Payer merger impact on provider reimbursement

April 21, 2016

Kaveh Safavi, senior managing director for consulting firm Accenture’s global healthcare business, shares how payer mergers will affect provider payments.

Though recent payer mergers will have a big impact on the industry, it’s doubtful that impact will be related to provider reimbursement.

SafaviThat’s according to Kaveh Safavi, senior managing director for consulting firm Accenture’s global healthcare business.

Safavi says the goal behind the payer mergers is to reduce the cost of doing business, not to reduce reimbursement. Insurance is a highly regulated business, and payers are trying to remain profitable and sustainable over time, he says.

“The profit margin for payers is typically 5%. If they’re going to plan for the future, payers have to lower the cost of doing business. By merging, these payers can become more competitive and keep their administrative costs low.”

Consolidation will become more common

Historically, in order to increase profits, payers tended to raise their reimbursement rates. Today, however, there are a lot of forces pushing against that, such as the need to keep premiums affordable for individuals, especially those who receive insurance subsidies, says Safavi.

Commercial payers are not going to be willing to pay providers more than Medicare for the same service on a per-service basis. That’s why the focus needs to be on more than the rates paid by commercial payers, he says.

“It has to be about costs and economic benefit. That’s why this shift to pay-for-value is so important. If you focus just on the fee part of it, reimbursements will converge on the Medicare rate.”

The payers involved in the mergers are likely to be interested in diversifying their businesses. They may even be interested in expanding into international markets, he says.

Payers that move to acquire or invest vertically in digital health organizations stand to benefit, in particular, says Safavi. Acquisition targets for digital health are typically small to midsize companies providing services in ehealth, telemedicine, population health management, health analytics, remote monitoring, wearable technology, etc. Digital health start-up funding for these types of companies has sharply increased, and is projected to grow to $6.5 billion by 2017, according to recent Accenture analysis.

Through differentiation and diversification, payers stand to position themselves strategically in the competitive landscape, he says. However, in this era of healthcare M&A, payer executives must take a holistic view and evaluate M&A opportunities as part of the company’s wider business strategy, rather than simply a deal as the creation of a new revenue stream. 

PilchPatrick Pilch, managing director at BDO Consulting, agrees with Safavi that the payer mergers won’t have a direct impact on reimbursements.

“People are concerned that if two large payers merge together in a particular market that the network by default will be getting narrow,” says Pilch. “In some cases, that may [happen]. But in other cases, it really comes down to how good the payers are at really identifying how good the care is in the market where they’re providing coverage.”

Safavi anticipates additional mergers among payers. Some payers might consider consolidation, while others might come up with other creative arrangements where they share back-office operations with another payer in order to keep costs low.