Hospitals Buying Insurers: Is It Good for Medical Technology Companies?

June 6, 2014 — Leave a comment

th-2Healthcare reform in the US has brought lots of change. Accountable Care Organizations (ACOs), bundled payments, and value-based purchasing are some of the key changes. Most of these programs are aimed at some simple objectives: take costs out, enhance quality, and improve outcomes. In many cases, these new mechanism drive more alignment of incentives across providers and force coordination of care. This is causing providers to focus on data integration as well as vertical integration to improve care and better manage costs.

In the ever-changing market, it now appears that the growing integration is focused on combining providers and payers. Modern Healthcare is reporting that Accession Health, a large non-for-profit healthcare system, is looking to purchase a health insurer. Other providers have started or are buying health insurers. For medical technology companies, the question is what does this mean and is it good for business? While not an exhaustive list, I’ve outlined some ways in which further insurer / provider integration may impact medical technology companies:

  1. Could Help Innovative Technologies: Medical Technology companies with a great technology that impacts inpatient and downstream costs may benefit from this trend. This is because, in the past, a technology that costs the hospital more, but reduced downstream costs outside of the hospital was a hard sell to the hospital. With an integrated payer and provider, this better aligns incentives and should make telling the value story easier.
  2. May Open Up New Business and Contracting Models: A combined or aligned provider/insurer entity may make doing innovative risk-based contracting or finding new business models to deliver value easier.
  3. Push to Low-Cost Settings of Care As Hospital Revenue Becomes a Cost for Insurer: As hospital revenue becomes a cost for the insurer, the combined entity will likely carefully manage the setting of care for patients. This is consistent with some of the early trends in physician-led ACO models. In the physician-led ACO model, avoiding the ER and keeping patients out of the hospital is a key goal.
  4. Tighter Patient Funneling and Network Controls: Carefully managing patients and avoiding out of network costs will be important for the combined provider/insurer entity.
  5. Avoid Costly Procedures/Therapies With Long-term Payback: Non-elderly patients switch health plans for a variety of reasons. It could be because they have changed jobs, their employer changed plans, or they simply want a different plan. Health insurers know this and it may impact their willingness to cover costly treatments with a long-term payback. This may influence the coverage decisions for a combined provider/insurer entity.

Like a lot of the changes happening in healthcare, it’s not clear how quickly the market may evolve or where the end point will be. Providers buying insurers creates both challenges and opportunities for medical technology companies. Companies that are prepared, have the right commercial model, and have a clear value proposition will be the winners in this new market.

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