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Our Take: UnitedHealth’s Optum to combine with home health provider LHC Group in $5.4 billion deal

Apr 04, 2022

UnitedHealth Group’s Optum and LHC Group announced Tuesday that they would combine in a transaction valued at approximately $5.4 billion.

Based in Lafayette, La., LHC Group is one of the three largest home health care providers in the U.S. The company reported net service revenue of $2.2 billion for 2021, up 7.6% from the previous year. Its 30,000 employees provide home health, hospice, and home- and community-based services, as well as facility-based care, from 964 locations in 37 states and the nation’s capital.

“As part of the Optum team and its value-based capabilities, we will be able to expand our patient-centered mission and help drive best care practices across the country,” Keith Myers, LHC Group’s CEO, said in the announcement.

According to The Wall Street Journal, many of LHC Group’s home health and hospice operations are owned in partnerships with hospital systems.

If LHC Group’s shareholders and regulatory authorities approve the transaction and other customer closing conditions are met, UnitedHealth will pay $170 per share in cash for LHC Group’s outstanding common stock.

The deal is expected to close in the second half of this year. At that time, Myers and his wife, Ginger, who co-founded LHC Group in 1994, will invest $10 million in UnitedHealth Group stock.

While the plan is for LHC Group to combine with Optum Health, Modern Healthcare reported that LHC Group would initially operate as a stand-alone company.

In their announcement, the companies noted that LHC Group’s leadership team would “continue forward as part of Optum Health.”

Our Take:  With UnitedHealthcare already the largest health insurer in the U.S. (by revenue), UnitedHealth Group seems to have set its sights on becoming the country’s largest payvider. Granted, there’s some hefty competition for that distinction, but UnitedHealth Group has deep pockets and has demonstrated a willingness to be aggressive.

Fundamentally, a payvider is a provider organization that operates its own health plan. Prime examples are Kaiser Permanente, Geisinger, Intermountain Healthcare, Baylor, Scott and White, and UPMC. Often the provider organization begins by establishing a health plan for its own employees.

A broader definition of the payvider model includes any organization that’s responsible for both patient care and taking on the financial risk of that care. Within that scope is a range of relationships between payers and providers, such as the joint venture health plan between Banner Health and Aetna.

It’s also becoming more common for payviders to form by payers acquiring providers. Humana’s acquisition of Kindred at Home is a case in point.

In the last couple of years, UnitedHealth Group has made a number of acquisitions through Optum to better position itself as a payvider, including post-acute care company naviHealth in 2020; in-home medical care provider Landmark Health and Atrius Health, Massachusetts’ largest independent physician network, in 2021; and now LHC Group. UnitedHealth Group’s OptumHealth unit either employs or is affiliated with more than 53,000 physicians and 1,450 clinics.

And though it hasn’t officially been announced yet, UnitedHealth Group reportedly struck a deal last week to buy Jacksonville Beach, Fla.-based Refresh Mental Health for an undisclosed amount from private equity firm Kelso & Co. Refresh provides outpatient mental and behavioral health services, including substance abuse treatment; the company has an estimated 300 locations in 37 states.

(There’s also Optum’s bid to buy Change Healthcare that’s currently caught up in a legal battle with the Department of Justice.)

Essentially, the goals of most payviders are to minimize financial risk, provide quality care, and retain members. And, of course, many seek to increase their profit margin.

As the fastest-growing segment of the health insurance market, Medicare Advantage (MA) is a particularly attractive focus for payer-based payviders such as UnitedHealth Group and Humana. By 2030, all baby boomers will be at least 65, and, in general, older adults have shown a preference for MA plans over Original Medicare, so there’s plenty of growth on the horizon for MA.

In UnitedHealthcare’s case, LHC Group is a shrewd choice. The home health provider says it reaches more than 60% of the over-65 population, so there should be plenty of opportunity to increase MA plan membership.

Additionally, given that a preponderance of older adults still want to age in place, the home health care sector is also ripe for steady growth — and that could make LHC Group an increasingly valuable asset over the next couple of decades.

If UnitedHealth Group successfully closes this acquisition and manages to complete the Change Healthcare transaction as well, we can see how the company could eventually become the dominate player in multiple sectors and in many markets across the country.

What else you need to know
Google is rolling out a new search engine feature that people can use to book a primary care appointment. For now, since the rollout is still in the early stages, available appointments are limited to MinuteClinics at CVS. When it revealed the feature earlier this month at an annual corporate event called The Check Up, Google said it hopes “to expand features, functionality and our network of partners.” According to Healthcare Dive, Google’s product manager for health search, Jackie DeJesse, said on a conference call that the goal is to match patients to physicians more easily and reduce the wait time for primary care visits. When users choose a provider and available time slot, they are redirected from Google’s interface to the provider’s website to book the appointment.

Geisinger held a ribbon-cutting ceremony recently to officially mark the conclusion of an $80 million expansion of the Frank M. and Dorothea Henry Cancer Center at Geisinger Wyoming Valley Medical Center. “This commitment in Luzerne County means our neighbors in northeastern Pennsylvania can stay close to home for the most advanced, lifesaving cancer care,” said Dr. Jaewon Ryu, Geisinger’s president and CEO. Previously, patients in the area may have had to travel to New York or Philadelphia for advanced cancer care. The Henry Cancer Center is now a nearly 130,000-square-foot, four-story facility with an 18-bed inpatient unit, a 51-bay infusion center, and state-of-the-art technology that includes the non-invasive CyberKnife 57, according to a press release.

Michigan Medicine will expand its specialty and mail order pharmacy services, after the University of Michigan’s board of regents approved plans to buy and renovate an industrial building in Dexter, Mich. With an overall price tag of nearly $60 million, the expansion will allow the academic medical center to more than double the number of prescriptions it fills annually through its in-house pharmacy, Michigan Medicine stated in a news release. The renovations are expected to be completed by mid-2023.

The proposed merger between Hackensack Meridian Health and Englewood Health took another hit last week when the U.S. Circuit Court of Appeals for the Third District upheld a lower court’s decision to grant the Federal Trade Commission (FTC) a preliminary injunction to block the deal. The appellate court agreed with the FTC that combining the two health systems would likely “substantially lessen competition” in New Jersey’s most populous county. “In recent years, Hackensack has acquired other health providers, each time raising prices at the acquired facility,” the court stated in its ruling. Hackensack Meridian Health, the largest health system in New Jersey, said it is “weighing the next steps that are in the best interest of the communities we serve.”

Caravan Health unveiled a new “success-based” pricing model that eliminates all service fees and startup costs for providers that want to join the company’s ACO program. Now part of Signify Health, Caravan Health works with providers to minimize their downside risk in the Medicare Shared Savings Program. In a press release, Caravan Health CEO Tim Gronniger said, “Our model lowers the barrier to ACO participation while providing a sustainable path forward to earn savings and lower total costs.” The new pricing model extends to Caravan’s 340B service line, which helps ACO participants maximize their use of the discount program “with new value-based contract data and workflows.”

In partnership with Emcara Health, Florida Blue Medicare is offering in-home primary care to members in 17 counties throughout the state. In a press statement, Florida Blue said Emcara Health providers can perform “most everything a doctor does in their office,” including imaging. The cost for eligible plan members is the same as they would pay for an in-office visit. Between doctor visits, a nurse practitioner or physician’s assistant will visit members in their home, and a registered nurse will periodically check on members by phone or in person. Members will also have access to a community health worker and a mental health professional. Florida Blue is the state’s Blue Cross and Blue Shield Medicare plan.

Two Approaches To Capping Health Care Prices. Health Affairs, 3.31.22
Supporting Health Care Workers to Address Misinformation on Social Media. NEJM, 3.30.22

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