July 2018 Ensuring Health Plan Mergers Benefit the Community: California Regulators and Infrastructure Investment Programs T Regulators and hree for-profit health plan mergers have occurred in California since 2004 — Anthem and WellPoint in 2004, UnitedHealth and Undertakings PacifiCare in 2005, and Centene and Health Net in 2016. As conditions of these mergers, California Two agencies that regulate the state’s health regulators required the plans to make investments plans — the Department of Managed Health in the infrastructure of the state’s health care Care (DMHC) and the California Department delivery system. The Anthem and UnitedHealth of Insurance (CDI) — reviewed and approved infrastructure investment programs have been these three mergers. DMHC primarily regulates in place for over a decade, and Centene just prepaid plans, including health maintenance launched its program. This paper describes these organizations (HMOs) and some preferred pro- three infrastructure investment programs, the vider organization (PPO) plans; it regulated 68 process for identification and review of potential plans in 2016, covering about 95% of Californians investments, results to date, challenges encoun- enrolled in commercial and public plans.1 CDI tered, and opportunities going forward. regulates health insurance, including some PPOs and indemnity plans; it regulated 67 plans cov- DMHC and CDI have sought ering about 5% of enrollees in commercial and to ensure that the rights and public plans in 2016.2 interests of enrollees are Because insurance market consolidation has the potential to harm consumers, DMHC and CDI protected and that they have have sought to ensure that the rights and inter- ests of enrollees are protected and that they have continued access to health continued access to health insurance coverage insurance coverage that is that is affordable, particularly in the small group affordable. Issue Brief and individual markets. Prior to these three merg- ers between for-profit plans, CDI had reviewed how much money each plan would need to invest per year, but it was expected that the ultimate Ensuring Benefits and approved requests from several health plans investment would be greater than $200 million as for Californians with nonprofit (tax exempt) status seeking to repaid funds would be made available for subse- convert to for-profit status.3 Faced with a dif- quent borrowing within the 20-year period. In 2004, DMHC, CDI, and Anthem agreed that ferent situation and less precedent on which to the plan would make $200 million in infrastruc- rely when the for-profit plans sought approval to For the Centene merger, DMHC and CDI inde- ture investment funds available over a 20-year merge beginning in 2004 and 2005, DMHC and pendently negotiated separate undertakings: period. The majority of these funds were made CDI built on the same principle of ensuring that DMHC required $65 million to be made available available as low-interest loans to safety-net pro- California and its residents would benefit from for grants and $75 million to be made available viders.7 Anthem set aside $40 million of the $200 the mergers. in an infrastructure investment fund over seven million for a Small Issuance Program targeted years, and CDI required an investment of $30 mil- to smaller health care providers who needed DMHC and CDI negotiated extensive require- lion over five years to the California Organized smaller amounts of capital (less than $5 million) ments, known as undertakings, with the plans Investment Network (COIN).6 This paper focuses and provided additional wraparound support to involved in each merger to achieve various on the joint DMHC/CDI infrastructure investment make capital more accessible. This additional goals including serving the public interest and requirements for Anthem and UnitedHealth, as support included financial reviews to help pro- maintaining competition in the market.4 Specific well as the DMHC requirement for Centene. viders become creditworthy — for example, by undertakings relate to supporting California’s encouraging the development of business plans health care delivery system and helping to build and analysis of revenue streams — and reduced the state’s rural and safety-net infrastructure. loan issuance costs. DMHC and CDI sought to retain assets for these purposes in California, as plan assets may have been transferred to other states absent these Table 1. Grant/Donation and Infrastructure Investment Program Characteristics undertakings.5 Infrastructure Investment Programs For the Anthem and UnitedHealth mergers, Plan (Merger Date) Required Required Number of Program End Funds Set DMHC and CDI jointly required the plans to make Grants/ Funds Years Required Date Aside for two types of financial contributions: (1) grants Donations Small Projects or donations to safety-net providers or educa- $65M $200M 20 2024 $40M Anthem (2004) tional institutions to advance specified charitable UnitedHealth (2005) $50M $200M 20 2030 $70M purposes such as technology improvements or medical education programs in traditionally Centene-DMHC (2016) $65M $75M 7 2023 N/A underserved California communities — these Centene-CDI (2016) N/A $30M* 5 2021 N/A funds are not repaid, and (2) infrastructure invest- ments of $200 million per plan that safety-net *To CDI COIN program. providers can borrow but that must be repaid Source: DMHC and CDI undertakings; author communication with Anthem and UnitedHealth program directors. (see Table 1). There were no set requirements for California Health Care Foundation 2 In 2005, DMHC and CDI negotiated undertak- Centene undertakings are similar to those in the technology, such as enhanced telehealth capa- ings with UnitedHealth that required the plan to UnitedHealth undertakings, the Centene under- bilities, alternative payment models, and quality make $200 million in infrastructure investment takings reflect the health care environment of improvement activities. funds available over a 20-year period that com- 2016 and embrace ideas related to the use of menced once investments totaling $200 million were made. As part of the $200 million, the plan Table 2. Qualification Criteria / Potential Projects for Infrastructure Investment Programs, by Plan created a Small Issuance Program with an initial Anthem (2004)* UnitedHealth (2005)* $35 million that later was expanded to $70 mil- Health Care Provider Designations Health Care Provider Designations lion. Borrowers in its Small Issuance Program  Disproportionate share hospital, safety-net hos-  Disproportionate share hospital, safety-net hos- often did not have to pay for the costs of loan pital, safety-net clinic, private essential access pital or clinic, private essential access hospital, issuance, which could reach 15% of the loan hospital, critical access hospital, public hospital, critical access hospital, public hospital, and 1204(a) amount, as these were paid by UnitedHealth and clinic (medical clinic, mental health, addiction, licensed clinic using funds from its grant program. UnitedHealth dental, other services, 1204(a) licensed clinic)1 Service Area also set aside $20 million of the $200 million for Service Area  MUA/MUP, HPSA, rural, frontier an electronic health record / health information  Medically underserved area or population (MUA/ Populations Served technology (EHR/HIT) program that has assisted MUP), Health Professional Shortage Area (HPSA), rural (population of approximately 250 per square  Low-income and/or uninsured populations, income 11 critical access hospitals across the state with mile), frontier (population of approximately 11 per at or below 200% of FPL the implementation of EHR systems. square mile) Other Considerations Populations Served  Communities and populations served that do not In 2016, the two regulators approved separate  Low-income and uninsured populations — per- easily fit the criteria above but meet the spirit of undertakings attendant to the Centene/Health the investment program centage of population at or below 200% of the Net merger. As noted above, DMHC required federal poverty level (FPL) equal to or greater than Centene (2016)† $75 million to be made available in an infrastruc- the average for the state; high percentage of payer mix with Medi-Cal and/or Medicare patients  Expand and upgrade physical and technological ture investment fund, similar in structure to the infrastructure, including, but not limited to, tele- Anthem and UnitedHealth programs, over seven Other Considerations health capabilities for safety-net and low-income years, and CDI required an investment of $30  Entities that provide access to specific health care providers million over five years to the COIN program. services in geographical or service areas where  Strengthen access to health care resources for, and alternative facilities, services, or medical personnel improve the health status of, low-income urban Because the COIN program operates quite dif- are limited but do not easily fit into one of the cat- and rural underserved Californians ferently than the other infrastructure investment egories above  Improve electronic health care technology programs that are the focus of this paper, infor- mation on the CDI undertakings for Centene will  Support the coordinated care model not be covered in detail here.  Implement value-based payment programs  Promote systems changes for quality improvement The qualification criteria for the Anthem and activities that result in improved health outcomes UnitedHealth infrastructure investment pro-  Leverage other investment opportunities grams are similar to each other and focus on * Qualification criteria specified by plans in program brochures. specific provider designations, service areas, and † Potential investments identified in undertakings. populations served (see Table 2). While some ‡. Providers licensed as a “community clinic” or “free clinic” under California Health and Safety Code 1204(a). of the potential investments identified in the Source: Author review of Anthem and UnitedHealth program brochures; DMHC undertakings. Ensuring Health Plan Mergers Benefit the Community: California Regulators and Infrastructure Investment Programs 3 Program Benefits to Projects Funded to Date opportunities. Advisory committee members for each of the three plans are shown in the appendix. Safety-Net Providers Before making any infrastructure investment Since the origination of the infrastructure invest- funds available for projects, each health plan ment programs, about 80 hospitals, clinics, and The goal of the three infrastructure investment pro- is required to convene an advisory committee. long-term care and behavioral health providers grams is to offer a cost-effective financing option These committees include representatives from in the safety net have borrowed funds through for providers serving underserved communities or safety-net providers, professional associations, either the Anthem or UnitedHealth programs populations in California. These programs feature: and philanthropy, as well as other health care (see Table 3).9 Of these, about half of the clinic experts and state regulators; they are relied upon projects and one-fifth of the hospital projects  A lower cost of borrowing than would be avail- initially to develop criteria for evaluating projects involved borrowing $5 million or less (part of the able in the marketplace (e.g., from commercial and subsequently to identify potential investment Small Issuance Programs described above). The lenders) More flexibility in maturity and term structures (e.g., 30-year maturities) with 100% loan-to- Table 3. Infrastructure Investment Projects of Safety-Net Providers, 2006–17 value financing Health Plan Provider Number Geographic Urban/ Smallest Largest Total $ Value Access to institutional investment pricing, Type of Entities Distribution Rural Borrowing Borrowing of Projects research, and support.8 Some borrowers have Borrowing received additional assistance through the Funds plans’ Small Issuance Programs to help them Anthem Clinic 12 7 Southern 11 urban $1.4M $18.5M $78M achieve creditworthiness and be able to bor- 5 Northern 1 rural row funds in the capital market and successfully Hospital 20 7 Southern 3 urban $2.5M $33.9M $253M repay them. 7 Central 17 rural 6 Northern To date, the infrastructure investment projects have focused on service expansion, facility con- Total 32 14 Southern 14 urban $331M struction, and equipment purchases for safety-net 7 Central 18 rural providers and facilities that primarily serve Medi- 11 Northern Cal enrollees. Safety-net providers also have used United- Clinic 26 9 Southern 15 urban $1.4M $14.3M $137M these programs to refinance higher-cost debt — Health 8 Central 11 rural basically paying off funds that were borrowed at 9 Northern higher interest rates and using funds obtained at Hospital 23 6 Southern 3 urban $3.0M $23.4M $243M lower interest rates to finance projects. 8 Central 20 rural 9 Northern Total 49 15 Southern 18 urban $380M 16 Central 31 rural 18 Northern Source: McDonnell Investment Management analysis of transactions, 2018. California Health Care Foundation 4 funds were borrowed by a mix of rural and urban Centene made its first infrastructure investment outstanding bonds (i.e., to retire old debt and providers that were distributed geographically in June 2018. This project provides funding to replace it with new debt at better terms). across the state. Figure 1 on page six shows cur- help a Federally Qualified Health Center (FQHC)  $8.5 million to an urban Southern California rently funded infrastructure investment projects in the Central Valley expand its services. Of note, nonprofit clinic to rehabilitate a 28,000-square- across California for the three plans. this $23 million project was financed by all three foot building housing an autism clinic, special plans with infrastructure investment obligations education facility, research facility, and training For Anthem and UnitedHealth, whose programs — the first time that all three plans have jointly room. are more mature, many projects have been com- funded a project. pleted and the initial investments repaid. After $4 million to a rural Southern California FQHC reaching their initial $200 million commitments, Examples of projects funded by the Anthem and for the payment of outstanding balances of Anthem and UnitedHealth have reinvested repaid UnitedHealth infrastructure investment programs higher-cost debt associated with the expansion funds in additional projects, resulting in each of include: of a rural clinic facility and the construction of these plans making available funds far in excess a clinic that includes women’s health services, of the $200 million required in the undertakings $27 million to a rural northern disproportion- pediatric services, and family medicine. (see Table 3). The largest numbers of projects ate share hospital (DSH) for the construction,  $7.9 million to a rural Central Valley FQHC for were initiated in 2008 and then in 2010 and 2011 improvement, expansion, and equipping of the construction of a 27,000-square-foot, two- after the passage of the Affordable Care Act additional senior living facilities. story health center, and the addition of 4,000 (ACA) (see Table 4). $13.4 million to a rural Central Valley health square feet to another health center, together care district, designated a DSH, for the con- adding a total of 24 dental operatories and 44 struction of a women’s center and to refund medical exam rooms. Table 4. Number of Safety-Net Provider Infrastructure Investment Projects Initiated per Year, 2006–17 Plan/Provider Type 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Anthem Clinic 3 2 5 2 4 6 0 1 0 0 4 2 29 Hospital 2 2 1 1 3 0 2 3 3 3 3 1 24 Total 5 4 6 3 7 6 2 4 3 3 7 3 53 UnitedHealth Clinic 1 1 5 3 5 6 0 1 0 0 3 1 26 Hospital 1 3 4 2 5 3 1 3 1 2 1 1 27 Total 2 4 9 5 10 9 1 4 1 2 4 2 53 Source: McDonnell Investment Management analysis of transactions, 2018. Ensuring Health Plan Mergers Benefit the Community: California Regulators and Infrastructure Investment Programs 5 Figure 1. Infrastructure Investment Projects Funded Through June 2018 Hill Country Community Clinic Type of Project Mayers Memorial Hospital District Hospital Plumas District Hospital Clinic / Nursing Home Fremont-Rideout Health Group Mendocino Coast HC District Hazel Hawkins Memorial Hospital Source of Project Funding Sonoma Valley Sierra Kings HC District St. Rose Hospital District Anthem Tahoe Forest Hospital District UnitedHealth Healdsburg District Hospital United Health Center Anthem and UnitedHealth Santa Rosa Community Health Centers Asian Community Center Anthem, UnitedHealth, and Centene North Sonoma La Clínica de la Raza Petaluma Health Center Tulare Health Chinese Hospital Association Oak Valley Hospital District Institute on Aging NorthBay Healthcare Golden Valley Asian Health Services John C Fremont Healthcare District Jewish Home of San Francisco Kaweah Delta HC District Family Healthcare Salud Para la Gente Northern Inyo County Local Hospital District Lompoc Valley HC District Valley Health Team Seneca Family of Agencies Sierra View District Hospital Omni Family Healthcare North Kern–South Tulare Options Family of Services Valley Community Healthcare Henry Mayo Newhall Memorial Hospital Antelope Valley Medical Center Tehachapi Valley HC District The Help Group Inland Valley St. John’s Well Child Center Clinica de Salud del Pueblo Gateways Beverly Community Hospital Pioneers Memorial HC District Redlands Community Hospital San Gorgonio Health Care System La Maestra Community Health Volunteers of America Southwest Mountain Shadows San Ysidro Source: McDonnell Investment Management analysis of transactions, 2018. California Health Care Foundation 6 Behind the Scenes: (ROI) are neither as low as desired or as antici- pated by some borrowers, nor as high as plans Projects are typically funded via double-barreled bonds, meaning that two distinct entities (the Project Financing might be able to achieve through other invest- safety-net provider and a taxing authority or ments; typical expected returns were described as other guarantor) pledge to pay the interest and Anthem, UnitedHealth, and Centene have each slightly under the rate available in the bond market. principal so that in the case of default, an alterna- retained the services of McDonnell Investment Payments are often structured over a 10- to 20-year tive source of payments is known. For example, if Management (McDonnell), a registered invest- period with initial payments being low and borrow- a safety-net provider borrows money for a project ment advisor based in Illinois that manages ers paying primarily interest in the early years and approximately $11.6 billion in assets for clients more of the principal over time. Typically, the addi- tional revenues that safety-net providers generate CASE STUDY across the US. McDonnell plays a key role in identifying potential infrastructure investment due to capital investments or expansion of services Mendocino Coast projects, researching them from a financial per- are used to repay borrowed funds. spective, contacting the plans to assess interest Health Care District in funding a specific project, and monitoring proj- The process for obtaining funding for a proj- ect varies somewhat by plan. For example, one California law recognizes local health care ect progress. McDonnell previously worked with plan’s program director is involved in the initial districts as special districts that are autho- borrowers to help them achieve creditworthiness review of all funding requests while the other rized to build and operate hospitals and but is now prohibited by federal regulations from plan’s review is conducted at the corporate level. other health care facilities in underserved providing this service. Each of the plans compen- McDonnell takes responsibility for researching areas, and to recruit and support physi- sates McDonnell for its services, with McDonnell’s a potential project from a financial perspective, cians. Health care districts can also create payments based on the total market value of and each plan also has financial and other criteria debt to borrow money needed for capital funds it is actively managing for a plan. that each project must meet. In addition to legal projects such as hospital construction. In Once McDonnell determines that a potential proj- counsel, there are various other parties involved 2010, the Mendocino Coast Health Care ect is a good fit for an infrastructure investment, it in funding a project — these include investment District located in rural Northern California’s approaches the health plan(s) to assess interest in bankers, financial advisors who assist the bor- Fort Bragg obtained $12.5 million in fund- the project. Projects are distributed based on the rower in obtaining the most favorable debt terms, ing through UnitedHealth’s infrastructure plans’ investment criteria, availability of funds, bond underwriters (e.g., Piper Jaffray) that work investment program for its 25-bed critical and a fair distribution of projects across plans so with applicants to complete any needed paper- access hospital that provides emergency, that all of them can fulfill their financial obliga- work and with McDonnell on pricing and terms, a inpatient, and outpatient services as well tion in terms of investment requirements.10 Each conduit or bond issuer (e.g., the California Health as health care education to prevent, man- plan also reviews potential projects vis-à-vis their Facilities Financing Authority, hospital districts), age, and treat chronic and acute conditions. company’s investment policies or requirements. and a bond insurer (typically Cal-Mortgage, which Funds were used for a capital project, which basically guarantees that the funds will be repaid, included constructing and equipping an Each of the projects funded by the infrastruc- resulting in lower interest rates for eligible health 8,000-square-foot diagnostic imaging facil- ture investment programs is expected to make care facilities when they borrow money for capital ity connected to the hospital by a corridor. a reasonably competitive rate of return for the needs). Figure 2 on page eight shows the key steps In addition, the hospital district obtained health plan. McDonnell and the plans noted that involved in securing funding for an infrastructure grant funding to use toward some of the the expectations regarding return on investment investment project through these programs. bond-issuance expenses. Ensuring Health Plan Mergers Benefit the Community: California Regulators and Infrastructure Investment Programs 7 for some of the larger projects to exceed $1 million Figure 2. Key Steps Involved in Securing Funding for an Infrastructure Investment Project each and to total from $15 million to $17 million for each plan’s portfolio of projects.  Safety-net provider seeks to borrow funds Other important benefits of the infrastructure investment programs include:  Investment advisors (McDonnell) review provider finances and, Funding for additional projects once initial if project is deemed appropriate for infrastructure investment borrowed funds are repaid, ultimately making program, contact plan(s) to ascertain interest more funds available than initially required (for Anthem and UnitedHealth) and encouraging ongoing engagement from the health plans. Provider consults with legal counsel and independent financial advisor Assistance for safety-net providers to become financially stable and continue meeting the  Plan consults with legal counsel and McDonnell needs of underserved populations. Longer loan repayment periods (e.g., 20–30 years) than are typically available from com-  Project funds are approved and mechanism for funding mercial lenders (e.g., 7–10 years). (typically issuance of a bond) is determined  Payments are often structured so that the bor-  Plan purchases bond and provider receives funds rower can exit the financial arrangement after a certain number of years (often without a pre- payment penalty), which they may wish to do  Provider begins repayment to independent trustee if more favorable lending terms are available. that passes payments to the plan Other potential measures of program impact related to increased capacity (e.g., buildings purchased, beds built, exam rooms or programs and then defaults, the payments will be obtained from a backup source, such as taxes levied in the Program Impacts added, additional patients served) are tracked by McDonnell but have not been the focus of its community or funds of the guarantor. McDonnell analysis of program impact. Assessing the impact of these infrastructure invest- tracks funded projects to make sure that pay- ment programs is important but has proven ments are made on schedule and indicates that, to date, there have been no instances of missed challenging. In 2005, McDonnell developed a measure of interest cost savings by providers who Assessing the impact of these payments or defaults on funds borrowed within the infrastructure investment programs. Each of secured financing for projects through infrastructure infrastructure investment investments from Anthem or UnitedHealth relative the plans also tracks the progress of its invest- to the market rates paid by similarly rated entities. programs is important but has ments using McDonnell’s quarterly written reports and more extensive annual reviews, as well as Although the actual savings vary, the targeted rate of proven challenging. savings is 3%. McDonnell has calculated the savings informal updates via phone conversations. California Health Care Foundation 8 Challenges the impact of changes in the tax bill set to take effect on January 1, 2018. This burst of activity desire of safety-net providers to borrow funds. While the decrease in demand for these types of in recent years means that there are now fewer funds may be cyclical, in 2018 it is challenging Setting up each of these infrastructure invest- infrastructure investment needs in the health care for the plans and McDonnell to identify potential ment programs, including determining the safety-net provider community and less demand projects. Despite the recent drop-off in demand process by which health plans identified, vet- for this type of funding. for funding capital projects, the plans are required ted, and approved potential advisory committee to continue making infrastructure investments for members, was time-consuming. For one plan, Considerable uncertainty about the federal gov- several more years (see Table 1). assembling an advisory committee was more ernment’s commitment to health coverage for the challenging as it excludes organizations that have indigent may also have a chilling effect on the a representative on the committee from obtaining funding for an infrastructure investment project; thus, the advisory committee applicant pool was smaller than it would have otherwise been. CASE STUDY The initial phases of setting up agreements La Maestra Community Health Centers, San Diego between health plans and recipients of the invest- ment funds was difficult and required a delicate Opened as part of La Maestra Amnesty Center funding sources and being turned down mul- balance between addressing the needs of the in 1990 to meet the medical needs of immi- tiple times, La Maestra obtained $18.5 million receiving entity and the need to create a port- grants, refugees, and low-income residents, of low-interest, 30-year bond financing for a folio that would generate a positive ROI for the La Maestra Family Clinic expanded over time 34,660-square foot Gold Leadership in Energy health plan. Anthem and UnitedHealth overcame to provide a variety of services to its clients and Environmental Design (LEED)-certified these challenges, however, as each has identi- in 14 converted residential buildings on one building through Anthem’s infrastructure fied, researched, and funded dozens of projects city block. investment program. Securing this funding over the past decade. has allowed for the location of medical and Ultimately becoming an independent nonprofit, social services in one building, supporting The cycles inherent in capital markets mean La Maestra provided primary care, dental, La Maestra’s holistic Circle of Care approach that access to financing for safety-net institu- vision, behavioral health, and geriatric care, that integrates efforts to address the social tions and programs varies considerably from as well as related social services such as job determinants of health into service provi- year to year. Nonetheless, the implementation of placement, transportation, translation, hous- sion. Programs to address social determinants the ACA beginning in 2014 and the associated ing assistance, and a food pantry. La Maestra’s include micro-enterprise assistance for green expansion in coverage and benefits led many CEO, Zara Marselian, had a vision for a state- janitorial and laundry services; training cul- organizations to seek capital for infrastructure of-the-art building where all of these services turally sensitive, multilingual liaisons / medical expansion projects. Tax policy also impacts the could be provided under one roof in an energy assistants; microcredit for women to operate demand for infrastructure investment. McDonnell efficient and environmentally responsible sustainable businesses; job training; housing indicated that, in late 2017, health care organiza- manner. After exploring 28 different potential assistance; and transitional housing. tions rushed to obtain funding for any remaining infrastructure projects due to uncertainty about Ensuring Health Plan Mergers Benefit the Community: California Regulators and Infrastructure Investment Programs 9 Opportunities Plan representatives 3)Expand facility types eligible to borrow infra- structure investment funds to include assisted The plans and McDonnell all noted that there indicate strong support living facilities, respite centers or recuperative care beds for people who are homeless, com- is a shortage of projects relative to the funds available, so they are working with regulators of the programs and a plex care facilities for seniors, and school-based to identify future potential areas of investment commitment to making health centers, among others. While some investments have been made in residential that address unmet health needs of California’s population. For the three plans to successfully positive contributions through group homes and senior living facilities, most have focused on FQHC- and hospital-based make future infrastructure investments, it may be necessary to expand current thinking regarding investments going forward. capital projects. what qualifies as an acceptable investment and/ 4)Seek more opportunities for plans with invest- or modify the current criteria as described below. 2)Invest in new or innovative financing mecha- ment obligations to partner with each other or Several of these ideas are interrelated and could nisms such as social impact bonds or community with other organizations to fund larger projects be considered together as well as separately: wellness funds. Plans could invest in social than a single health plan may be able to sup- impact bonds as a mechanism to leverage plan port or than meets the risk profile for one plan. 1)Expand on what is considered a positive ROI The June 2018 FQHC project that was jointly investment funds while also advancing broader for projects and ultimately for the health plans. funded by the three plans may serve as a good social and health goals. Projects that target Rather than relying solely on financial returns, example going forward. The plans could also the social determinants of health — such as consider other indicators of positive return partner with other philanthropic or community- housing, education and schools, transporta- on investment, such as improved population based organizations supporting areas such as tion, neighborhood safety, and economic health, increased health plan enrollment, better housing, education, employment, or criminal opportunity — may be ripe for infrastructure quality scores (e.g., Healthcare Effectiveness justice that support health. investments since improvements in these areas Data and Information Set [HEDIS]), and can lead to the ultimate desired outcome of 5)Leverage investment projects with targeted enhanced human capital resulting from staff improved health and have an acceptable ROI grant funds or leverage grant project goals training or educational programs. For example, for the plan. Plans could invest in local well- with investment project goals. Building on the plans might choose to invest in the develop- ness funds designed to blend various funding experience of the UnitedHealth Small Issuance ment of a robust telehealth infrastructure for streams to improve community health. The Program where grant funds were used to pay specialty access in remote or hard-to-serve California Accountable Communities for the issuance fees, health plans could be encour- areas. This type of investment would address Health Initiative11 represents six communities aged to coordinate their undertaking-related a business need of the plan (expanding timely that are piloting this concept. Each community grant obligations and investment obligations in access) and may provide a positive ROI to the consists of multisector partnerships — includ- order to maximize public benefit. Grant funds plan if it is able to expand enrollment capac- ing public health and health care, education, to implement or upgrade EHR/HIT systems, for ity. Alternatively, the infrastructure investment justice, and social services — that are tack- example, could be paired with an infrastructure funds could be used as state matching funds ling cardiovascular disease, asthma, diabetes, loan to add telehealth capacity. to draw down federal funds for HIT infra- trauma, and violence, among other issues, and structure development if a mechanism can be launching projects within a portfolio of mutu- developed for repayment of the plans’ funds. ally reinforcing interventions. California Health Care Foundation 10 Representatives of the two health plans that have been making infrastructure investments CASE STUDY for over a decade indicate strong support of the programs and a commitment to making positive Mountain Shadows contributions through investments going for- ward. Described by the plans as a valued partner, Support Group McDonnell is also highly committed to the pro- Currently serving about 170 residents grams and plays an important role in identifying and clients with developmental disabili- and researching projects, working closely with ties in 27 homes in the California cities of borrowers, and tracking progress and impact Escondido, San Marcos, and Riverside, over time. Mountain Shadows Support Group (MSSG) The health plans’ infrastructure investment pro- has evolved to serve more and different grams have relied largely on informal relationships types of clients since its inception in 1988. and word-of-mouth to identify potential borrow- MSSG encourages the growth and indepen- ers. Given the current imbalance in the demand dence of its residents, who typically stay for funds versus funds available for borrowing, in their facilities for more than 10 years, in a more systematic and statewide campaign to their physical, social, educational, occupa- inform potential borrowers of the availability of tional, and vocational development. MSSG these funds could be useful. This may involve also operates a day program that started in development and widespread dissemination of 2007 and provides enrichment programs program brochures; in-person presentations by to expand life, leisure, and vocational skills health plan representatives or presence at a booth and opportunities for over 100 intellectually at professional meetings (e.g., conferences/con- disabled adults. Most of MSSG’s funding venings, training sessions) of organizations such comes through Medi-Cal reimbursement. In as the California Primary Care Association (CPCA) 2016, MSSG borrowed $7.4 million in funds and California Association of Public Hospitals and through UnitedHealth’s infrastructure invest- Health Systems (CAPH); outreach to professional ment program. These funds were used both partners including investment bankers, under- to refinance debt at more favorable terms writers, and various others involved in getting and to fund improvements to group homes a project funded; and peer-to-peer outreach by including doors, patio covers, an adminis- organizations that have received or are currently trative office, parking, and lighting. receiving capital for their infrastructure or related projects. Ensuring Health Plan Mergers Benefit the Community: California Regulators and Infrastructure Investment Programs 11 Appendix: Advisory Centene Andrew Bindman, MD Committee Members UnitedHealth* Professor of Medicine, Health Policy, and Epidemiology and Biostatistics, Steven Henry, CFA University of California, San Francisco Anthem Director of Investment Management, UnitedHealth Group (program director) William Barcellona, JD Philip Cohen, Chief Executive Officer, Senior Vice President of Government Affairs, Monterey Park Hospital Joy Higa, Vice President of Regulatory Affairs, America’s Physician Groups (formerly CAPG) UnitedHealth Group Mark Diel, MPH Castulo de la Rocha, JD Executive Director, California Coverage & Barb Johnston, MSN, MLM President and Chief Executive Officer, Health Initiative President, The Castleton Group AltaMed Elizabeth Benson Forer, MSW, MPH Michael Matull, MBA David Ford, Executive Director, CalHIPSO Chief Executive Officer, Venice Family Clinic Principal Consultant, Matull and Associates Christopher Isaak, Senior Vice President, Meaghan McCamman, MPA Robert Miller, PhD Corporate Controller and Chief Accounting Assistant Director of Policy, Emeritus Professor of Health Economics, Officer, Centene California Primary Care Association University of California, San Francisco Carol Kim, MPP Roderick Seamster, MD, MPH Kathie Powell, MSHA, MA Vice President of Community Investments and President and Chief Executive Officer, Chief Executive Officer, Petaluma Health Public Affairs, Health Net Watts Healthcare Center  Jeff Rideout, MD, MA Art Sponseller, JD President and Chief Executive Officer, President and Chief Executive Officer, Integrated Healthcare Association Hospital Council of Northern & Central California Shelley Rouillard, Director, DMHC Andrea Williams, MPA Sandra Shewry, MPH, MSW Executive Director, Southside Coalition of Vice President of External Engagement, Community Health Centers California Health Care Foundation Marion Standish, JD Vice President of Enterprise Programs, The California Endowment Michael Wilkening, MA Secretary, California Department of Health and Human Services * Representatives from DMHC and CDI participate in the UnitedHealth Advisory Committee. California Health Care Foundation 12 About the Author Endnotes 8. Ehnes, Investment Programs. 9. No comprehensive list of infrastructure investment Karen Shore, PhD, is an independent health policy 1. California Health Insurers, Enrollment, projects is publicly available, although information on consultant. Shore previously served as program California Health Care Foundation, February 2018. each project that is publicly financed can be obtained director for the Institute for Clinical and Economic www.chcf.org (PDF). online (https://emma.msrb.org/), and the plans have Review, where she ran the California Technology 2. Ibid. issued press releases for some projects. Assessment Forum, and as the president and 3. For example, Blue Cross of California began its 10. As Chartered Financial Analysts (CFA), McDonnell CEO of the Center for Health Improvement. conversion in 1993 and was ultimately required to advisors must abide by the CFA Institute Code distribute its assets of $3.2 billion to compensate of Ethics and Standards of Professional Conduct the state for the tax savings the plan realized including “Standard III-B: Fair Dealing,” which About the Foundation as a nonprofit; these assets were used to create requires that they deal fairly and objectively with all two nonprofit health foundations (The California clients when providing investment analysis, making The California Health Care Foundation is dedi- Endowment and California Health Care Foundation) investment recommendations, taking investment cated to advancing meaningful, measurable that would work to advance the health of Californians. action, or engaging in other professional activities. improvements in the way the health care delivery Similarly, Health Net’s conversion from nonprofit to for- 11. California Accountable Communities for Health system provides care to the people of California, profit status in 1992 and Foundation Health Plan’s Initiative, cachi.org. particularly those with low incomes and those conversion in 1984 led to the creation of The California Wellness Foundation and Sierra Health Foundation, whose needs are not well served by the status respectively. quo. We work to ensure that people have access 4. See the following websites for the undertakings or to the care they need, when they need it, at a descriptions of the infrastructure investment program price they can afford. requirements: Anthem, www.sec.gov; www.dmhc. ca.gov (PDF); www.sec.gov. UnitedHealth, www.dmhc. CHCF informs policymakers and industry leaders, ca.gov. Centene, www.dmhc.ca.gov (PDF); www. invests in ideas and innovations, and connects insurance.ca.gov (PDF). with changemakers to create a more responsive, 5. Cindy Ehnes, Investment Programs That Ensure That patient-centered health care system. Californians Receive Benefits from Proposed Mergers, Cope Health Solutions, October 2015. For more information, visit www.chcf.org. 6. COIN is a voluntary program that facilitates insurance industry investments to benefit California’s environment and its underserved and rural communities. Details on the COIN program are available on the CDI website: www.insurance.ca.gov. 7. The term “loan” is used in this paper for convenience; the financing mechanism via which safety-net providers actually obtain funds for projects are bonds. Bonds can be traded and are issued by companies or governments to raise money, while loans are individual debt obligations between a borrower and a lender. Ensuring Health Plan Mergers Benefit the Community: California Regulators and Infrastructure Investment Programs 13