Independence Health Group posts profit gain in competitive market

For the second year in a row, Independence Health Group, the parent of Independence Blue Cross, AmeriHealth New Jersey, and other companies, posted an increase in net income, the Center City company said Monday.

Independence’s net income was $77.16 million in 2017, up 15 percent from $66.84 million the year before. Total revenue fell slightly, to $16.4 billion from $16.7 billion because of a write-off related to the Affordable Care Act and the absence of the ACA’s health-insurer fee, which was passed on to consumers in 2016, boosting revenue. That fee is back in effect this year.

Without those items, Independence’s revenue would have been close to $17 billion, said Gregory E. Deavens, the company’s chief financial officer. That revenue level would put Independence in the neighborhood of its cross-state rival, Highmark Inc., which had $18.26 billion in revenue, including $2.2 billion in revenue from a health system.

Independence chief executive Daniel J. Hilferty said he was pleased with the 2017 results, but pointed to “steep competition, ever-increasing competition” in the market from vertical consolidations such as CVS and Aetna, the expansion of self-insurance to smaller companies, and newer entrants, such as companies offering what is called “reference-based pricing.”

Under such plans, the insurer pays the health-care provider a certain percentage above a benchmark, such as the Medicare rate. Among the companies offering such plans in the Philadelphia market are Endeavor, ELAP Services, and Homestead, according to industry sources.

“I think the key thing to watch there is will they be able to get a critical mass of membership and therefore drive a harder bargain with the network that they are trying to build in various communities,” Hilferty said.

If the CVS-Aetna deal is completed, Independence would see that combination as a direct competitor and “will continue to find partnerships that will enable us to compete effectively against them,” Hilferty said.

In addition, “we are working very aggressively to try to drive out as much cost as we can,” Hilferty said.

Some of that cost savings comes though collaboration with providers, such as the University of Pennsylvania Health System. Under a five-year deal announced last April, Penn and Independence have agreed to share patient and claims data in a bid to find “more efficient and more effective” ways to treat patients, including moving certain procedures to lower-cost Penn facilities, Hilferty said.

Part of that contract called for Penn to foot the bill for hospital readmissions within 30 days of an inpatient stay or surgery. “We estimate together that that brings about $19 million to $20 million a year in savings,” Hilferty said.

AmeriHealth Caritas, an Independence subsidiary that manages Medicaid benefits and offers services in 17 states, had a $180 million operating loss in Iowa, which it left in November, but that loss was offset by strong performance in Pennsylvania, South Carolina, and Louisiana to make the business profitable for the year, Deavens said.

Independence’s partner in AmeriHealth Caritas is Blue Cross Blue Shield of Michigan.