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Anthem’s announcement last week that it will acquire Cigna—on the tail of Aetna’s recent purchase of Humana—officially brings the health insurance industry’s “big 5” companies down to the “big 3,” just as insiders predicted.
While much of the discussion on payer and provider mergers has revolved around the race in the industry for size and scale, and the accompanying antitrust concerns, there’s more to the subject than these major points, says Frank Ingari, CEO of NaviNet. NaviNet is the nation’s leading healthcare collaboration network, connecting providers to health plans including Aetna, Cigna and UnitedHealthcare. Ingari sat down with Healthcare Dive this week to discuss what he sees ahead for the industry amid all of the “merger mania.”
One point Ingari notes is that it’s likely to be business as usual for quite some time. Based on past events, the regulatory review period for these mergers could be at least a year, he says. Even after that, it’s a lengthy process for such large companies to actually integrate their strategies and operations. In the meantime, they’re likely to call upon their components to continue using their current business models to deliver bottom line performance.
“It tends to be that changes take a lot longer than people realize,” Ingari says. “It could be four to five years before you see one of these mega-mergers operating as if it were one company.”
In the near-term, he suggests we could see more conservative decision-making while these companies are in transition, and that when people will see change depends very much on their relationship to the players involved. “If you’re a software vendor or hospital system, it’s a different thing,” Ingari says.
While much has been made of the overall national impact of the mega-mergers, Ingari reminds everyone to think locally. “In healthcare it’s really important to consider local share because healthcare is an intensely local business,” he says.
He notes that the major players have varying levels of regional and national presence. “You’ve got really different geographic footprints and that’s part of the analysis that should be done,” he suggests, “and that often plays into the regulatory response.”
Ingari is expecting very substantial regulatory reviews that look at local share and the implications market by market. “The combinations will in some cases create stronger competitors in those regions than they were before, and we may see shifts in regional markets,” he says.
As an example, he points toward a likely impact on the various different Blues plans as a function of geography.
Drive toward independence
Ingari suggests these plan mergers may lead healthcare providers toward starting their own health plans in order to erode the boundaries between payers and providers.
However, while it makes a compelling line of thought, he doesn’t expect to see many providers going it alone against the big payers. “I don’t think that really describes the marketplace,” Ingari says. “Taking on all of the functions of a full-fledged insurance company is both very expensive and somewhat risky.” He sees a more likely scenario.
“Most of the insurers are quite willing to partner with hospital systems to create what are essentially insurance companies around a hospital system,” he says. “If hospitals go into partnership with one of the major payers to outsource many of the functions, that becomes a lot more practical, and I think we will see that.”
Trends in scale
When describing trends in healthcare, “You’re guaranteed to be both right and wrong,” Ingari says.
The arms race between payers and providers to gain scale will undoubtedly continue, he says, with recent mergers accelerating that process. However, scale can also be a disadvantage, and there are some interesting counter trends occurring.
“We’re starting to see the emergence of quite a few startup plans around the country that are growing very fast and are able to be quite nimble,” Ingari says. “We’re seeing unusual reinventions like Zoom+ in the Pacific Northwest that are really challenging our concept of ‘what is a provider system?'"
He points toward telecom deregulation in the ‘80s and ‘90s and suggests that when you see the emergence of “superjumbos,” you often see the emergence of very small and nimble firms.
In summary, “I think you see countervailing trends out there that are not contradictory.”