It’s Going To Be A Bumpy Ride

In the face of membership declining by an estimated 800,000 for 2008, the Dow Jones Newswires reported Tuesday that United Healthcare is cutting operating costs, capital spending and headcount to focus on a more regional structure.  The headcount cuts are expected to be as high as 4,000. These cuts are due to be largely focused on IT and clinical operations. But wait – isn’t that where UHC’s core competencies lie, in IT and clinical operations? It certainly doesn’t lie with customer service and innovative provider partnerships.

For physicians, this could be good news, but only if it leads to more efficient processes as well. Less resources to manage high cost administrative tasks like referrals and preauthorizations could mean that United will soon modify those practices, thus alleviating some administrative burden (and cost) from providers. However, if its management history is anything to go by, that’s not likely to happen soon. This is further supported by decisions being made today – cut staff and you lose talent, at precisely a time when UHC needs to compete on service and market presence. It would appear that Wall St comes before all else, and this kind of blinkered thinking may very well be how UHC got to this point in the first place.

While the article goes on to report that the CEO, Stephen Hemsley,  says ‘increased benefit buydowns and continued trends of customers migrating to lower-priced plans’ is to blame for the lack of members, he says nothing about its own role in creating an environment where declining membership HAS to be the natural outcome – pricing products beyond the reach of many means fewer people can afford them. Price hikes can only go so high before people begin to forego the product.  Conversely, with fewer members, there are less premium dollars to go ’round, which in turn is bound to affect its Medical Cost Ratios. Unfortunately, this will simply look like medical costs trending ever higher, which isn’t necessarily the case, further bolstering increases to premiums. Except it would appear that the market has finally reached its limit on price. Amen.

Therefore, despite Wellpoint CEO Angela Braly’s assertions that they ‘will not sacrifice profitability for membership’ it looks like United is on the brink of having to do exactly that. I, for one, am looking forward to seeing premium prices come down. 

But the bigger question remains, will United be smart enough to stop dancing to the tune of Wall St and really hunker down and do the work it should have been doing all along, namely, managing the numbers by being an innovative, efficient company rather than just being a profiteer at the expense of employers and providers.  Slashing talent won’t make them a better company, it will only help them meet the next round of numbers. And so the cycle continues . . .

Once the lift from United’s slash-and-burn deflates, you can be sure it will turn to physician reimbursement next unless it figures out in the meantime that the way to ensure sustained profitability – albeit lower than its record-breaking history – is to partner with its stakeholders and get the unnecessary (administrative) costs out of the equation first.

The first glimmer of hope that UHC may be coming to its senses and looking at managing the company rather than the numbers is the fact that its new strategy is focused on ‘balancing the company more in favor of a regional business model’. After years of heavy-handed tactics with newly acquired regional companies to comply with UHC’s one-size-fits-all national uber-structure, this is a big departure from business-as-usual.

Regardless of how it all turns out, hold on to your hats. It’s going to be a bumpy ride.