is owned by WellPoint, has pulled out of an accountable care organization pilot with Monarch. The pilot is one of five around the country launched by the Engelberg Center for Health Care Reform at the Brookings Institution and the Dartmouth Institute for Health Policy & Clinical Practice.
An Anthem spokesman confirmed the decision and said current Monarch physician contracts won't be affected.
Monarch, which recently was chosen as one of 32 participants in the CMS Innovation Center's Pioneer program for ACOs that are ahead of the curve
, is in talks with two other health plans interested in joining the ACO, and Asner said he expects to have either one or two health plan partners in place by mid-2012. Optum is working with Tucson (Ariz.) Medical Center and area physicians on an ACO. Tucson Medical Center is also a Brookings-Dartmouth pilot site.
WellPoint, meanwhile, is likewise putting resources into the business of providing care, paying $800 million to acquire CareMore. The company operates clinics that support the enrollees in its Medicare Advantage plans and specialized plans for patients with chronic illnesses.
WellPoint plans to expand that model into markets beyond the ones in California, Arizona and Nevada, where CareMore already operates. A WellPoint spokesman said the intent of the deal is to better serve senior members with chronic conditions. “Are we buying physicians? No,” spokesman Doug Bennett said. “It's more the secret sauce; it's the model.”
Alan Hoops, chairman and CEO of CareMore, said the decision to sell to WellPoint came down to the insurer's ability to expand the company. “We wanted to partner with a player with lots of market share and lots of markets,” Hoops said. “We were little and we were in need of a bigger playground to play in.”
CareMore, which started as a medical group in the early 1990s, currently serves about 65,000 seniors and employs about 40 staff physicians as well as nurse practitioners and an array of other clinicians to serve seniors with multiple chronic conditions who need intensive case management. Now a division of WellPoint, CareMore is working to establish relationships with providers in four new states where WellPoint operates (WellPoint declined to say which ones). CareMore also is readying its Medicare bids for 2013 to expand its Advantage plans.
Observers and participants in these new configurations say whether physicians work for bosses whose primary business is providing healthcare or paying the bills won't determine the quality of the care.
The AAFP's Stream is keeping an open mind. “What is most important for us is that patients get the best care, that it is coordinated care and that it is wellness-oriented,” Stream said. “How that system gets formed can take a number of paths.”
Asner said he's surprised at Monarch's left-turn union with Optum. “Not 10 years ago I would not have thought of something like this,” Asner said.
He added that up until recently, the trend was of physician practices buying physician practices and hospitals buying hospitals and everyone getting larger. “But this is no longer about having greater market share,” Asner concluded. “This is about getting better delivery of care to patients.”Rebecca Vesely, a former Modern Healthcare reporter, is a freelance writer based in San Francisco. You can reach her at firstname.lastname@example.org.