End of an Era — and a New Beginning — at XLHealth

United Health Group closed the acquisition of XLHealth this week, two months ahead of schedule.  XLHealth has been one of our biggest clients for the last 8 years, and I had the distinct honor of serving on their board of directors the last 4 years.  It was a brilliant “get” for United — both in terms of gaining further expertise in management of the severely chronically ill and the dually-eligible and in keeping competitors from acquiring it.  But they also got one of the best management teams in the business, led by our old pals Fred Dunlap (CEO), Paul Serini (EVP) and Mete Sahin (CFO) — and in this new era of execution risk it’s their leadership that mattered most.  Those 3 guys represent the best turnaround artists our industry has seen in a long time, and United was right to tie them up for the next 3-5 years.

XLHealth was deep in the financial ditch and on the verge of serious regulatory trouble in 2007 when the company was taken over by Matlin Patterson, a New York private equity firm, in their first foray into a healthcare venture (at the time Matlin was known as the guys who took Alitalia Airlines private).  XLH’s history had been focused on disease management, and they frankly weren’t very good at it.  When they called us in 2004 with the idea of running Chronic Special Needs Plans on a PPO chassis in largely Southern rural markets (“we want to manage diseases, not providers”), we told them they were nuts and did our best to change their minds.  We failed, and by 2007, so had they.

But Matlin Patterson stepped up.  They also acquired our risk adjustment subsidiary at the time, and folded the two together under Dunlap’s leadership.  What happened over the ensuing 4 years should be the stuff of industry legend as Fred wisely deployed capital, revamped the XLH product portfolio to better manage severely ill beneficiaries, dug deep into the plan’s troubled operations, and innovated their way out of a clinical black hole.  They launched the single-largest house call program in the nation and a call center staffed entirely by pharmacists doing nothing but outbound calls to members with polypharmacy issues. By the fall of 2011 XLHealth had emerged as the first profitable C-SNP in history and was acquired by United for an unprecedented valuation.

As XLHealth now becomes a focal point for United in how to aggressively manage the chronically ill and the dually-eligible, further adding to their pole position among major payers in this brand-new world of health reform, the industry as a whole would do well to steal a page from their playbook: the only way out of Medicare Advantage cuts in 2013-2015 is to focus intensely on your highest-cost members, to move boldly on risk adjustment, and to lead, not just from the top, but from the front.

It was my distinct honor to serve as a director of XLHealth, and we wish Fred, Paul, Mete and the team all the best in their new beginning with United.