BCBSA dropping brand revenue requirement could spur consolidation, innovation

BCBSA dropping brand revenue requirement could spur consolidation, innovation

The Blue Cross and Blue Shield Association rescinded a rule that limited the amount of revenue its 35 member plans could generate from non-Blues-related businesses, although experts question whether the change will impact competition across the brand.

The rule required two-thirds of Blues plan licensee’s national net revenue from health plans and related services to stem from Blue-branded business.

In a statement, a BCBSA spokesperson said the rule change was “consistent with the terms of the subscriber settlement agreement,” referencing the $2.7 billion preliminary deal approved last October by U.S. District Judge David Proctor in Alabama. The agreement aims to resolve a major lawsuit first filed by customers in 2012 that accused the Blue companies of fixing prices and driving up premiums. Blues companies provide health insurance to more than 100 million people, or one in three Americans.

Anthem, which operates Blues plans in 14 states, has said it would pay $594 million as its share of the antitrust settlement. The Michigan Blues said they will contribute about $125 million. A second suit by providers is still pending in Alabama federal court, with doctors alleging the Blues anticompetitive practices pushed down the amounts paid to doctors and other healthcare providers. Proctor is expected to issue a final ruling on the matter this fall.

“Blue Cross and Blue Shield companies will remain focused on the goal we have had for over 90 years—improving access to quality healthcare for all Americans—as the settlement continues through the court approval process and is implemented according to the terms of the agreement,” a BCBSA spokesperson wrote in an email.

The end of the revenue rule will elevate larger Blues plans and force smaller licensees to quickly affiliate with larger organizations like Healthcare Service Corporation, which operates Blue Cross and Blue Shield plans in five states, said Paul Keckley, a healthcare analyst.

“You’re going to see some consolidation activity among the Blues,” Keckley said. “I think you’ll see the bigger Blues plans begin to create some pretty interesting joint ventures. In lieu of competing with each other, ‘let’s create something to compete with United.'”

Long-term, consolidation could occur in states like Pennsylvania, where multiple Blues plans operate, he said. Keckley said he could also see mergers between regional, not-for-profit plans and dominant Blues, like in Michigan where they control more than 70% of the state’s health insurance market. But he noted that asking these independent brands to drop their unique identity in favor of becoming a Blue licensee could be a deterrent.

“I can see some not-for-profit community health plans that would be willing to have those discussions,” Keckley said. “Like the Tufts of the world, like Priority, or where Spectrum operates in some of these other where you’ve got a history of dealing with the Blues as a provider. The provider organization sponsored its own health plan, where the Blues might bring operational expertise and some more scale, I could see that happening.”

The lawsuit settlement also requires competing Blues plans to be allowed to bid for self-funded business with companies that have 5,000 or more employees in states where they do not do business. This could create more options for employer customers.

As the Blues become more competitive, Keckley said he could expect the insurers to create new products with narrower networks and lower premiums, a change from the organization known for its wide networks that contract with nearly every hospital in town. The move will also turbocharge discussions among some Blues to come together to create data warehouses, where they share their information and monetize the analytics to form a new company.

“They’re gonna begin to look more and more like United, Humana, Cigna, Centene, with multiple lines of businesses in multiple markets and multiple brands,” Keckley said.

The rule change opens up the potential return-on-investment for non-Blues related products, said Glenn Melnick, a healthcare professor at the University of Southern California, and encourages innovation where they may have not been before. Ultimately, this is good for the consumer, he said.

“Why should they spend the time to innovate, if they’re stuck with their own little geography,” Melnick said. “If now, all of a sudden, the whole country is a potential market, that raises the opportunity for a potential return on investment.”

But the lack of success of non-Blues branded products in the past points to the limited scope this rule change will have on the market, said Brad Ellis, senior insurance analyst at Fitch Ratings. The Blues brand is so strong that there may not be much incentive to invest in other products. Anthem, for example, ended its UniCare health plans after facing difficulty “getting that non-Blues branded business to adequate profitability,” he said.

While the rule change could spur some Blues with holding companies in other states to scale their business, Ellis said he did not expect the change to impact many Blues operations, let alone that of other insurers. He declined to name the holding companies that Blues operate. A more substantive change would have been to require the Blues to compete with one another in similar geographies, eliminating their ability to divvy up their business by region, although Ellis said he believes that requirement would face an uphill legal battle.

“I’m not sure how much is lifting this rule and saying that a Blues company can now have half its business instead of just a third will affect the competitive landscape,” Ellis said.

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Marie Maynes
Marie Maynes is a Sports enthusiast and writes for the Sports section of ANH.