It’s rare that a mid-year trend roundup qualifies as the biggest story of the week, but it’s also rare that they’re as stellar as the one that former HHS policy leader Paul Mango just released.
Mr. Mango served juicy takes on three of the biggest trends shaking up the industry:
Trend #1) Payor transformation has been full-speed-ahead as payors seek success in managing beneficiaries with chronic conditions by developing their own disease management platforms (not to mention new arcs of growth help justify their climbing P/E ratios).
- Evernorth is now 80% of Cigna’s total revenue and a whopping 68% of its profit – mostly as the result of its Express Scripts acquisition in 2018. In the first half of the year, Evernorth grew 29% while Cigna as a whole grew 4%.
- United was obviously an early mover into non-health plan assets, but Optum is now the key growth driver for the entire enterprise. United Healthcare remains Optum’s largest client (accounting for two-thirds of its revenue), but Optum now represents 25% of UNH’s total revenue and 49% of its profit (thanks in large part to OptumRx).
Trend #2) Provider tailwinds are adding up as several key performance measures improve simultaneously, including higher volume, increased acuity for inpatients, and lower labor costs.
- HCA just posted same store revenue up 10% due to a combination of the aforementioned tailwinds. ACA exchange volume was up 46% (total commercial volume rose 12.5%), and contract labor costs were down 25%.
- Even Community Health Systems, whose performance has lagged other national hospital chain operators, saw a 3.2% increase in admissions and a 4.7% bump to same store revenue. CHS axed contract labor costs by 39% year over year.
Trend #3) Medicare Part D upheaval has been emanating from the Inflation Reduction Act, which will take full effect on the 1st of next year.
- Mango boils down the IRA’s impact on Part D as such: it shifted the economic burden from beneficiaries who are heavy consumers of prescription drugs to the payors issuing the plans.
- Medicare Part D has been around for twenty years and during that time the combination of the beneficiary’s premium and government’s subsidy only rose to $64.28. “The impact of the IRA in one year’s time will cause that to rise to $179.45.
The Takeaway
Where is all this payor transformation heading, especially as providers increasingly view them as competitors? Will health systems sustain their momentum, or is recent performance a reflection of pent-up pandemic demand? All eyes will be on next quarter’s numbers to find out, and you’ll be the first to know when we see them.
