|SPECIAL SECTION—SPOTLIGHT ON THE NEWS
We take a deeper look at one of the key stories of the week.
UnitedHealth Group strikes a new health system partnership
This week, Walnut Creek, CA-based John Muir Health announced a first-of-its-kind partnership with Optum, the services arm of insurance giant UnitedHealth Group (UHG). Under terms of the agreement, Optum will assume control of the revenue cycle, information technology, and certain care management operations of the two-hospital integrated health system. Beyond simply selling its tools and consulting services to the system, Optum will take over employment of more than 500 of John Muir’s back-office staff. According to an Optum spokesman, the insurer views the deal as a “third option” for other small health systems looking to remain independent but seeking the cost advantages of greater scale and access to new capabilities. The partnership will be worth watching closely, particularly as UnitedHealth Group’s other activities in Northern California continue to evolve. With a significant share of the insurance market today, it remains to be seen whether UHG plans to extend its OptumCare delivery operations into the region, a move that could put it in direct competition with health systems like John Muir.
We have had the pleasure of working with the executive team at John Muir Health for some time (and have our own history with Optum, which acquired our former employer), so we were particularly interested to hear their perspective on the deal. After the announcement, we spoke with John Muir’s Chief Strategy Officer, George Sauter, to get his thoughts. Here are the highlights of our conversation:
Gist Healthcare: What convinced you and the team that this was the right step?
George Sauter (Chief Strategy Officer, John Muir Health): We’re actually looking for ways to be more effective and more competitive in an increasingly competitive market. We have the dual challenge of delivering at an overall price level with an overall cost level that will enable us to price competitively against the likes of Kaiser and others. And, at the same time, increasing our capabilities in technology, analytics, care management to support…care delivery in a more effective way.
Gist: From what we’ve read, one of the big considerations for John Muir was the ability to remain independent. How much did that weigh on the decision?
GS: Well, it weighed a lot. Getting back to those overriding goals of increasing our level of capabilities and reducing our costs…One obvious option was to consider joining forces with another health system …[But] those large mega-mergers have not really delivered on scale as hoped and we’re unclear whether they would have really enabled us to gain more sophistication ….We feel that being locally governed and locally managed enables us to have a relationship with our community, and ultimately with our patients that is unique.
Gist: What has the reaction been like? How has the news been received by the board and your doctors?
GS: The board was quite deeply involved in endorsing the recommendation from senior management to do this. I think all of the board members actually made trips to Optum headquarters as part of the due diligence process…I think about 40 percent of the board is physicians. They viewed it as ‘what’s in the best interests of John Muir Health’, and also what’s in the best interests of the community itself. They ultimately came around to wholeheartedly endorsing this decision. The physicians have been very interested in the rationale and understanding why we made this decision.
Gist: UnitedHealth Group is also in the care delivery business, in addition to being in the services business. Any tensions or thoughts about potential competitive positioning in the future relative to Optum?
GS: Yes, that was that was a big factor in our discussions and negotiations with Optum. At the end of the day, if we did not have a relationship with Optum…there would certainly be a risk of Optum entering the market and effectively competing directly against us. While ‘they’re under the tent’…we think there’s somewhat less of that chance. It’s not necessarily the reason we did the deal, but it was a factor we considered.
Gist: George, what is the term of the agreement?
GS: It’s ten years.
Gist: That’s a long time! So how will you measure success for this 10-year relationship?
GS: Before I answer that, let me tell you about the scope of the deal at this point. We’ll be transferring the employment of roughly 540 employees from John Muir Health to Optum at the end of September. The scope of the arrangement includes virtually all of information technology services, revenue cycle…and some of our delegated managed care functions, including some case management… In each of those areas, we will have pretty detailed service level agreements….The contracts will be governed by these contract and service level agreements. And each of those areas will have measures for success.
Second, we do have some expectations on overall cost…we have some things baked into the relationship around pretty significant cost savings. Optum actually kind of fast-forwarded them up-front so we can realize that sooner rather than later. Third, we have some increased capabilities that we’re looking to develop: first, in our performance in managed care and particularly our MA performance. And we have some expectations of improved performance on some other things like RAF [risk adjustment factor] scoring. And, we are looking to fast track the development of our customer engagement center, a modern term for a call center. Optum will be able to help stand that up a lot quicker.
Gist: Are you going at risk with Optum on this? Are they sharing in the upside?
GS: Not directly. There are performance expectations and some financial incentives around performance. But I would characterize them as relatively modest.
Gist: If everything goes well, what do you think this will look like in 10 years?
GS: My personal opinion is, ultimately, in the Bay Area market there will be two to four health networks providing the majority of care and covering the majority of folks. Kaiser is going to be one of them. The Sutter Health Network is likely to be another one…My sense is that some combination of Canopy [Health] with John Muir Health with Optum and with UnitedHealthcare will play a pretty big role in the future of that network in years to come.
Gist: What advice would you give to another health system leader who is wondering whether a deal like this would be right for them?
GS: I think they need to paint a picture of the future and see what capabilities and what kind of cost structure is needed to be successful in the future. And use that as the framework to actually evaluate potential solutions…We saw the potential of doing it with one party versus ‘smart sourcing’ with a half dozen organizations…We thought there might be ‘best of breed’ solutions that could individually be better than what Optum offered…but nobody else could do all the pieces of that and we thought there’s significant potential value there. I think Optum did, too. Frankly, Optum hasn’t had a track record of pulling it all together seamlessly for other clients, but I think that’s what they’re really shooting to do here.
While the decision of Optum was a bit out of the blue, when we described it, the rationale and how we are moving forward, virtually everybody got it…this is a big change for people’s lives, and they understood why we’re doing it.