In a move to diversify its revenue sources, insurer Humana said last week that it will pay $790 million to buy Concentra, a medical-services company providing care through work-site and freestanding clinics in 42 states.
Insurer pays $790 million for Concentra
The move, deal watchers said, is likely to be duplicated by other insurers as payers seek to stave off expected shrinking profit margins brought on by HHS' newly issued medical loss ratio rules. Set to take effect in 2011, the rules will require payers to spend 80% to 85% of collected premium dollars on patient care. Payers who don't meet the criteria would have to refund a portion of member premiums.
“I think there are a lot of reasons payers are going to look at the provider side, including revenue concerns,” said Beth Essig, a healthcare attorney with Epstein Becker & Green. “But also, a deal like this allows them to get control over their costs. It lets them start to direct the healthcare their insured are receiving.”
Under the deal, Humana will pay $790 million in cash to acquire Concentra. In return, the insurer will gain 308 freestanding clinics, 240 work-site clinics and 650 primary-care physicians who are under contract to the provider. Concentra's leadership, including its CEO Jim Greenwood, is expected to remain in place, officials at both companies said.
Paul Kusserow, senior vice president and chief strategy officer for Humana, said the insurer expects to benefit on multiple levels from the acquisition. Benefits include aligning the payer with a designated group of providers that can deliver cost-effective treatment to its insured membership and providing the company with a source of income that won't be affected by the medical loss ratio rules. Concentra's reimbursement revenues would not be exposed to the rules, as they govern only insurers.
The acquisition also is expected to help Humana—a payer that is heavily invested in the Medicare market, and which saw a 17% increase in its Medicare Advantage plan membership in the year ended Sept. 30, 2010—attract non-Medicare-based members by offering services that appeal to younger clients insured through employer-based plans. Humana and other Medicare Advantage insurers are expected to take a hit in 2012 when the CMS institutes a reduction in Medicare Advantage reimbursement rates (March 29, 2009, p. 12).
“I think it diversifies our customer base, and we like that,” Kusserow said of the Concentra acquisition, which still is subject to regulatory review. “But it also includes part of our current customer base. We looked at the demographic base at both companies, and we found a 34% overlap.”
In addition to the Concentra deal, Humana also announced last week that it was partnering with Louisville, Ky-based Norton Healthcare, which owns five hospitals, to launch the region's first accountable care organization.
“When you look at what's been going on with hospitals being purchased, we think it's important for us to be aligned with physicians,” Kusserow said. “This, for us, is important because we need to guide our members and make sure they're making good choices.”
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