Welcome back to the Weekly Muse – the latest trending healthcare stories and news articles from the last 7 days. Today’s edition covers the week of January 11, 2019. If you’re interested in getting these delivered straight to your inbox, go here.
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5 Big Stories
1. The Machine that is UnitedHealth
Killin it. United Health, the payor-provider behemoth, and just a smooth 7% of the DOW, announced its Q4 and full year earnings results this past week. Highlights included $226 billion in revenue, and EPS of $12.19. UNH hasn’t missed estimates since 2008, but more importantly, the co has some keen insights into the healthcare markets and gives a good indication as to what we can expect for the year ahead. On the quarterly conference call, UNH executives touched on the various goals that they’re aiming for their company (along with healthcare as a whole), including:
- Better integration of electronic health records;
- Data analytics to optimize healthcare results and administrative burden;
- Multiple points of engagement with consumers clinically and digitally, and;
- Increased transparency in pharmacy benefit management
Where’s healthcare headed? United expects healthcare to move toward a more aligned system, with payors and providers operating in an increasingly value-based system. With patients given the ability to leverage data to receive more personalized healthcare decisions and outcomes, UNH thinks that value provided to patients will be more easily quantifiable.
Explain. Because patient outcomes will be more easily measurable, UNH expects value-based care and payment models to become more prevalent. These are some noteworthy and insightful observations coming the UnitedHealth team, since currently, only about a fifth of healthcare payments are tied to value based care
2. Healthcare Mean Girls
It’s like we’re in high school. Some are playing nice. Some don’t like each other too much. And then others make all the drama. It’s a beautiful thing, really. On one hand, we saw Tenet making deals with major payors, solidifying in-network status at their facilities.
Microsoft gets in the action. Then, we noted a potentially major alliance between two giants in Microsoft (yep, that’s right) and Walgreens. They’re joining forces to create “innovative new healthcare models” (whatever that means. Guess we’ll see).
Then, in the beef of the week, CVS and Wal-Mart decided they didn’t want to play nice, announcing the two were not renewing the contract for CVS’ pharmacy benefit management services in Wal-Mart stores. The two sides had some things to say, both blaming the other side (go figure). Then, in a sudden, unexpected reversion, the two co’s made a deal 4 days later. So now everything’s back to normal. Like I said: Mean Girls.
3. LHC and Almost Family Cash Checks
Merger Gone Right. Remember the LHC Group and Almost Family merger earlier this year? Well, it looks like the combination is already paying huge dividends. The co announced this week that 49 Almost Family providers in 15 states would be receiving an average of 17% in rate lifts for 2019 due to LHC’s biz savvy. Things are generally going well with the integration – admissions are up, quality ratings are up, and margins are up for AFAM’s agencies.
We’re not talking chump change here. LHC estimates the rate lift bump should see AT MINIMUM a $2.5 to $3 million lift straight to the bottom line.
So why the huge bump? There could be at least a couple reasons. One, as a bigger company with more negotiating leverage with payors in general, LHC is able to win more favorable rates. A recent report DOES seem to indicate that consolidation in general tends to lead to higher healthcare costs.
Or, two: payors are understanding that home health and home care actually could drive healthcare costs down and save payors big bucks, since patients are seen in their home rather than in more costly settings (think hospitals, rehab facilities).
4. Medicaid Changes at the state level
Things are going down at the state level, especially when it comes to Medicaid. On one hand, several states are pushing to expand Medicaid funding. This effort is generally taking place in predominantly blue states. On the other hand, predominantly red states are looking to implement work requirements in order for people to apply and be eligible for Medicaid. The current administration is on board with the policy, too.
On a more important note, the current administration is potentially looking to re-shape Medicaid altogether. The new proposal would give block grants to each state for the purpose of funding Medicaid, but beyond that, it would be up to the states to create their own Medicaid programs and funding mechanisms. With a divided Congress, though, it’s probably unlikely for anything healthcare related to pass.
5. Major M&A Growth
Big Girth. A report released this week found some interesting trends in the healthcare M&A space. Large healthcare players continue to consolidate. In fact, the average size of sellers reached a record $409 million in 2018, which is a whopping 14% compound annual growth rate in average size since 2008. Sheesh.
Other Observations. Not for profit players were involved in 76% of transactions, and only 20% of transactions involved financially distressed entities, which was better than last year’s 21%. Kaufman Hall (shout out) also noted that M&A activity is shifting more to STRATEGIC growth (I.e., an acquisition to help the core business face various challenges in its industry) rather than growth for growth’s sake.
National. Finally, the report noted that, for the first time, major health systems are merging across state lines. Health players will continue to consolidate to protect themselves from industry threats (think Big Tech, the CVS-Aetna merger, the JP Morgan-Berkshire-Amazon JV), maintain leverage with payors, raise capital, and expand geographical footprints, as healthcare shifts to outpatient settings.
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