Payment Evolution

September 13, 2023

Five Observations From 2023 Second Quarter Earnings Calls: Legacy Payers and VBC Market Entrants

As part of Sg2’s value-based care (VBC) analysis and market research, we review the quarterly earnings calls from a subset of publicly traded legacy payers and VBC-focused entrants. The summary is designed to highlight emerging trends and dynamics in these closely related industries, especially as they tie to VBC. The following post draws from recently released earnings call transcripts from 2023 Q2 with a focus on legacy payers (Centene, Cigna, CVS/Aetna, Elevance, Humana, Molina, UnitedHealth Group) and market entrants focused on value-based care (VBC) and/or the premium dollar (Agilon, Bright HealthCare, Cano Health, Clover Health, Oscar, Privia, Walgreens/VillageMD).

Observation #1: The Q2 spike in utilization was most prevalent in Medicare Advantage (MA).

During the second quarter, multiple payers publicly noted an uptick in utilization. While there were increases across payer classes, it was concentrated in the MA population, particularly for outpatient services and surgeries. Furthermore, within surgical services growth, multiple plans pointed to increases in orthopedic and cardiovascular surgeries. During the second quarter, multiple payers publicly noted an uptick in utilization. While there were increases across payer classes, it was concentrated in the MA population, particularly for outpatient services and surgeries. Furthermore, within surgical services growth, multiple plans pointed to increases in orthopedic and cardiovascular surgeries. While there was no single cause, it was speculated that this was a combination of capacity (eg, supply driven) and pent-up demand.

Overall, the payers noted utilization was much closer to pre-pandemic levels. Additionally, multiple plans went on to note that utilization has been normalizing over the last few months. Consequently, the payers are still expecting utilization to remain within their expected ranges, and many of the plans directed investors to expect medical spending toward the higher end of the guidance put forth at the outset of the year.

Observation #2: Meanwhile, VBC demonstrated resilience to the utilization increases.

Multiple VBC-focused providers experienced some increases in utilization but below the overall market bumps. This highlights an advantage of a VBC-oriented infrastructure, namely that managing to population outcomes drives more predictability in utilization and care delivery needs than populations that are less managed.

“We believe this high-touch approach has prevented a pent-up demand for care and insulated agilon from any associated spikes in utilization.” – Steve Sell, CEO, agilon health

Observation #3: Payers are continuing to invest in care delivery.

Health plans are continuing to invest in growth in the care delivery business even with the challenging macroeconomic backdrop. Humana and CVS/Aetna (Oak Street) reaffirmed their clinic footprint expansion plans, and Elevance highlighted further home-based services growth. These investments continue to be built on a foundation of primary, home-based and virtual care that are direct-to-consumer focused and enable more efficient and effective population health management.

One noteworthy trend was that multiple payers highlighted actions and plans for further investment in behavioral health services. With strong evidence that behavioral comorbidities drive higher spending and resource needs, payers are taking a more proactive approach to working with members upstream. Elevance specifically noted its focus in crisis stabilization support, presumably to reduce resource-intensive hospital visits.

“This just goes to the fact that if you’re doing a great job taking care of people and keeping them out of the hospital and lowering medical costs, that will be durable across any risk-adjusted methodologies, so we’re pretty confident in our ability to keep generating great results going forward.” – Mike Pykosz, CEO, Oak Street Health (CVS/Aetna)

Observation #4: Payers are positioning to drive additional margin through primary care.

While health systems have evolved to position primary care as a referral channel and loss leader, health plans are investing to drive financial margins through primary care. For example, Humana is targeting a $3M annual contribution from each of its ~250 primary care centers (although only ~30 are expected to achieve this target in 2023 and projecting to increase to ~40 in 2024). This shows both the significant opportunity in repositioning primary care and the time horizon needed as it is a multiyear approach to driving considerable margin through these models.

Key components of this formula across health plans include:

  • Team-based care approach, with strong care coordination (including strong onboarding and training of providers)
  • High-touch, high-retention model that proactively identifies and closes gaps in care
  • Technology enablement linked to the medical records to drive more efficient and effective care
  • Value-based contracts that reward total cost of care performance

Observation #5: Health insurance enrollment market should be more dynamic over the next 6–12 months, even beyond the impact of redeterminations.

With redeterminations in process, Medicaid enrollment remains top-of-mind for the health plans. From a macro view, it is too early to draw conclusions about where coverage changes are likely to impact net enrollment numbers. The payers largely reaffirmed their guidance, which is generally that ~50% of those enrolled in Medicaid during the public health emergency will lose coverage. Of those losing Medicaid coverage, it is expected that these individuals will then shift to a blend of employer coverage and exchange-based coverage, with some dropping coverage altogether. It is still expected that this will take at least another ~12 months to unfold.

Additionally, With Medicare’s annual enrollment period (AEP) starting in October, MA enrollment numbers are likely to provide some interesting insights. Growth in MA enrollment is projected to continue, which will provide a tailwind in many markets. The more intriguing story will be how the payers fare with member retention, especially given the enhanced focus in this area. More specifically, it will be interesting to watch the payers make plan design changes (eg, trim supplemental benefits) and still retain/grow membership.

No matter where your organization stands today on its journey to value-based care, our value-based care experts are equipped to provide your organization with unique insights and impactful recommendations in prioritizing opportunities and positioning your organization for select value-based care undertakings. Please reach out to us for more information or to speak with an Sg2 value-based care expert.

Source: Sg2 Analysis, 2023.

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Associate Principal
As a leader on Sg2’s Consulting team, Joe collaborates with health systems, provider networks and industry partners to develop and drive strategies that better position organizations for success in an evolving environment. Within value-based care, he partners with organizations to bring together economic models and structures that align with the organization’s clinical care delivery approach. His expertise is informed by his experience in local and regional clinically integrated networks, value-based contracting, two-sided total cost of care arrangements, direct-to-employer contracting and aligned governance.