The Calm Before the Healthcare Company Merge
Nurse Johnson walks out of hospital room and quickly dashes to the electronic medical record computer to add all of the last patient’s medical data, tripping on a hospital bed before angrily reaching the work station. A new Healthcare company has purchased Nurse Johnson’s hospital and added regulation that required the patient information be inputted immediately upon entering the hospital, so that all of the companies that merged into one entity could be notified for continuation of care. Eventually she may be able to do this from an iPad that one of these healthcare giants will provide her, but for now she must adapt to the new structure system.
The tide of vertical corporate structures is coming, being that a company owns another which owns another and so on, rather than a set of companies being individually owned and cooperating with each other. On one hand, this restructuring fulfills the need for efficiency thereby aiding outcomes, that is… better health, less admissions and re-admissions and a lower frequency of use of services, keeping the price of insurance for policy holders sustainable. There is a growing medical service cost inflation, which would result in higher payments for coverage, which in turn might lead to smaller number of the population keeping their policies. This fear has made insurers want to merge with medical services to keep costs manageable. Sorry Nurse Johnson… keep running.
One recent merger has been the acquisition of Aetna Inc., a massive health insurer, by CVS Health Corp, a similarly gigantic U.S. pharmacy. The cost of this acquisition was an easy 69 billion dollars, pocket change. Right?
The simple truth is that claims control plays a huge deal in profit for insurers. By acquiring the companies who actually manage the claims sent to them, said insurers can make sure pharmaceutical prices maintain a competitive and acceptable price. In our current state, it is the frequency of use that are attacking insurers, not the big-ticket items such as hospitalizations and surgeries. As policy holders age, they begin to have more consultations, and doctors begin to prescribe more and more.
So, it makes sense, right? If an insurer merges with a pharmaceutical megalodon, they can make sure a prescription drug that costs $5 doesn’t get price gauged by 900% at the expense of the policy holder and for the benefit of an ambition big pharma executive. The most famous case of which being Martin Shkreli, a hedge fund manager and ex-pharmaceutical CEO who hiked the price of the drug Daraprim from 13.50 a pill to $750 a pill, overnight, exploiting an existing monopoly. In this case, the public knowledge and the nature of the drug led to his demise. However, schemes like this happen frequently without any opposition.
It’s not all bad, technically if CVS turns a good amount of its stores into labs and primary care centers, clients will be more likely to run there than a hospital at the first sign of health issues. Hospitals are far more expensive than urgent care centers and clinics. A large percentage of patients in ER could of just gone to a stand-alone center instead, but due to proximity of hospitals or simply not having the education and awareness, insurers end up having to pay hospitals instead of the much cheaper centers. The already popular CVS locations could solve that.
The merge tango occurring in the healthcare dance-floor is not a free for all. The federal Trade Commission oversees these mergers to make sure competition stays on an acceptable level, a monopoly could deeply hurt pockets all around the nation.
Furthermore, the jump to value based care has taken hold. For that reason, our Nurse Johnson must ensure that the patient receives the best and quickest service, being that the number and quality of services are being watched more than it would be in a volume based care structure.
The government itself has taken on the value based challenge, introducing Accountable Care Organizations (ACOs). Essentially, it is a Medicare approved mini merge machine. Groups of doctors and healthcare companies are allowed to come together to create an organization designed for one basic mission objective… Save money. As the ACO collects primary care physicians, those doctor’s Medicare patients are added to the ACO’s beneficiary list, which in turn gives them benchmark number of expenditures those patients had the previous year. If the ACO saves Medicare enough money by acquiring companies, educating patients, reducing re-admissions, etc.… Medicare gives the ACO half of those savings, which can be substantial. From here the ACO can incentivize the physicians (who remain independent) with “shared savings” to stay with the company and use its network. Some might call this “legal kickbacks”
“The need to improve quality and increase efficiency, whether driven by government policy of the private sector marketplace, is creating realignment in the healthcare system,’ said Rick Pollack, executive vice president of the Affordable Care Act.