The ex­pected surge in in­sur­ers buy­ing physi­cian prac­tices never ma­te­ri­al­ized

Modern Healthcare - - 2015 UP & COMERS - By Bob Her­man

IN 2010, HU­MANA, THE LOUISVILLE, KY.-BASED IN­SURER THAT SPE­CIAL­IZES IN MEDI­CARE MAN­AGED CARE, shelled out nearly $800 mil­lion for Con­cen­tra, which di­rectly em­ploys physi­cians, nurses and other clin­i­cians de­liv­er­ing oc­cu­pa­tional medicine and ur­gent care. The move was a re­turn to fa­mil­iar ter­ri­tory for Hu­mana. It be­gan life as a nurs­ing home com­pany and later be­came a hos­pi­tal op­er­a­tor be­fore mor­ph­ing into an in­surer.

The deal turned heads at the time. The Con­cen­tra ac­qui­si­tion started a small wave of Af­ford­able Care Act-era trans­ac­tions where a few in­sur­ance com­pa­nies joined hos­pi­tal and large physi­cian groups in buy­ing up med­i­cal prac­tices.

But that early wave did not trig­ger the ex­pected tsunami of physi­cian prac­tice pur­chases by in­sur­ers. In­deed, ear­lier this year Hu­mana ended up selling Con­cen­tra to a spe­cialty hos­pi­tal chain and a pri­vate eq­uity firm for nearly $1.1 bil­lion.

Com­pany of­fi­cials say they re­al­ized they couldn’t man­age front-line providers car­ing for com­mer­cially in­sured pa­tients. “Con­cen­tra’s oper­a­tions did not ul­ti­mately align with Hu­mana’s strat­egy as well as we had orig­i­nally an­tic­i­pated,” Hu­mana CEO Bruce Brous­sard said in March.

Not many in­sur­ers have shown an ap­petite for get­ting into the ac­tual de­liv­ery of healthcare ser­vices. Hos­pi­tals over­whelm­ingly re­main the main buyer of med­i­cal groups. In­sur­ers would rather cre­ate new pay­ment con­tracts or non-own­er­ship part­ner­ships than buy a prac­tice out­right.

The few in­sur­ers that are buy­ing doc­tor groups are do­ing so in a tar­geted fash­ion. Pri­mary-care providers, es­pe­cially physi­cians and nurses who mostly treat Medi­care pa­tients, are in high de­mand since they are con­sid­ered the gate­keep­ers for pre­vent­ing and man­ag­ing costly chronic ill­nesses.

That was Hu­mana’s strat­egy. Af­ter it bought Con­cen­tra, the com­pany scooped up sev­eral clin­ics and ac­quired Se­nior­Bridge, a provider group that cares for el­derly pa­tients at home.

Other ma­jor in­sur­ers also dab­bled in the ap­proach. An­them pur­chased CareMore, a Cal­i­for­nia-based med­i­cal group with a Medi­care Ad­van­tage plan. Unit­edHealth Group’s health-ser­vices sub­sidiary, Op­tum, ab­sorbed Monarch HealthCare, a large physi­cian prac­tice in Cal­i­for­nia. Blue Cross and Blue Shield af­fil­i­ate High­mark bought the en­tire West Penn Al­legheny Health Sys­tem in Pittsburgh, cre­at­ing a hos­pi­tal, physi­cian and health plan net­work that ri­vals the neigh­bor­ing UPMC sys­tem. Con­trol­ling healthcare costs is the mantra of the times, and pri­mary-care groups are viewed as one of the most im­por­tant pieces of the puz­zle be­cause those doc­tors act as the ini­tial ac­cess points for the in­sured. Find­ing out which pa­tients need more in­ten­sive pre­ven­tive care could avoid hos­pi­tal­iza­tions and save money, the think­ing goes.

“Even the in­sur­ers have fig­ured out, if we’re go­ing to of­fer com­pet­i­tive prod­ucts, maybe we should have a strong pri­mary-care or fam­ily-prac­tice base,” said Dr. Robert Wer­gin, the im­me­di­ate past pres­i­dent of the Amer­i­can Academy of Fam­ily Physi­cians.

But over­all, only a sliver of em­ployed physi­cians work for an in­sur­ance com­pany in­stead of their lo­cal hos­pi­tal or health sys­tem. It won’t change much go­ing for­ward, ac­cord­ing to mul­ti­ple in­dus­try sur­veys and ex­pert in­ter­views.

Laura Palmer, a se­nior fel­low at the Med­i­cal Group Man­age­ment As­so­ci­a­tion, said her or­ga­ni­za­tion has not heard of any sit­u­a­tions in which physi­cian mem­bers are di­rectly selling or look­ing to be em­ployed by a health in­surer. In the Amer­i­can Med­i­cal As­so­ci­a­tion’s re­cent em­ploy­ment sur­vey, physi­cians can in­di­cate if they prac­tice in an HMO or man­aged-care or­ga­ni­za­tion. But “the share of physi­cians who work for HMOs or MCOs is so small we don’t break it out,” an AMA spokesman said. Roughly 2% of ap­prox­i­mately 34,000 pri­mary-care physi­cians in the AAFP’s an­nual sur­vey said they were em­ployed by an in­surer.

In­sur­ers are min­ing pa­tient data and work­ing with providers to find and treat pa­tients who need the most up­front care, said Stephen Short­ell, a health pol­icy pro­fes­sor at the Univer­sity of Cal­i­for­nia at Berke­ley.

“That stops short of ac­tu­ally de­liv­er­ing med­i­cal care,” he said. In­sur­ers “don’t know that busi­ness. They’re not trained to do it.”

In­stead of full-fledged ac­qui­si­tions, Short­ell and oth­ers have seen many more al­liances be­tween in­sur­ers and physi­cian prac­tices—two par­ties that of­ten are ad­ver­saries in­stead of part­ners. In­sur­ers want to re­ward providers for good qual­ity marks and lower costs, but don’t nec­es­sar­ily want to be the ones writ­ing physi­cians’ en­tire pay­checks.

“It’s a big deal for pay­ers to ac­quire med­i­cal groups,” said Josh Weis­brod, a part­ner at Bain & Co.’s healthcare prac­tice. “It’s mak­ing a state­ment about their ap­proach … and it’s not a slam dunk that it would be a mar­riage made in heaven.”

Many in­sur­ers shun buy­ing eq­uity in physi­cian prac­tices to avoid am­pli­fy­ing neg­a­tive per­cep­tions about their role in the healthcare process. Doc­tors and pa­tients loathe deal­ing with preau­tho­riza­tion forms and in­sur­ance bills, Wer­gin said, and hav­ing a payer hover over a med­i­cal group con­jures im­ages of more skimped care.

But Leeba Lessin, CEO of An­them’s CareMore, said it’s no dif­fer­ent than what Kaiser Per­ma­nente, Geisinger Health Sys­tem and other her­alded in­te­grated de­liv­ery sys­tems have done for years. And those per­cep­tions haven’t stopped other hos­pi­tal sys­tems from en­ter­ing the in­sur­ance game in an ef­fort to align eco­nomic and clin­i­cal goals. “We’re not alone in these,” Lessin said.

Cap­i­tal Dis­trict Physi­cians’ Health Plan, a not-for­profit in­surer based in Albany, N.Y., does not own any med­i­cal groups and has no im­me­di­ate plans to do so. The physi­cian-led com­pany has taken a dif­fer­ent route al­to­gether.

CDPHP has spent $5 mil­lion over the past few years

“It’s a big deal for pay­ers to ac­quire med­i­cal groups. It’s mak­ing a state­ment about their ap­proach … and it’s not a slam dunk that it would be a mar­riage made in heaven.”

buy­ing elec­tronic health-record sys­tems for physi­cian groups that are al­ready part of its net­work but don’t have the time or money to make those in­vest­ments. Physi­cians main­tained full own­er­ship of their prac­tices.

The in­surer also cre­ated a pa­tient-cen­tered med­i­cal home pro­ject. Al­most 200 physi­cian prac­tices rep­re­sent­ing 840 net­work doc­tors and clin­i­cians par­tic­i­pate. CDPHP pays care-co­or­di­na­tion fees and bonuses to providers, and in ex­change, physi­cians ad­just their prac­tice to ben­e­fit pa­tients. For ex­am­ple, physi­cians ex­tend of­fice hours and pro­vide ed­u­ca­tional classes on pre­ven­tive care, such as smok­ing ces­sa­tion and di­a­betes man­age­ment.

“We don’t nec­es­sar­ily want to own prac­tices,” said Bob Hinck­ley, chief strat­egy of­fi­cer of CDPHP. “We want to work with them and help them be ef­fi­cient so they can do their work at the most ef­fec­tive cost.”

Most pay­ers are try­ing to find ways to col­lab­o­rate rather than buy pri­mary-care groups in their re­gions, sim­i­lar to CDPHP. But some na­tional, cor­po­rate in­sur­ers have still shown some in­ter­est in tak­ing over prac­tices that have ad­vanced data-crunch­ing ca­pa­bil­i­ties and care-co­or­di­na­tion tech­niques, Mod­ern Healthcare re­ported ear­lier this year (April 20, p. 16). Hu­mana and Unit­edHealth Group—the two largest Medi­care Ad­van­tage in­sur­ers in the coun­try—still have the most ap­petite, es­pe­cially for pri­mary-care providers who care for high-risk, high-cost Medi­care mem­bers.

“In Medi­care it re­ally has a lot of value,” said Ana Gupte, man­ag­ing di­rec­tor at in­vest­ment bank Leerink Part­ners. “It doesn’t make sense for com­mer­cial,” she said, be­cause peo­ple in em­ployer-spon­sored plans are usu­ally health­ier than se­niors and don’t need to visit their doc­tor as fre­quently.

Hu­mana with its Medi­care Ad­van­tage fo­cus owned 22 med­i­cal cen­ters at the end of 2014, a ma­jor­ity of which are in se­nior-heavy Florida, ac­cord­ing to com­pany doc­u­ments. Hu­mana’s CAC Florida Med­i­cal Cen­ters, which are staffed by pri­mary-care doc­tors and some spe­cial­ists, rep­re­sent a large slice of that to­tal. Hu­mana em­ployed or had an own­er­ship ar­range­ment with 10,600 pri­mary-care providers and Medi­care-spe­cific clin­i­cians in 2014, com­pared with 8,400 in 2013.

Op­tumCare, the part of Unit­edHealth’s Op­tum unit that han­dles med­i­cal oper­a­tions, has a di­rect re­la­tion­ship with 17,000 physi­cians. The com­pany em­ploys many of those physi­cians and as­sists oth­ers in con­tract­ing only, Op­tumCare CEO Jack Larsen said.

Monarch Healthcare has been an Op­tum-owned med­i­cal group for roughly four years now, and it faced some trou­ble for choos­ing to sell to a com­pany that shares a bal­ance sheet with the na­tion’s largest in­surer. Monarch had to pay $2.5 mil­lion to Blue Shield of Cal­i­for­nia in 2013 to re­solve claims it breached its con­tract and turned Blue Shield Medi­care pa­tients away. Monarch de­nied the claims.

Monarch CEO Dr. Bart As­ner, a pe­di­a­tri­cian, doesn’t view the deal as merg­ing with an in­surer. Op­tum is part of a com­pany that also hap­pens to own an in­surer, and it pro­vides the sep­a­rate ser­vices, such as data an­a­lyt­ics and pre­dic­tive mod­el­ing that Monarch wouldn’t have been able to de­velop in­de­pen­dently.

“We were not, by any means, be­com­ing part of an in­sur­ance com­pany,” said As­ner, whose group cares for 250,000 pa­tients. “Unit­edHealth­care is one of many health plans we work with. We are plu­ral­is­tic.”

Op­tum ex­ec­u­tives main­tain that they are sep­a­rate from Unit­edHealth­care’s oper­a­tions. “We’re re­ally try­ing to build a bet­ter so­lu­tion that helps pay­ers of all stripes in the long term,” Larsen said. He added that Op­tum will buy or in­vest in more clin­i­cal set­tings, such as ur­gent care and sur­gi­cal cen­ters, in the fu­ture. For in­stance, Op­tum bought MedEx­press, an ur­gent-care clinic com­pany, this past April.

But so far, in­sur­ers haven’t shown in­ter­est in pur­su­ing the thou­sands of small prac­tices across the na­tion that rep­re­sent—at least con­cep­tu­ally—an op­por­tu­nity to im­prove care co­or­di­na­tion and lower their med­i­cal-loss ra­tio.

Dr. Wil­liam Fox runs his small in­ter­nal medicine prac­tice in Char­lottesville, Va., with one other full-time physi­cian and one part-timer. Though lo­cated be­tween Sen­tara Healthcare’s Martha Jef­fer­son Hos­pi­tal and the Univer­sity of Vir­ginia Health Sys­tem’s flag­ship hos­pi­tal, which dom­i­nate the area, the prac­tice re­mains in­de­pen­dent even though both or­ga­ni­za­tions want to buy the pri­mary-care prac­tice.

“They both made it re­ally clear they are very open when and if we don’t want to be in­de­pen­dent,” Fox said. The prac­tice has no plans of selling.

When asked if any health in­sur­ance com­pa­nies have come knock­ing on his door with an of­fer, Fox said not only has it never hap­pened, but the idea has never crossed his mind. “If I heard about it, I prob­a­bly some­what dis­missed it,” he said.

The re­la­tion­ship be­tween doc­tors and in­sur­ers is “kind of like a scorpion’s dance,” he added.


Josh Weis­brod


Bain & Co.

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