By Tracey Walker | May 7, 2018
Efforts to improve collaboration is a common driver of the recent healthcare mergers, according to industry experts. “There’s a positive theme of bringing payers, providers and patients together to make more intelligent decisions,” says Mark Nathan, CEO and founder of Zipari, a health insurance consumer experience company. “The entrance of major retailers into the healthcare space brings a keen sense of understanding consumers, and the ability to facilitate consumer behavior by creating a more open dialog.”
The industry will be changed less by mergers that try to combine different core competencies that are borne out of different cultures, than by partnerships that allow the different businesses to become even more focused on what they individually do best, says Sheila Talton, president and CEO of Gray Matter Analytics, a healthcare data analytics company. “Narrow and nimble within an ecosystem will make more change than big and awkward all alone,” she says.
“The wildcard in healthcare is the fact that all of this change leads to new disruptions, innovations, and risks that are not yet foreseen,” says Nick Vennaro, cofounder of Capto Consulting, a firm that consults companies on how to improve operations, economics, and efficacy. “Entrepreneurs and Fortune 500 firms will become more creative as the industry changes.”
Here are five megamergers that could change healthcare:
The industry is buzzing about a potential Walmart-Humana merger (though no official announcement has been made).
A Walmart-Humana deal would likely result in Walmart adding clinics to their massive retail footprint, according to Nathan. “They have dipped their toe in the water on this one, but I expect that to expand dramatically,” he says. Walmart has more than 4,500 pharmacies, some primary care clinics, and a few locations that offer lab tests. “Humana has been buying physician groups; most recently a large physician group in Orlando, FL,” says Vennaro. “The two companies could leverage Walmart’s financial strength and retail footprint with Humana’s healthcare experience and systems to create a company that could compete in the market place with CVS-Aetna and the Amazon partnership.”
This move would be both offensive and defensive, according to Nathan. “It would allow Walmart to rapidly build out clinics that directly compete against CVS. At the same time, as foot traffic in traditional physical retail spaces declines, due to online sales and competition with Amazon, this move takes advantage of their existing real estate and physical space in a way that will drive more foot traffic.”
Healthcare delivery for seniors could change under this new marriage, according to Vennaro. “This demographic has been important for both companies,” he says.” In general, seniors trust and shop at Walmart. Humana has been courting this market demographic as well, and is very strong in the Medicare Advantage space. This means the deal could provide new delivery options and locations for an aging population.”
The exciting opportunity here is that as retail giants build out clinics, they can use the most modern technology and consumer experiences to continually drive improved communication between healthcare systems, health insurance companies, and consumers, according to Nathan. “The result of this increased communication can be better care at lower prices,” he says.
Back in December, CVS announced it would buy Aetna for about $69 billion. John Sarich, vice president of strategy at VUE Software, a firm that specializes in innovating and automating business processes for the insurance industry, recently called this union “a change agent . . . pushing ripples of disruption far beyond its immediate world.”
The merger would combine CVS’ drugstores and pharmacy benefits manager platform with Aetna’s insurance business. “CVS and other retailers that are entering partnerships/deals with health insurers have a unique opportunity to build a primary care plus model, the clinics take on a greater role in stores,” according to Ash Shehata, principal at KPMG and member of the firm’s Global Healthcare Center of Excellence. “Retailers are looking to bolster revenue per square foot and an active urgent care clinic can address that. The partnership with a health plan can help encourage patients to obtain care at a place with extended hours and at a low-cost clinic with a convenient pharmacy. Acquisitions between health plans, pharmacies, retail and healthcare providers can accelerate this focus, but a partnership option shouldn’t be ruled out.”
Cigna’s proposed $67 billion acquisition of PBM giant Express Scripts is currently being reviewed by the Department of Justice.
“Together, Express Scripts and Cigna will help make the healthiest choices the easiest choices, putting health and pharmacy services within reach of everyone we serve,” says Tim Wentworth, President and CEO, Express Scripts. “Adding Express Scripts’ leadership in pharmacy and medical benefit management, technology-powered clinical solutions, and specialized patient care model to Cigna’s track record of delivering value through innovation, we are positioned to transform healthcare. We will continue to have a distinct focus at Express Scripts and eviCore on partnering with health plans, and together, build tailored solutions for health plans and their members. Importantly, this combination is a testament to the work of our team and their resolute focus on providing the best care to patients, and the most value to plan sponsors.”
Cigna and Express Scripts are doing “what everyone else in the healthcare space is doing right now—reacting to continued cost pressures from the ACA and other industry players building scale against each other,” Brad Haller, director in West Monroe’s M&A practice that focuses on healthcare, recently told Managed Healthcare Executive.
Cigna touts three big advantages to this merger, according to a press release:
In January, Amazon, Berkshire Hathaway and JPMorgan Chase announced a partnership to reduce healthcare costs for its U.S. employees—and the industry stood at attention. “It’s an important turning point in our industry when three of the largest employers in the country partner to essentially force payers to adopt technology and transparency in service of improving the consumer experience and lowering costs,” says Stephanie Tilenius, former senior executive of PayPal, eBay, and Google, and current CEO of Vida, which provides digital therapeutics for patients with chronic ailments.
These players know that as large buyers of healthcare, they have significant bargaining power and an opportunity to change the game, Tilenius says.“I applaud their efforts. The way I see it, this is another key catalyst for change, similar to the CVS-Aetna merger. We are on the cusp of radical change in healthcare, and we have no choice but to take risks and try radical new models.”
Several not-for-profit hospital groups are trying their own solution to drug shortages and high prices by creating a not-for-profit generic drug company. The new company intends to be an FDA-approved manufacturer and will either directly manufacture generic drugs or subcontract manufacturing to reputable contract manufacturing organizations, providing patients an affordable alternative to products from generic drug companies whose capricious and unfair pricing practices are damaging the generic drug market and hurting consumers, according to an Ascension press release.
The five groups include more than 450 hospitals around the U.S. Other health systems will soon be joining this initiative. “This initiative has the potential to greatly expand the availability and affordability of critically needed medications for millions of Americans, especially for people living in poverty and those most vulnerable,” said Anthony R. Tersigni, EdD, FACHE, president and CEO, Ascension, in a press release. “Providers are looking at options to improve supplies of certain generic drugs to the point where you are seeing discussions among hospitals to get into manufacturing and [forming this type of union]. The bad flu season this winter led to shortages of Tamiflu and the disaster in Puerto Rico last year has affected certain markets for medical supplies.”