HBO & Co.'s acquisition of Access Health last month didn't stay in the limelight for too long because it was eclipsed by HBO & Co.'s just-completed merger with McKesson Corp.
But now that the hoopla over the McKesson merger has passed, the earlier deal may stand out because of the large scale of the new Access Health Group's telephone medical advice services.
The Broomfield, Colo.-based manager of health plan enrollees added 4 million enrollees earlier this month through a 10-year service agreement with Foundation Health Systems, a Woodland Hills, Calif.-based HMO.
The deal boosted the total number of enrollees managed by Access Health to 34 million, 13% of the U.S. population.
But the transaction also punctuated the inability of FHS, one of the largest HMO companies in the nation, to provide its own telephone-based triage and referral services cost-effectively, according to industry observers.
"We have known for a while that it was not working," says Bob Hoehn, a healthcare analyst with New York-based ING Baring Furman Selz. FHS' size and its multimillion-dollar investment in technology did not generate enough new enrollment, patient satisfaction and savings to justify the ongoing cost of operating its own call center, based in Philadelphia, Hoehn says.
That conclusion bolsters the position of Access Health, which has turned a 25% profit while growing about 75% per year since 1995 (Oct. 5, 1998, p. 38).
"This just solidifies Access Health's dominance," says Seth Frank, a Nashville-based healthcare analyst with SunTrust Equitable Securities Corp. "It shows how specialized that business is and how important mass and first-mover advantage are."
The ability to help enrollees when they need care and guide them to the proper resolution was the centerpiece of FHS' medical management vision under its former top executive, Malik Hasan, M.D., who retired in August 1998.
FHS launched its medical advice services to satisfy enrollees and to manage expenses-for example, by staving off unnecessary visits to the emergency room and promptly directing enrollees with serious problems to specialists, treating problems before they worsened and required more costly treatment.
"Conceptually, Hasan's vision was right on," says Philip Katz, FHS vice president and chief information officer.
FHS' telephone-based triage service, known as Healthline, expanded from a small pilot operation in Philadelphia to most of its 4 million health plan enrollees during the past two years. The company even planned to market Healthline to other HMOs that face the same cost-containment challenges.
Katz maintains that the medical management approach showed a return in higher patient satisfaction and a better referral process. But it was "not operating at the level of efficiency and cost-effectiveness" that justified investment in new techniques at the expense of "optimizing bread-and-butter operations," he says.
Part of the problem was the structure of FHS, which inherited dozens of health plans through acquisition. That structure did not provide economies of scale for a major national initiative such as Healthline, Katz says.
It would have taken years to offset expansion costs by lower medical expenses, he says. Meanwhile, FHS needed short-term resources to directly reduce debt and bump up the bottom line.
"We determined that we did not have the necessary scale to be cost-effective in the call center business," says Jay Gellert, FHS president and chief executive officer, who succeeded Hasan. "The agreement with Access Health Group secures a long-term relationship with the leading provider of call center services."
The agreement includes the sale of certain Healthline assets to Access Health for $38 million in cash. Access Health will provide medical advice services for 10 years for an undisclosed monthly fee per enrollee.
Gellert's switch to more short-term, bottom-line priorities made the call center ripe for divestiture as a way to raise immediate cash to reduce debt, Katz says. FHS also has sold its workers' compensation business, exited the Medicare risk business in 32 counties in six states, and agreed to sell health plans in Louisiana, Oklahoma and Texas.
The telephone-triage program had cash value in the marketplace, Katz says. The sale to Access Health included the computerized evaluation of complaints and a companion set of conclusions about where to send patients based on a preliminary screening.
Development of those complex evaluations, called algorithms, was supposed to differentiate FHS from its competition. But with the sale, Access Health is free to incorporate those algorithms for its 100-plus customers, including FHS competitors.
Access Health's purchase of Healthline assets removed yet another potential competitor and underscores the barriers to entering the complex business niche, Frank says. It's the company's third acquisition in as many years and leaves United HealthCare Corp.-newly renamed UnitedHealth Group-as the only large-scale operator of a similar service, he says.