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Hospitals Threatened by Insurers’ Growth Strategies

“Hospitals will face greater competition, risk of volume declines and margin erosion as the nation’s largest commercial health insurers aggressively pursue growth strategies that are aimed at lowering healthcare spending,” according to Moody’s Investors Service.


Insurers’ strategies include:


  • Acquisition of physician groups
  • Acquisition of non-acute care services
  • Tougher contract negotiations
  • Greater restrictions on member benefits


Moody’s analysts note that to some degree, insurers have engaged in these strategies in the past. But as the pace and magnitude increase, these initiatives will be increasingly disruptive to not-for-profit hospitals’ credit quality.


Moody’s provided the following detail:


  • Hospitals will be vulnerable to direct competition as insurers purchase providers. Over the last several months, health insurers have announced three significant deals that seek to purchase healthcare service providers. These transactions will result in shifting more care away from higher cost hospital settings. Two examples:
    • In the largest of the three deals, CVS Health plans to merge with Aetna Inc. Hospitals will face the risk that Aetna members will get their primary care services from CVS’s retail health clinics instead of hospital outpatient settings.
    • Optum, a division of UnitedHealth Group Incorporated and an active acquirer of physician groups, announced that it plans to buy DaVita Inc.’s medical group division. Optum’s moves will raise uncertainty for hospitals in markets where it owns physicians.


  • As Optum and health insurers attempt to move to value-based payment models that emphasize quality over quantity of care, hospitals will see even less volume. By owning physicians, Optum—working with its health insurance affiliate, UnitedHealthcare (UHC) and a number of other health plans—will be able to take greater control of premiums and expenses, including those related to hospital care. Hospitals would lose more business if Optum’s medical groups and its contracted health plans accelerate the shifting of patients out of the more expensive hospital setting. As a result, hospitals’ revenue and income would also be at further risk as insurers seek to add value by reducing healthcare spending.


  • Hospital revenues and margins will come under additional pressure as insurers are increasingly able to better flex negotiating power. When negotiating contracts, insurers will benefit from increased scale. At the same time, hospitals are becoming increasingly reliant on commercial payments to cover operating costs as governmental payers reduce rates. As insurers impose more restrictions on the types of care for which they will provide coverage, hospitals will be vulnerable to rising bad debt levels and fewer emergency room visits.


(From: “Not-for-profit and public healthcare – US: Hospitals face new threat from health insurers’ disruptive growth strategies,” Moody’s US Public Finance Weekly Credit Outlook, February 22, 2018)


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