Category Archives: acquisitions

The Disruptors are Coming: The New Health Economy and the Medical-Industrial Complex

A big shout out to Dr. Don MCanne for his Quote of the Day post Friday for today’s topic, and a belated shout out to him for his post last Tuesday about the gains from the ACA being reversed. See my post, ACA Gains Reversing.

This time, Don alerts us to the impact the new health economy disruptors will have and what it might mean for the push towards single payer health care.

Last month, the PwC Health Research Institute (HRI) released a report analyzing the new health economy landscape as more and more companies pursue acquisitions of companies in the insurance, pharmacy benefit management, health care services and retail spaces.
In the last six months, the report states, there has been an explosion of unusual deals between companies such as CVS Health buying Aetna, Cigna buying Express Scripts, UnitedHealth’s Optum buying DaVita Medical Group (Kidney disease and dialysis), Albertsons agreeing to merge with Rite Aid, as well as the much highly publicized partnership between Amazon, JP Morgan, and Berkshire Hathaway.

Naturally, these aren’t the only deals that have occurred. Last year, 67 deals occurred in the US health services market, including payers and providers, the report adds.

The value of these deals increased 146% over those in 2016. The US health care industry, the report states, is undergoing seismic changes generated by a collision of forces: the shift from volume to value, rising consumerism, and the decentralization of care.
The HRI identified four new archetypes of companies engaged in this new health care economy:

• Vertical integrators — CVS & Aetna, Optum & DaVita, Cigna & Express Scripts
• Employer activists — February 2016, 20 US companies form Health Transformation Alliance (HTA) and developed tools to help its members cut employee healthcare costs. In January, Amazon, JP Morgan and Berkshire Hathaway partnered to lower costs and improve employee satisfaction
• Technology invaders — Amazon selling over-the-counter medical products, offering discounted access to Prime service, Apple’s newest operating system allows users to access parts of their EHRs on their phones
• Health retailers — CVS, Walgreens, Walmart, Albertsons and others using their network of store locations, consumer insights, national and global supply chains, and national (and sometimes global) branding to attract consumers looking for affordable, convenient care and goods

The HRI report recommends that all healthcare companies should make the following moves:

• Invest in customer experience
• Plan for a broader workforce
• Focus on price

This is how Don McCanne commented on this report. He wrote that Arnold Relman, like Dwight Eisenhower did about the military-industrial complex, warned us about the medical-industrial complex, but did not realize how intense the disruption would be in health care that the HRI report discusses.

According to Don, we are about to see a takeover by the disruptors who “have a leg up on many established health players in understanding consumers and tailoring experiences for them.”
The disruptors are “positioned to address price through greater scale, ownership of middlemen and a wider grip on the US health system value chain.”

If you don’t believe Don, then read what Jamie Dimon, the CEO of JP Morgan said, “To attack these issues, we will be using top management, big data, virtual technology, better customer engagement and the improved creation of customer choice (high deductibles have barely worked). This effort is just beginning.”

This is exactly what the Waitzkin et al. book describes when explaining the methods used by the medical-industrial complex to control and direct the American health care system for power and profit of the members of the complex.

Dr. McCanne observes that it is almost as if the physicians, nurses and other health care professionals and the hospitals and clinics in which they provide their services have become a peripheral, albeit necessary, appendage to their wellness-industrial complex that is displacing our traditional health care delivery system and its more recent iteration of the medical-industrial complex.

In other words, the physicians and nurses and other professionals have become proletarianized, and the hospitals and clinics merely the places where the medical-industrial complex derives its power and profit from.

Dr. McCanne posits the following questions as to what the health care system would look like once the transformation is well along:

• Once the silos of the health care system are flattened, how will health care be financed?
• Will there still be networks?
• Cost sharing barriers such as high deductibles?
• Will it be possible to fund this expansive model of the wellness-industrial complex through anything remotely resembling an insurance product, especially when the insurers are being amalgamated into what was formerly the health care delivery system?
• And now that the plutocracy is in control, how could we ever remove the passive investors that extract humongous rents through the wellness-industrial complex?
• And what about the patients? Did we forget about them?

It is obvious from his comments that this new health economy is going to be more problematic for providing universal health care to all Americans and will only make things worse. His Rx is to begin now to move to a single payer, Medicare for All program, and not worry about what has passed.

Smart diagnosis and prescription.

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Follow-up to CVS to Buy Aetna

As I reported last month, and in today’s New York Times and Wall Street Journal, CVS has agreed to buy Aetna for $69 billion, reshaping the US health care industry, according to the Times article.

The transaction, the article said, is one of the largest of the year, and would combine the drugstore giant with one of the biggest health insurers in the US. It would blur the lines between traditionally separate spheres of the health care industry.

This move by CVS is response to moves by Amazon, which has quietly laid the groundwork for an entry into the United States’ pharmacy business.

According to the Wall Street Journal article, Aetna stockholders will receive $207 a share, $145 in cash and 0.8378 of a CVS share, or $62 in stock.

 

CVS to Buy Aetna

This should wake you up before your morning coffee.

Reuters is reporting that pharmacy operator, CVS Health Corp. is making a bid for Aetna Insurance.

Bid is more than $66 Billion.

Here is the article from Reuters.

Do we really think a pharmacy should own an insurer? What ever happened to the idea of competition is good?

One day, we will live in a world like that of the movie, Rollerball (the one with James Caan), where corporations run the world, and your wife can be taken anytime by a corporate executive.

Hospitals Launching Private Health Plans Have Concerns: What It Could Mean to Work Comp

My fellow FAU alumna, Maria Todd, wrote a very good article about what’s at stake for hospitals considering launching private health plans.

While Maria’s article focuses on hospitals and general health care, it would be prudent for the workers’ comp industry to pay attention to what she has to say, as her expertise in the areas of health care, hospital development, healthcare marketing and branding, concierge medicine and medical tourism has taken Maria around the world several times (lucky her – “I never get to go anywhere”).

There is one item Maria raises in her article that should be of vital interest to workers’ comp.

According to Maria, the process to launch private health plans is fraught with complexity and extreme financial risk. She goes on to add that it involves, at a minimum, obtaining a state license and meeting (and maintaining) capital reserve requirements adequate to cover IBNR (incurred but not reported) claims lags.

Those of us who have been in the claims arena of work comp know a little something about IBNR claims, and what that can do to both a carrier’s loss picture and an insured’s frequency and severity, which affects their experience mod.

If hospitals do choose to launch such plans, they will move closer to being insurance companies that happen to provide medical care, rather than just providing medical care as a hospital.

Maria’s recommendation is that they sink their money into something better that will float.

Consolidation Rolls On In Work Comp

Consolidation was mentioned in the last post as one of the areas of concern over physician payment reform.

Yet, consolidation is also a concern in workers’ compensation, as Joe Paduda reports this morning.

Joe has been keeping tabs on all of the acquisitions occurring in the workers’ comp sphere for a very long time, and one of the main companies involved in these transactions has been Apax Partners, owners of One Call Care Management and GENEX Services.

GENEX has itself been bought or bought other companies in the past three years that I am aware of, thanks to Joe’s reporting.

Reuters, Joe says, reported that Apax is preparing a bid close to $2 billion for peer Helios. Helios is the product itself of a merger between Progressive Medical and PMSI, and is the largest workers’ comp Pharmacy Benefit Manager (PBM).

PMSI was bought by H.I.G. Capital some years back for about $40 million, Joe states, then purchased for probably 8-10 times that figure a couple years ago and merged with Progressive, and there are countless other companies in the work comp service sector that have gone through similar mergers, acquisitions, purchases, etc.

Given the consolidation in the health care sector with hospitals, insurers, and physician practices, especially the development of ACOs, the consolidation on the work comp will also lead to higher cost for services or cuts to services provided.

Competition was supposed to be a good thing in a capitalist society, but as we have seen before in many other industries, leveraged buyouts, mergers and acquisitions, and hostile takeovers have shrunk the competitive sphere, so that in these industries, only a handful of large corporations remain.

Banking, insurance, and financial services, especially Wall Street brokerage firms, have all been consolidated in one form or another, so that now, a company like Goldman Sachs dominates the market after the financial collapse of a few years ago.

Health care and work comp are no different. Perhaps one day, the world of “Rollerball” will become reality, and all companies will be combined into their own industries, headquartered in different cities around the world, as was in that groundbreaking film.

Who knew the highest form of capitalism was really monopoly?