OR WAIT null SECS
A KPMG-Leavitt Partners report shows Medicare Advantage and Managed Medicaid are on slightly different trajectories. Expert Ash Shehata shares his predictions for both markets.
Medicare Advantage and Managed Medicaid have been top-of-mind for payers and providers, even though they are on slightly different trajectories-given the funding sources for each, according to the KPMG-Leavitt Partners 2018 Healthcare & Life Sciences Investment Outlook.
“Medicare Advantage is on a bit of an upswing and is in good standing on both sides of the aisle in Congress, given the growing popularity of these plans for seniors,” says Ash Shehata, Principal at KPMG’s Healthcare & Life Sciences Practice. “This has led corporate finance executives that KPMG and Leavitt Partners surveyed to view this sector very favorably. They are expecting growing valuations, stable reimbursement, and growth that is higher than the market.”
The Managed Medicaid sector is viewed a bit more pessimistically in the report. “The reimbursement outlook is less favorable, since they are dependent upon state budgets,” Shehata says. “However, there are opportunities for states to work with managed Medicaid plans to enter value-based care arrangements that can improve health outcomes and steer patients to the most appropriate setting.”
Shehata took a deeper dive into Medicare Advantage and Managed Medicaid with Managed Healthcare Executive (MHE):
MHE: Why is Medicare Advantage and Managed Medicaid on healthcare executives’ radar?
Shehata: Managed care on behalf of government agencies is an opportunity that many health insurers have pursued. The biggest four health insurers may see some acquisition or investment opportunities in this sector. Growth in both Managed Medicaid and Medicare Advantage is expected to outpace the broader healthcare sector. Medicare Advantage is expected to have a stronger outlook from a valuation standpoint than Managed Medicaid.
MHE: How do the findings of the report reflect what’s happening in the big healthcarepicture?
Shehata: Despite the courts blocking the five biggest insurers from becoming three insurers last year, there is still an appetite for acquisitions and some of the deals are coming from different channels in the healthcare market, as the CVS-Aetna deal shows. There might be opportunities for more deal making in the managed care and healthcare services sectors. The factors that need to be kept in mind about the rationale of any deal should take some of the big drivers in healthcare into account: moving care to lower cost sites, clinical service outsourcing/automation, consumerism, integrated care delivery, pricing pressure, and addressing access constraints. If an announced deal doesn’t check enough of those boxes, you have to question the strategic benefit unless there is a clear cost-cutting play.
MHE: According to the report, value is perceived to be found in home health and among operators of Medicaid and Medicare Advantage plans. Please elaborate
Shehata: Our report looked at some of the overarching factors, which we describe as “disruptors” in our report. There is an overarching shift to move care to the most clinically appropriate and most cost-effective options. That is very often at the patient’s home. So, there is an investment opportunity in the highly fragmented home-health market. We may see some health systems looking to expand in home healthcare to help adapt to the value-based care market.
When you look at what the finance professionals said about asset prices in the Medicare Advantage and Managed Medicaid sectors, each were described as “undervalued” by 23 percent and 13%, respectively. A majority described these organizations as fairly priced. Also, the valuations were expected to increase, according to 55% of the respondents commenting on Medicare Advantage and by 40% of those addressing Managed Medicaid.
MHE: What does the future hold for Medicare Advantage and Managed Medicaid?
Shehata: Medicare Advantage is generally operating in a very good climate, when you look at the regulatory and economics of the sector. You might see some localized competition from providers entering the market to challenge some health plans. The aging baby boomer market is very well adapted to managed care plans as they retire from the workforce. The benefit packages are also expanded to include vision, hearing and wellness in many cases, providing additional incentives for seniors to use these plans instead of fee-for-service, traditional Medicare.
Managed Medicaid is facing a bit more uncertainty. Funding elements of the ACA’s Medicaid expansion and difficulties with state budgets are the biggest spending factors tied to these programs. The programs that can show cost savings and improved clinical benefits, as states want to shift more financial risk to the managed care organizations, will win in this market. Some of the more successful Managed Medicaid programs have systems to look at patients from a 360-degree perspective that incorporate social and environmental factors in delivering care.