Last week's announcement of a managed-care mega-deal is a stunner not only because of its size but also its potential effects on healthcare stakeholders. The new WellPoint clearly isn't your father's Blues plan.
After several years of consolidation and conversions, we are left with a for-profit Blues Cross and Blue Shield licensee with 26 million members in 13 states and $36 billion in annual revenue, the largest commercial health plan in the nation. It also may have significant new bargaining power with employers and providers, although exactly how much is debatable. Both companies have stressed decentralized control at the state level and they have not competed head to head, so the impact on individual hospitals and physician groups may be minimal. WellPoint clearly will be able to better compete with the likes of UnitedHealth Group and Aetna for the business of national employers, but those companies truly have national networks.
Anthem's main motivation to buy WellPoint Health Networks was a bottom-line bid to keep on top of fast-moving trends in healthcare. The conversion frenzy for Blues plans has ground to a halt as states and activists have blocked major deals such as WellPoint's own bid to acquire (and convert) CareFirst in Maryland. There is only one publicly traded independent Blues plan left, New York-based WellChoice, and speculation already abounded last week about when-rather than if-WellPoint would gobble that up.
More importantly, the pressure is on the managed-care industry to slow skyrocketing premium increases. Employers and hospitals have taken a long look at recent jumps in insurers' quarterly profits, which are coming just as healthcare cost increases are beginning to slow. Even as Anthem and WellPoint were announcing their deal, they were disclosing third-quarter net earnings of 15% and 17%, respectively. (The combined earnings of the nation's 42 Blues plans jumped more than 40% per year for the past two years.)
Anthem and WellPoint became Wall Street darlings through their ability to win double-digit premium increases that exceeded the healthcare inflation rate even as they abandoned traditional managed-care restraints on utilization. This is an untenable trend for our system, with access to care as the first victim. As employers look to trim costs, future managed-care profits may have to come from actually managing care.
Both companies have been on the forefront of consumer-driven healthcare, offering plans that shift the cost burden from employers to patients. That's a measure with only a limited effect; further cost control is only possible through measures such as paying for higher-quality care and managing the highest-cost conditions.
The real advantages of the Anthem-WellPoint deal, if it survives regulatory scrutiny, would come from economies of scale in operations, especially the all-important information systems that allow managed-care companies to track utilization and manage the highest-cost patients. This behemoth will have a database second only to Medicare's, with far greater incentive to find and implement cost savings. There may even be hope that it can find a way to demand quality from the doctors and hospitals able to provide it.
Leonard Schaeffer, WellPoint's chief executive officer and a former HCFA administrator, sees the potential to gather enough data to give meaningful guidance on the effectiveness of healthcare procedures and practitioners for future quality initiatives.
If that is true, maybe there could be a positive outcome from this merger that transcends the financial bottom line.
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