It's Opening Day, but deal-making payers already in midseason form
It's Opening Day, which means baseball fans everywhere are smiling--even, for once, on the north side of Chicago, even if they don't have bleachers to sit in.
For a few days, all fans exude confidence. "This is The Year," we say, listing a litany of reasons our team will surge to the pennant at the expense of our hated rivals, who will watch with utter sorrow as millions of die-hard fans fill our city streets to celebrate a much-deserved World Series victory.
Yes, by mid-May, most of us curse our beloved team, wondering when and how reliable fifth starters, timely hits and sensible umpires became as rare as Halley's Comet. For now, though, hope springs eternal.
What's true for baseball fans today seems to be true for the nation's largest health insurance companies as well. Look at recent events--namely, Humana selling Concentra and UnitedHealth buying Catamaran--and hope certainly seems to spring eternal for major payers. But uncertainty also lies ahead.
UnitedHealth appears to have made a wise decision. Skyrocketing prescription drug prices could cripple public and private payers faced with the unenviable dilemma of eating high costs or passing them on to consumers who cannot afford to pay them.
Adding Catamaran to OptumRx, in baseball terms, is adding a five-tool superstar in his prime to the middle of your lineup. It costs a lot, so it rarely happens--but when it does, it makes an immediate impact. (Think Cliff Lee, Miguel Cabrera or C.C. Sabathia.)
Humana, too, made a good decision. Selling Concentra is what sportswriters call "addition by subtraction," which itself is a fancy way of saying, "it seemed like a good idea at the time."
When Humana bought Concentra in 2010, occupational health and wellness appeared to be growth areas for the insurer. Now they are not.
Some star players fails to live up to expectations (and hefty contracts). Others clash with management, bringing the rest of the team down with them. Others just don't mesh with a team's chemistry or ethos. (Think Jayson Werth, Alex Rodriguez and Nomar Garciaparra, much as it pains this Boston Red Sox fan to say it.)
Get rid of them at the right time and you might even come out ahead. Considering that Humana sold Concentra for roughly $215 million more that it paid for the firm, I'd easily call that addition by subtraction.
Both UnitedHealth and Humana made smart moves. Now it's their rivals who are uncertain. Will Cigna, Aetna and Anthem try to buy a superstar pharmacy benefits manager, even if it means breaking the bank? Will besuited accountants for those firms pore over financial statements, looking for business units that fail to meet expectations?
These payers must be careful not to overreact. UnitedHealth just got bigger, and Humana leaner, but a calculated response will bring a better payoff than a quick one.
I watched the Red Sox make questionable move after questionable move in a vainglorious effort to keep pace with the New York Yankees. Sure, some signings and trades paid off--the team won three titles, after all--but others raised so many eyebrows that the general manager tried to skip town underneath a gorilla suit. (I'm not kidding.) Meanwhile, our rivals with significantly leaner pockets bided their time, made smaller but no less significant deals and struck when the Sox and Yankees were down for the count.
Humana and UnitedHealth have put their rivals on notice. At the risk of a terrible pun, they're playing hardball. Cigna, Aetna, Anthem and other payers need to decide if it's time to swing for the fences with a blockbuster deal, use smaller signings to hit singles in bunches or remain faithful to the roster that's brought success so far.
A long season awaits. Get yourself some peanuts and Cracker Jacks. - Brian (@Brian_Eastwood and @HealthPayer)
(Special thanks to Dan Bowman and Katie Dvorak of FierceHealthIT for their baseball examples, which helped the author learn he has some serious East Coast bias to overcome.)
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