Let the games begin…

September 1, 2011 at 9:28 AM Leave a comment

In this morning’s newsfeed, there is an item about United Healthcare’s intent to acquire Monarch Healthcare, a MSO supporting multiple IPAs in Orange County, California.  Compared to AT&T’s rebuffed bid to acquire T-Mobile’s cellular business, I’m sure it will garner far less attention in the media.

But make no mistake, that was the firing of a starter’s pistol.  United has been a thought leader among health plans, and it has steadily moved into ancillary businesses as they project profitability in their core business to be flat or declining for the next decade.  Ingenix, the Lewin Group, Optum and others represent ways of leveraging an advantage in data, analytics, and now management infrastructure to emerging related businesses where the markets are less mature.  There is simply greater profit to be made here before these related services become commoditized.

What this sets up is not simply competition among health plans for good clinical management infrastructure, but competition between the plan sector and the hospital sector.  These sectors will increasingly compete for scarce primary care base and infrastructure to manage it.   The result if they are not careful is another boom and bust cycle like in the early 1990s, where asset valuations get inflated and then toxic assets are disposed of in fire sales.  (This bubble is already there in hospital beds, where many systems are constructing capacity that will never see its intended use.)

And what about the physicians?  Despite a lot of rhetoric about how they should be in charge of this transformation, in most cases they will be in the back seat riding with those with greater access to capital.   Their lack of retention of capital, despite healthy incomes for many years, will prove to be the Achilles’ heel, and result in lesser roles in governance of vertically integrated enterprises.

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