Insurance Company Mergers & The CAO Model: Leading the Way in a New Healthcare Landscape
The proposed mergers of Aetna and Humana, and Anthem and Cigna have dominated the conversation in the healthcare industry in recent weeks, and for good reason. The Decision Resources Group estimates that, if approved, these two “merged” companies, along with UnitedHealth Group, will control almost half of the commercial health insurance market.
CAO is a very large physician practice, but we are not large when compared to, for example, a merged Anthem-Cigna. If this merger is approved, the resulting company will represent over 53 million patients or nearly 17 percent of the U.S. population. Does this mean that the insurance companies will be too big for us to negotiate with? The answer is “no.”
The groups that formed and continue to join the Centers for Advanced Orthopaedics have had the foresight to see that the disruptions occurring in our industry would result in this kind of rapid consolidation. It’s one of the reasons we created The Centers for Advanced Orthopaedics in the first place. Because we came together, we are now, as a group, much better prepared to negotiate with these larger insurers. In contrast, the recent mergers must be a very scary prospect for groups that have not joined an integrated provider groups like The Centers.
According to America’s Health Insurance Plans (AHIP), “Insurers are looking to keep coverage affordable through negotiating lower medical bills, and shifting to a system of paying for quality over quantity.” The Affordable Care Act now requires that insurers spend at least 80 percent of their revenue from premiums on the cost of medical care, rather than on overhead and profits. So, to remain profitable and competitive, insurance companies need to find economies of scale and reduce their costs. And The Centers, due to our size, is able to provide these economies of scale to the payors.
To maintain their members, insurance companies will need to avoid significantly raising insurance premiums. So, instead they will need to contract with the lowest cost, highest quality care providers — and that is exactly what The Centers is becoming. We should all pat ourselves on the back for seeing the changes on the horizon and for being proactive and nimble in how we are organized in order to face the changes together. In joining together to form CAO, we have become a strong organization that will be able to meet the demands of the new healthcare delivery model.
We can’t overstate the impact that our quality measurement initiatives such as Binary Fountain (patient satisfaction) and Healthjump (cost of care and clinical protocol/best practices) will have on our company. These partners will provide The Centers with measurements that will clearly show evidence of the quality of the care we provide our patients, which we know will put us in a better negotiating position with the payors. We need this quality and cost information if we are to survive and thrive under the evolving payment structures in the healthcare industry.
As employers continue to reduce their cost of healthcare by shifting cost to their employees through increased deductibles and co-pays, their employees — our patients — are becoming more careful consumers. Patients are actively comparing medical practices to determine who will give them the best value as measured by the highest quality (outcomes) and lowest price. Through measurement and accountability, we will be able to prove that we deliver the highest quality, most efficient musculoskeletal care, which makes us attractive to both our patients and the payors.
While it may seem challenging to negotiate with these soon-to-be larger insurance companies, the reality is that healthcare is still local and negotiations and payor relations will still occur at the regional level. So, despite their millions of members, we will still be standing on fairly even footing with these new insurance giants. They will continue to want to work with us; they want us to partner with them to reduce costs; and, in the end they want to do business with us.
The Centers for Advanced Orthopaedics is uniquely positioned for the next round of discussions with the payors, most of which will begin in mid-2016. With the information we’re gathering through Binary Fountain and Healthjump, we should be well prepared for these discussions. While other physician groups and health systems are worried that they need to scramble to cut costs in order to negotiate with payors, our business model was specifically designed to meet this challenge. CAO will be able to demonstrate that we are the low-cost provider, putting us in an exciting and strategically advantageous position with the payors.
Why did we form CAO in the first place? Simply put, we formed CAO to empower the private-practice method of care and to be the low-cost provider of quality medicine.
There is no doubt that, if approved, the merges of Anthem and Cigna, and Aetna and Humana will have a dramatic impact on our industry. Yet these mergers are, at the same time, a validation of our business model and the choice we made to create CAO. With our strength in numbers and our combined resources, we are emerging as a leader in our specialty in the new and ever-evolving healthcare landscape.