Five Observations From 2023 First 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 Q1 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: Utilization appears to be stabilizing
Overall, medical loss ratios (MLRs) were relatively consistent with 2022 Q1. This is significant because it was during 2022 Q1 that the Omicron variant peaked. This would indicate that there is not as much suppressed demand for services as some health systems may have anticipated. Multiple health plans noted that there was a continued downward trend in inpatient demand coupled with some increasing spend for outpatient services. Though this may strike many as old news at this point, it reinforces the importance of adapting to this environment.
Observation #2: Health insurance exchange coverage is increasingly relevant
While utilization is stabilizing, health insurance coverage mix is becoming more dynamic. Specifically, the next two years are likely to see material increases in individuals enrolled in health insurance exchange plans. CVS/Aetna noted it largest membership increase in 2023 was from individual exchange business. This bump was before Medicaid redeterminations take hold through the rest of 2023 into 2024. To limit the impact of coverage losses, state Medicaid agencies are working with managed care plans to reach out to members at risk of losing coverage with their options. Both Centene and Molina, which have significant Medicaid enrollment, have been actively engaging with these members on their potential options for signing up for exchange coverage. The combination of Medicaid coverage losses with proactive plan transition support is likely to drive an uptick in an insurance product line that has otherwise been limited.
Meanwhile, Oscar Health, which has built its business on technology enabled health insurance starting with exchange markets, is exploring growth opportunities with small and mid-sized employer groups interested in moving into exchange plans. This value proposition is bolstered by company’s highest renewal rates amongst members.
This is important for a few reasons. First, managed care and contracting teams should take the opportunity to reassess their approach to contracting for exchange products. Secondly, the utilization patterns in the exchange covered lives is distinct in that utilization goes up throughout the year based on plan design factors. Third, as health plans better understand this population, pricing is likely to become more competitive and health plans will prioritize VBC delivery partners to create a competitive advantage.
Observation #3: Payer delivery arms are expanding
Payers are showing more focus and discipline in the health insurance arm of the business, with moves like Humana divesting its commercial business and Elevance citing pricing strategies that drove expected attrition in commercial risk group business. The undercurrent for legacy health insurance is focus; in contrast, payer health care delivery arms continue to grow and broaden in scope.
This includes growth from acquisitions (like CVS/Aetna closing its Oak Street Health deal), partnerships, and organic investments. These care delivery capabilities continue to focus on better managing populations through primary care, virtual access, and home-based offerings. Even health plans with more Medicaid enrollment—notably Centene—cited expansion in their delivery capabilities.
The inaction by many health systems in VBC has left a gap that payers have worked to fill. Like all organizations, the health plans have learned and iterated along the way. That experience and organizational knowledge is allowing them to increasingly compete effectively with traditional healthcare providers – particularly in venues outside traditional inpatient acute care.
“We have spent well more than a decade investing in essential infrastructure and offering extensive practice transition support to enable tens of thousands of care providers to participate in this comprehensive value-based approach. By integrating traditional ambulatory care with specialty behavioral and pharmacy care across in-clinic, virtual and in-home settings, we are delivering measurably better health outcomes for patients, all while improving access and lowering costs for people and the healthcare system overall.” – Andrew Witt, CEO, UnitedHealth Group
Health systems should expect increasing competition and overlap in patient care with payers. There will also be opportunities for systems to partner with these organizations, particularly if they can demonstrate their commitment to high-value care delivery.
Observation #4: VBC ecosystem is actively evolving
The care delivery arms for all large health plans continue to take a pluralistic contracting model. Rather than evolving as independent narrow network systems, there is an ecosystem developing between some health plans and VBC delivery organizations where value is being created and captured through more collaborative relationships.
As relationships continue to strain between many health systems and health plans, often centered around near-term fee-for-service rate negotiations, new and disruptive partnerships are progressing. Payers recognize they cannot own resources and capabilities in all markets, so they are partnering to accelerate growth. One example of a growing partnership was highlighted by primary care enabler, agilon health, which noted that it uses quarterly operations meetings to forward strategic growth.
“Our large national payers continue to be very strong partners, and we work with them very closely through quarterly joint operating committees. We are collaborating very closely on next year as they work through benefit designs and what they want to do around that. And also, just the clinical programs and the quality performance that I talked about is very advantageous to them. So, I think all of that leads to a very constructive environment for payers and one that we think is just strengthening.” – Steve Sell, CEO, agilon health
While the current contracting environment is increasingly contentious in many cases, health systems should balance these short-term challenges with a long view to ensure these relationships and partnerships position their organizations for success. For health systems looking to differentiate in VBC, there are payer and other partnership opportunities available for those willing to meaningfully commit. Understanding these emerging dynamics with payers and new entrants will be critical for health systems looking to increase their market relevance in care delivery across the continuum.
Observation #5: Early signs of expanded VBC focus to reach more commercial and Medicaid beneficiaries
Medicare and Medicare Advantage (MA) populations continue to be the focal population for the majority of VBC initiatives given the total spend in the population, growth in this cohort, and transparency of data. While VBC models will continue to prioritize this cohort, payers are continuing to slowly grow lives in VBC programs in other payer classes. Cigna noted that ~75% of commercial lives are in a VBC program, and Optum (UnitedHealth Group’s care delivery arm) noted continued growth up to ~4 million fully capitated lives within their commercial populations today.
When Medicaid membership stabilizes in many states in 2024, expect health plans to take an even more committed longitudinal view to managing this cohort. Through the engagement that health plans have with members during the redetermination, their member activation capabilities are likely to improve. Overall, this may be welcome news for health systems interested in pursuing a more advanced VBC strategy and want to develop an approach that works across all patients and payer classes.
Given the diversity of populations and payer mixes health systems continue to treat, this momentum can provide more economic backing to multi-payer (and payer class) VBC strategy. Each of these populations has unique needs and utilization patterns, and VBC contracts and investments should be tailored accordingly to support sustainable success.
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.