Five Observations From 2023 Third 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 Q3 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, Alignment Health, Bright HealthCare, Cano Health, Clover Health, Oscar, Privia, Walgreens/VillageMD).

Observation #1: Health plans continue to pursue scale-based and technology-enabled efficiencies.

Health plans are proceeding with consolidation and scale efforts, including investments in centralization. For example, Centene cited plans for further consolidating its utilization management function. Beyond that, health plans are investing in technology-enabled solutions across the continuum. This spans from artificial intelligence tools supporting brokers in the field to more effective cloud-based data aggregation and analysis.

“We’re also utilizing these technologies to translate and interpret unstructured data, such as physician notes, which will help, for example, provide deeper insights for life sciences customers, so they can better assess the efficacy of their treatments.” – Dirk McMahon, President and COO, UnitedHealth Group

For health systems and providers, unfortunately, this means navigating implementation challenges, especially with continued centralization. Furthermore, health plans may use this additional data to manage utilization even more closely, leading to increased downgrades and denials. On the more positive front for patients and some provider partners, these health plans are building more actionable decision support tools.

Observation #2: Medicare Advantage plans did not trim supplemental benefits for 2024 as aggressively as anticipated.

Health plans continue to signal strategic opportunities shifting from Medicare Advantage (MA) growth to member management (eg, lifetime value of a customer). As health plans have placed greater focus on member retention and health management, many expected 2024 MA plan offerings to cut back on supplemental benefits to further control costs. However, 2024 MA plan options do not show a significant scale back in supplemental benefits.

“Broadly speaking, 2024 competitor plan design reflect[s] less benefit degradation than anticipated which will likely lead to fewer consumers shopping and therefore, less opportunity for Humana to meaningfully outpace the industry growth rate.” – Susan Diamond, CFO, Humana

In the near term, health plans are not as well positioned to manage total costs through benefit design (eg, benefit reductions). In the longer term, health plans will take a multichannel approach to member relationships to reduce the risk of losing members if/when plan offerings change design. With MA enrollment over 50% in many markets, member retention is increasingly important to MA health plan success.

Observation #3: Tensions between plans and providers are primed to rise in some markets.

Like many industries, health plans are working harder than ever to drive sustainable margin, particularly in the MA business. Higher than expected utilization upticks in 2023 are working against these economic goals. If utilization remains above expectations into 2024, health plans are likely to apply utilization management, prior authorization and other patient pathway mechanisms to curtail spending.

“Our ’24 MA bid contemplated higher MA utilization for outpatient and supplemental benefits, although the current experience exceeds the pricing provision.” – Tom Cowhey, CFO, CVS/Aetna

Specifically, Humana and CVS/Aetna noted utilization upticks in supplemental benefits (see observation #2) may be more persistent. Layer in normal challenges with implementing new processes (see observation #1), and the environment is set for further challenges between many health plans and provider organizations, particularly in fee-for-service administration.

Observation #4: VBC successes continue to build momentum for more sustainable health care economics.

On an optimistic note, the contributions of VBC continue to shine through. With the industry upticks in utilization in 2023, it has been highlighted that VBC (risk-bearing) organizations have not seen the same utilization increases.

“Some of the higher trends we are seeing on [the] health plan side has been disproportionately impacting our non-risk plans versus risk providers.” – Susan Diamond, CFO, Humana

This underscores the potential strength VBC can bring to partnerships with health plans. At the same time, payers are actively investing and expanding their VBC-focused care delivery operations rather than relying on legacy provider relationships. Optum has grown fully accountable care operations to ~4M lives. Newer enabler organizations have also accelerated growth in VBC. Notably, VBC-enabler Privia has grown to ~1.1M lives in risk-based contracts. Similarly, agilon has established itself as the largest national risk-bearing organization in PPO plans. Consequently, VBC activity is picking up across the country, and health systems must stay alert to local market dynamics and the potential growth of risk-bearing organizations.

Observation #5: Health systems must sharpen their payer strategy.

Heading into another dynamic year with commercial cost pressures, tightening MA margins and coverage shifts from redeterminations, it is important for health systems to develop or refresh their payer strategy. Knowing organizational positioning and value propositions can drive a more effective approach to payer contracting. This can span product participation, site-of-care approaches, quality program performance (eg, MA STARS) and VBC readiness.

“We’re also simplifying consumer and provider experiences through the automation and elimination of certain prior authorizations, accelerating our work with value-based care provider partners and improving clinical decision appeal rates.” – Gail Boudreaux, President and CEO, Elevance

Provider organizations’ payer strategy must understand their own capabilities and position as well as health plan priorities. Furthermore, it needs to factor in the role of new entrants and changing patient behaviors all with the backdrop of new technologies and member engagement strategies. Savvy provider organizations and health systems are identifying additional approaches for creating and capturing value by anticipating and responding to market evolutions.

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.

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