How Will the HMO Stock Meltdown Affect Chronic Disease Management?

About three weeks ago Cain Brothers Investment Bankers released a report that foreshadowed the collapse of HMO stock prices that has occurred over the past few days.  The report was entitled: FAREWELL TO A TIME OF PLENTY? Health Plan Strategies for Growth in a More Challenging Market. 

Here are a few highlights from the report:

• Health plans are emerging from an exceptionally good seven-year run of managed care growth and financial performance that has generated significant capital for both for-profit and nonprofit health plans.
• Commercial sector margins and membership growth rates are under pressure.
• The Medicare sector, which has been the source of significant recent growth, is quite likely to face reimbursement reductions, although it still represents an opportunity for membership growth. 
• …the Medicaid sector will be influenced by potential, but uncertain, government health reform initiatives to extend coverage for the uninsured and shift portions of the remaining fee-for-service enrollment into managed care products.
• The political environment will be an increasingly meaningful factor in the next few years, especially for government focused entities as the results of the 2008 national elections impact the likelihood of market opportunities in Medicare and Medicaid.
• Strong cash generation during the past seven years, attractive valuations of acquirers, and access to debt has fueled an active M&A market, resulting in significant consolidation. However, we expect transaction volume and valuations to moderate, as there are simply fewer plans available for consolidation, and debt markets have become less favorable subsequent to the credit crunch of the summer of 2007.

A central health plan strategy of the past — just increase prices — is unlikely to persist under continuing pressure from employers and government.

What are the implications for chronic disease/care management strategies?

Chronic disease/care management MUST take a more central role in health plans. Health plans MUST add more value by reducing costs and improving quality if they are to retain their roles as intermediaries. Health plans are at risk of becoming commoditized, electronic “paper” pushers if their primary value is transacting claims payments.

What’s less clear is how this will occur.  The stock plunge could accelerate the trend of health plans assembling their own DM programs as opposed to outsourcing all or most programs to private companies.  I wouldn’t be surprised to see a health plan buy one of the few remaining DM companies.  Your thoughts?