The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses payer-provider consolidation. It is authored by our colleagues Tamara Senikidze and Anna Timmerman.
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What PE Investors Should Understand about Payor-Provider Consolidation – 4 Key Points
By Tamara Senikidze and Anna Timmerman
Payor-provider partnerships and consolidation is set to continue this year, according to experts who spoke on a panel at the 17th Annual Healthcare and Life Sciences Private Equity and Finance Conference in Chicago. Historically transactional, and defined by reimbursement and coverage-based decisions, the payor-provider association is radically changing as providers and payors find themselves increasingly accountable for cost and quality.
Experts included Joe Mercer, Director at the Marwood Group, Marc Cabrera, Group Head of Healthcare Investment Banking at Oppenheimer & Co. Inc., Jeff Hignite, Senior Manager at ECG Management Consultants and Paul Kiehl, Attorney at McGuireWoods LLP. The panel was moderated by Anna Timmerman, Partner at McGuireWoods LLP.
Here are four key points from the panel discussion:
1. Diversified field in the provider-payor consolidation. As some of the most notable examples of provider-payor consolidation demonstrate, such as the CVS-Aetna and Optum-DaVita deals, the universe of provider-payor consolidations is not limited to traditional healthcare delivery models and ranges from payor consolidation with not only physician practices, but also home health services, ambulatory facilities (e.g., retail clinics, ambulatory surgery centers) and pharmacies.
2. Increasing interest in providing “whole health” care. Both payors and providers appreciate the expanding trend towards a consumer-based market. To this end, in consolidating, they aim to provide a broader range of consumer-focused services and technologies catering to the “whole health” approach, including consolidated patient portals, mobile and digital applications and wellness programs.
3. The payor-provider consolidation promises to be beneficial for consumers. Generally, the consolidating payors and providers aim to increase consumers’ access to lower-cost, low-acuity-care options, where possible. Some payors (e.g., Anthem) have expressed that they would not pay for certain hospital-based procedures if the same procedure could otherwise be performed in outpatient settings. Such payment restrictions are often coupled with payors also seeking to consolidate and coordinate with the lower cost providers and care settings they want consumers to use.
4. Complexities and pitfalls. When consolidating with providers, many payors are acquiring businesses and capabilities that are new, unfamiliar and have fundamentally different business models. Integrating new capabilities poses significant challenges, and payors may struggle with how to capture the benefits that drive the deal originally. Other difficulties may include the lack of strategy and performance alignment between payors and providers, issues related to contract pricing and rate-setting, difficulties associated with provider retention, relationships with other payors and providers in the market, and misunderstanding of potential regulatory risk.
McGuireWoods has long been an avid supporter of the advancement of professional women. As part of our initiative seeking to expand the leadership of women in private equity, we are continuing our series of profiling women leaders in private equity. We are hopeful that this series will serve to inspire other women to pursue their careers in private equity in a way that best challenges and motivates them, which these impressive women have all done. We are pleased to feature Leslie Frécon of LFE Capital. Access her profile by 
McGuireWoods is continuing its effort to profile up-and-coming women leaders in private equity. This profile series complements our existing