Recent news of several possible mega-mergers in the healthcare sector has left many wondering what the impact will be on the pocketbooks of patients. While insurance companies, hospitals, and pharmacy chains say these combinations will decrease costs by increasing their bargaining capacity, it is a risky wager to expect the savings to be passed on to the consumer – at least in the short run.
The list of the healthcare companies planning to join forces to gain leverage in the market contains some pretty big names:
Ascension and Providence St. Joseph Health, both significant nonprofit systems, are considering a merger which would create the nation’s largest hospital operation with 191 hospitals in 27 states and annual revenue of $44.8 billion. The strong stock market has provided hefty investment income while operating income for both has continued to decline significantly.
Catholic Health Initiatives (CHI) and Dignity Health are merging, bringing together 139 hospitals in 29 states with a combined revenue of $28.4 billion. The deal looks to aid CHI who has experienced continued operating losses since their restructure a few years ago. The merger might allow refinancing of their debt under the higher credit rating of Dignity.
United Healthcare one of the insurance giants plans to purchase DaVita Medical Group, which operates about 300 clinics, urgent care centers, and outpatient surgery centers across America. The acquisition will add 2,200 providers to United Healthcare’s existing roster of 30,000 doctors.
CVS Health is buying Aetna for $69 billion with the intent to reduce the use of costly hospital services like emergency rooms. CVS is the second-largest pharmacy benefits manager in the nation and will provide services at walk-in clinics inside stores to 38 million Aetna members.
Hospitals are merging under the more conventional “horizontal model” hoping to cover continued operating losses and use the larger scale to strong arm insurance companies into paying higher rates. An article this week in The Wall Street Journal reports:
For patients, the sector’s latest wave of consolidation could mean more tightly managed networks of medical care, which proponents say could reduce unnecessary spending but critics fear could raise prices and limit patient choice.
The new deal, if it comes, would up the ante in the face-off between big hospital operators and health insurers, with each sector making huge deals and aiming to gain heft in negotiations over the cost of care and greater control over patients.
The insurance companies are merging under a more progressive “vertical model” to gain large market shares and provide outpatient services with a focus on transforming healthcare by improving outcomes and lowering costs. CVS plans to build mini-health centers located in approximately 9,700 stores nationwide, which will provide easy access to low-level care for illness and chronic disease management. In an interview with Fortune Magazine, David Larsen, an analyst at Leerink Partners, stated: “About 70 percent of the U.S. population lives within three miles of a CVS location, allowing the combined company to create an expanded menu of lower-cost, convenient patient care services.”
Consumers win if hospitals and insurance companies participating in these mega-mergers meet the challenge to control costs under population health management and value-based pricing, both of which focus on keeping patients out of the emergency room and in-patient hospital beds.
Let’s just for a moment consider what the landscape might look like in the future. As insurers continue to move into provider space for out-patient services, they would no longer need to contract with hospitals for them. Most healthcare experts agree that inpatient volume growth will remain low as care continues to move outside of hospitals. Medicare and Medicaid would probably continue to contract with hospitals for outpatient visits, but at much lower rates than commercial insurers. The scenario could be a fatal blow to hospitals, whose bread and butter has been reimbursement by the third-party insurers for out-patient services. No matter how big the hospital system, this would leave them scrambling.
The CVS/Aetna merger gives to healthcare what McDonald’s gave to food service in the early 1960s. Imagine the scenario of a mother with a sick young child in the middle of the night. She takes her little one to the neighborhood CVS 24 hour walk-in clinic to be seen by a medical professional, has the prescription filled right there, grabs some Vicks VapoRub and a six-pack of ginger ale, and then heads home. It gets even better if you add in services like WebMD and home delivery around the clock. With Amazon entering the online pharmacy business in 12 states, it is highly probable that these types of services will emerge and become available to patients.
None of this is simple, and it will not happen overnight. Healthcare is in a state of chaos and is wholly mired in the swamp. The problems go far beyond increased insurance premiums, limited choice of providers, and exorbitant pharmacy prices. There are a plethora of complicated and dysfunctional tentacles causing the demise of our healthcare system.
Any movement to think “outside of the box” should be as welcomed as hope for the future. Sure, it is risky to believe that consumers might benefit from these mega-mergers, but what choice do we have? Let’s face it: Someone has to do something, and we certainly cannot afford to wait for Congress to get its act together. Maybe, just maybe, the heating up of these types of mega-mergers will be the beginning of the end of healthcare as we know it today.
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