Treatment facilities that can work with winning insurers and adopt new business practices will position their businesses to increase their market share, during this changing environment.
Very few treatment owners are taking a conscious and proactive look at the approaching storm clouds on the horizon. Things such as compliant client acquisition, documentation of processes and scalability are taking a back seat to business as usual. It is estimated that less than 15% of treatment facilities nationally have adapted to the new health care business model. That is an astounding 85% that potentially won’t make it. In many cases, these vanishing businesses are ignoring basic business principles out of pure ignorance, but many of them simply have a myopic view of their businesses as it relates to the overall market landscape.
Health insurance distributors and health insurers are also not exempt from business life cycles. In fact, since the healthcare overhaul occurred in our country with the enactment of PPACA 2010 (Patient Affordability Care Act; AKA “Obamacare”), dozens of insurers have called it quits.
Some of the losers like Assurant, saw an early demise, while others like United Health Care are seeing are showing signs of weakness. On the flip side, winners like Anthem, Kaiser Permanente, Tenet Healthcare and new comers like Oscar are capitalizing and gaining rapid momentum.
Private hospital owners have been some of the biggest winners. As a result they have seen a 24% increase in profits in 2015. Mainly due to rebalancing of their business models to accommodate a wider range of insurance policies.
Although most insurers have had the advantage of being subsidized by the federal government, a level playing field has not been the cure for all insurance companies. Insurance carriers have medical loss ratios that must be maintained at a lower proportion than premiums coming in from policyholders. Like with any business when expenses (loss ratios / claims) accelerate revenues (premiums), cut backs are inevitable.
Since the Affordable Care Act took effect in 2010, insurers have had to deal with claims deprived of empirical data. United Health Care has decided to stop selling individual insurance coverage through the exchanges resulting from these losses. It is no mystery why the decision by UHC was made to only allow verification of benefits to be controlled by the policyholders, insurance agents or billing companies. When losses are up, companies get creative and implement new procedures to help mitigate losses. For UHC, it happens to be, becoming their own gatekeeper.
In the insurance company’s defense, they had no way of calculating this new risk. Think about it from a practical standpoint. If your business started to see unexpected losses resulting from a vendor payment that was a large new item on your balance sheet, would you question it, or at least get in the weeds to get a better assessment of the loss? Most businesses would. As PPACA continues to integrate into our new healthcare system, every business related to health care is forced to rethink, reassess and reengineer their business models in order to stay in the game.
Another example, Highmark Inc. BCBS of Pennsylvania, recently filed a law suit against the federal government on May 17, 2016. The company and some of its subsidiaries and affiliates are seeking to recover damages they believe are owed by the federal government’s failure to honor its contractual obligations relating its participation in the health care exchanges. Highmark Inc. BCBS of Pennsylvania claims the federal government is refusing to pay the full amount that the risk corridor program for the calendar year 2014 (“CY 2014”) implies in the statute, regulation, and contracts which induced Highmark insurers to participate in the ACA marketplace. The lawsuit states that Highmark is owed nearly $223 million, less any prorated amounts actually paid by the government, which was reported to be only $27.3 million by Centers for Medicare and Medicaid Services (CMS). Reading between the lines, Highmark BCBS of Pennsylvania are seeing a bit higher medical loss ratios then what they anticipated.
Anthem on the other hand, has reported earnings better than expected and added 1 million new customers since the end of last year, many of which were Obamacare enrollees. Earnings for Anthem came higher than expected. They beat estimates by more than 10 cents per share, coming in at $3.46 for the first quarter. The company expects revenues for 2016 to range from $81 billion to $82 billion, up from its previous estimate of $80 billion to $81 billion. In addition, Anthem plans to finalize its merger with Cigna in the second half of this year. The story seems a quite different than UHC, Assurant and Highmark, Inc. BCBS of Pennsylvania.
Insurance is simply “a promise to pay”. A policy is nothing more than a contract between an insured and an insurer. The business structure of insurance is a collection of more policies and premiums than actual payouts. When the market rules change, courtesy of the federal government, insurers without question have to adjust their promises.
Questions We Must Ask Ourselves
As these promises (insurance contracts) continue to evolve over the next 2-4 years, will your business parallel these changes?
As insurance companies modify their revenue models and continue to balance out their medical loss ratios in the new environment, will your business modify its revenue model to adapt?
So what is the solution for treatment facilities? Change is never comfortable, no matter how big or small your business is. Adopting new business practices and processes such as upgrading customer and lead management tools, auto dialer software, insurance rebalancing, state rebalancing and spreading levels of care will result in a different outcome. As the saying goes; “The definition of insanity is doing the same thing over and over and expecting a different result”.
Historically, disruption is found in every single US business sector since WWII. Profitability and growth proceeding the disruptive era has always been far greater then all prior time periods leading to disruption. Why? Simply because the market has not gone away rather the number of players shrunk, leaving more profits for fewer players.
Now is the chance for treatment providers to take full advantage of the opportunity laid in their path.
Actionable Recommendations (we are closely monitoring these insurers medical loss ratios in the coming months)
- Anthem, MLR Balance Stable (Gaining traction and playing a big part in the carrier consolidation. Have remained healthy in terms of market share. Reports show a stable MLR balance.
- Aetna, MLR Balance Stable (Merged with Coventry and Humana in 2015. Reports show a stable MRL balance.)
- Cigna, MLR Balance Stable (With the likely Anthem merger and with all the adjustments made last year, Cigna is starting to see more stability. Reports show a stable MRL balance.)Not all treatment centers have been eliminated.)
- UHC, MLR Balance Unsustainable (reported losses and unbalanced MLR, more changes expected in 2016.)
- Highmark BCBS of Pennsylvania, Delaware and West Virginia, MLR Balance Unsustainable
(Seeing unbalanced MLR, and in litigation with the federal government.)
- No current data to support negative outlook on a specific insurer or state as of the writing of this report.