INTRODUCTION

The managed care space saw a number of regulatory and legislative developments in 2022 that are shaping the sector as we move further into 2023. Against this backdrop, the healthcare sector itself has continued to transform in response to the demand for improved patient care at lower costs, heightened focus on health equity, and other social and economic issues. Here we review updates across important managed care issue areas—such as risk adjustment, prior authorization and marketing practices—and provide an overview of key market trends. Reviewing managed care developments from the past year can help organizations better understand the broader legal and policy environment and plan for a more productive and effective year ahead.

M&A TRENDS

After a period of pandemic-induced uncertainty followed by a flurry of merger and acquisition activity in 2021, healthcare payors continued to operate strategically to meet the ever-changing demands of regulatory requirements and market dynamics through M&A in 2022. Some of the key trends in managed care acquisitions in 2022 included:

  • Regional Consolidation: Payors have continued to consolidate to increase or maintain their market share and to remain competitive in the market. We have seen a particular focus at the regional level, with smaller companies being acquired by larger regional payors. This appears to be driven in part by a need to achieve economies of scale in order for regional payors to remain competitive with larger national payors.
  • Diversification: In recent years, payors have focused on diversifying their capabilities and revenue streams through acquisitions of other adjacent assets, including pharmacy benefit managers, third-party administrators, healthcare technology and provider entities. Payors are also using acquisition strategies to diversify their product offerings, such as expanding Medicare Advantage offerings, which is projected to see record enrollment numbers in the coming year.
  • Vertical Integration: Amid growing financial pressures from rising healthcare costs, payors can better manage their costs and care coordination for members through the vertical integration of providers. Thus, payors are increasingly acquiring various types of healthcare providers, including home health agencies, physician practices and long-term care facilities. In recent years, joint ventures between payors and providers have also become increasingly common as a preferred alternative to mergers and acquisitions. More details on this trend can be found below.
  • Technology and Data: As the industry transitions toward a value-based approach to care, digital health and telemedicine services are essential tools for success. Investing in and adopting technology and data capabilities is necessary to improve health outcomes, streamline care coordination and remain competitive in the payor market. Through acquisitions, payors have consequently expanded their capabilities in areas such as data analytics, population health technology, risk assessment and fraud detection to promote the optimization of care and administrative efficiencies. Further, telemedicine services in areas such as behavioral health, remote monitoring and management of chronic conditions offer members flexible and convenient care while simultaneously providing an opportunity for payors to save on costs of care.
  • Expansion into New Markets: Larger payors continue to pursue expansion into new geographic markets through the acquisition of smaller payors. The benefits of this strategy are twofold – the larger payors not only increase their enrollment, but also build a presence in regions in which they previously did not have access. Large payors may also seek to strategically purchase smaller payors to break into new markets without facing the regulatory concerns of establishingde novoplans. In addition to regional market expansion, payors are also looking to adjust their focus between commercial and government business. As evident by a growing Medicare Advantage population and the uncertainty of a looming recession, some major payors have exited the commercial group market space altogether.
  • Private Equity Involvement: Private equity firms continue to heavily invest in the healthcare industry. The robust provider platforms built by private equity firms give rise to significant M&A and partnership opportunities for payors. Private equity firms continue to view payors as a potential investment exit strategy, and some payors, who are finding themselves behind their competitors in terms of building up providers assets, have seen these platforms as a shortcut to staying competitive in comparison to ade novostrategy.

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