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Our Take: New Humana joint venture will invest $600 million in Medicare-focused primary care clinics

Feb 10, 2020
Through a new joint venture with a private equity firm, Humana will be opening more value-based primary care centers with a focus on Medicare beneficiaries.

 

The new centers will be operated by a Humana subsidiary called Partners in Primary Care, a primary care medical group practice that already runs 47 similar centers in Kansas, Missouri, the Carolinas, Texas, and Florida. Humana said in a news release that the new joint venture would probably more than double that number of centers in the next three years. Partners in Primary Care will receive a management fee for its services, including incentives based on performance.

 

The other partner in the joint venture is Welsh, Carson, Anderson & Stowe (WCAS), a private equity firm based in New York that specializes in health care and technology. Together, Humana and WCAS will invest approximately $600 million in the new centers, with WCAS having majority ownership.

 

Conviva, a separate wholly owned subsidiary of Humana, operates 104 senior-focused primary care centers, mostly in South Florida and Texas. Humana noted that Conviva is not part of the joint venture with WCAS.

 

The press statement didn’t specify which geographic areas Humana and WCAS would focus on initially.

 

Our Take:
This is a smart move for Humana as the insurer continues its bid to dominate the Medicare Advantage (MA) market. Humana may be the country’s fifth-largest insurer in terms of covered lives overall, but with roughly 4.1 million enrollees in MA plans it’s second only to UnitedHealthcare in that line of business.

 

By partnering with a private equity firm, Humana can expand its footprint in the senior market without putting up a huge amount of cash. While people who use the centers won’t have to be Humana customers, you can bet that Humana will be signing up new plan members. After all, the company has had plenty of opportunity to test the waters with the senior clinics its subsidiaries are already operating. If those centers weren’t increasing Humana’s MA membership, the company wouldn’t be so eager to open this many more.

 

It’s probably a very smart move for Welsh, Carson, too. We’ve all heard about the projected shortage of primary care physicians over the next 10 to 12 years — tens of thousands too few, even by conservative estimates — and we know that baby boomers are going to account for an ever-larger percentage of the nation’s health care spending for another couple of decades, at least, as more and more of them continue to shift from private coverage to Medicare.

 

(In case you’re wondering, a report released by CMS’ Office of the Actuary a year ago and published by Health Affairs projected that health care spending in this country would exceed $5.9 trillion by 2027, with federal, state, and local governments picking up the tab for 47% of that amount — nearly half.)

 

With health care costs continuing to skyrocket and older adults living well into their eighties, nineties, and beyond, any private insurer with a decent chunk of MA business should be looking for ways to keep those members as healthy as possible.

 

As we see it, these primary care clinics for Medicare patients are a wise investment for many reasons. Evidently, UnitedHealthcare thinks so too: As we reported back in November, United is planning to open 14 Medicare service centers in Walgreens stores in five metro areas, starting last month. If Humana’s centers do as well as we believe they will, United will have some catching up to do.

 

What else you need to know
The Department of Health and Human Services (HHS) and Regeneron Pharmaceuticals are collaborating to develop antibody treatments for the new coronavirus known as 2019-nCoV. Regeneron said in a news release that this builds on an existing collaboration between the Tarrytown, N.Y.-based biotech firm and HHS; Regeneron has previously worked with HHS to develop antibodies for the Ebola virus and Middle East respiratory syndrome, or MERS, also a coronavirus.

 

Meanwhile, Gilead Sciences’ remdesivir, an experimental antiviral first developed for Ebola, is being evaluated as a possible treatment for the new coronavirus. That drug and chloroquine, an established antimalarial, have both demonstrated effectiveness against the coronavirus in preclinical testing. AbbVie’s antiretroviral, Kaletra (lopinavir/ritonavir), is being tested as well. Other researchers, using artificial intelligence, have developed a prediction model that shows another antiretroviral — atazanavir, which is marketed by Bristol-Myers Squibb under the brand name Reyataz — holds promise as an effective treatment for 2019-nCoV.

 

Although CMS hasn’t decided the fate of the Next Generation ACO program, a recent evaluation of the program’s first two performance years doesn’t bode well. This is the last year of the program’s initial five-year demonstration period, so unless HHS chooses to renew or expand it, participating ACOs will need to find another alternative. CMS Administrator Seem Verma noted in a Health Affairs blog that the evaluation report showed “a statistically significant reduction in spending … relative to what was occurring with usual patterns of care outside the model.” But when the shared savings payments to ACOs were factored in, she said the model did not show statistically significant savings over the first two years.

 

The National Association of ACOs (NAACOS) countered in a press release that the program has been “very successful” and pointed out that the evaluation report compared Next Gen ACOs’ spending with that of ACOs in the Medicare Shared Savings Program, when instead it should have been compared with Medicare fee-for-service spending. In that scenario, NAACOS argued, the Next Gen ACOS “substantially outperformed national Medicare fee-for-service spending trends.” CMS said the new Direct Contracting payment model, set to be implemented next year, wouldn’t influence the agency’s decision on the Next Gen ACO program.

 

Merck & Co. Inc. plans to spin off some of its assets into a new publicly traded company in order to focus on four areas identified as “growth pillars”: oncology drugs (e.g., Keytruda [pembrolizumab]), vaccines, drugs used for acute care in hospitals, and animal health products. The unnamed new company, to be headquartered in New Jersey, will take on Merck’s women’s health assets, biosimilars, and legacy brands in dermatology, pain management, and respiratory disease, along with certain cardiovascular health products (e.g., Vytorin [ezetimibe/simvastatin] and Zetia [ezetimibe]). In the news release announcing the spinoff, Merck said the move would allow it to “achieve in excess of $1.5 billion in operating efficiencies by 2024.” Merck anticipates completing the spinoff by mid-2021. Kevin Ali, who has held numerous senior-level positions within Merck, will be CEO of the new entity.

 

Medicare could save billions of dollars on insulin if it could negotiate prices with drugmakers as the Department of Veterans Affairs (VA) does, research published online Feb. 3 by JAMA Internal Medicine suggests. In the analysis, researchers compared what Medicare Part D paid, after rebates, for 31 types of insulin in 2017 ($7.8 billion) versus what it would have paid using the VA’s negotiated prices. They found that Medicare would have saved $2.9 billion — and could have saved a total of $4.4 billion by also using a national formulary like the VA does.

 

Home health care providers Aveanna Healthcare and Maxim Healthcare Services have scrapped their plans for a $1.25 billion merger, according to a press release issued by the Federal Trade Commission (FTC). Based on concerns about the effect that Aveanna’s proposed acquisition of Maxim Healthcare’s home health division might have on nursing service competition, the FTC began an investigation — which was closed on Jan. 30 when the providers called off the merger.

 

Western Maryland Health System has officially merged with UPMC. The Cumberland, Md.-based health system is now called UPMC Western Maryland. The two health systems formed a clinical affiliation in 2018 and began negotiating a merger in 2019. The affiliation was finalized on Feb. 1 and announced on Feb. 3.

 

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