In the past few years, the healthcare industry has seen a tremendous amount of merger and acquisition activity.
Consider the following proposed corporate couplings:
- Anthem and Cigna
- Aetna and Humana
- Walgreens and Rite-Aid
- Centene and Fidelis
- CVS and Target
- Catholic Health Initiatives and Dignity Health
Some of these went through; others were scuttled due to regulatory constraints. All of these proposed changes were driven by a desire to increase market presence, revenue, and relevancy.
Some mergers are within a channel, such as CVS’s acquisition of Target’s pharmacies and OmniCare or Walgreens’s acquisition of Duane Reade, Boots, and some Rite-Aid locations. Others are what are considered vertical integration, such as Centene’s stake in RxAdvance or Cigna’s proposed merger with Express Scripts. Prime Therapeutics is owned by a number of Blue Cross Blue Shield plans and has a strategic alliance with Walgreens designed to address both retail and specialty network needs.
Health plans, hospitals, pharmacies, and PBMs are all joining forces, hoping that by offering a complete continuum of services, they will be able to leverage their purchasing power and massive amounts of data into effective, efficient methods of improving care delivery and outcomes. CVSHealth is likely to be a significant case study: It includes pharmacies that provide services through retail, specialty, long-term care, and mail-order channels, coupled with convenience clinics, a pharmacy benefit manager, and pending approval of its deal with Aetna, access to networks of hospitals and clinics, and insurance provision that could make it the most significant “soup-to-nuts” example the industry has yet seen.
What still remains to be seen is what benefits these mega-mergers will deliver to patients and purchasers. We all know the challenges today --- cost transparency, affordability, access, quality outcomes, interoperability --- and skepticism abounds as to the realistic solutions these mergers might bring:
- Will networks continue to narrow, offering patients fewer choices, but perhaps at better costs?
- Will the providers in these narrower networks have the capacity to build relationships with patients and provide more optimal care?
- Or will increased coordination and data sharing result, delivering the desired outcomes?
What happens to small payers?
Another question to consider in the middle of merger-mania … If the big payers — Aetna, Cigna, Anthem, Humana, UnitedHealth Care — all own a PBM, what options are left for the smaller payers? Can they stay independent? Will they trust that ESI, CVS, Optum, etc., will protect their data appropriately? Anthem must be wondering how quickly it can stand up its new PBM, now that CVS, which is supposed to process claims for Anthem when it leaves Express Scripts, is intending to merge with Aetna.
What about the new players?
And what of the new players, like Amazon, Berkshire Hathaway, and JPMorgan Chase? There’s no question that the leadership of these organizations has been successful, but will that success transfer to the complex healthcare environment? Sure, Amazon can likely deliver a prescription quickly (the drone will always beat the drive-through window). And JPMorgan Chase is familiar with electronic transactions in a highly regulated environment. Berkshire Hathaway’s Warren Buffett is, by any accounting, a brilliant businessman who has seen success across many industries. These three companies’ announcement of the formation of a new entity that would provide care for their employees sparked speculation (and some volatility in the stock market). Few details were provided, though, leaving industry experts to ponder the options. Would Amazon really open a pharmacy division and leverage its size to negotiate significant discounts from manufacturers? Would its technology be able to be applied to the complexity of healthcare transactions, with all their numerous code systems and vocabularies? The three companies employ about one million people; is that large enough to disrupt the status quo, or will their new partnership offer services to others?
These same questions can be asked from the perspective of independent or regional pharmacy chains. How will they differentiate themselves and remain viable in this new mega-merger world? Such pharmacies are perhaps best positioned to present themselves as community providers and patient advocates, as they long have. Developing new relationships with physicians and working with payers to demonstrate the value they deliver through the care they provide will be critical to their relevance. Practicing at the top of their license and ensuring they can efficiently exchange data with physicians and payers will go a long way in ensuring survivability in this merger-manic environment.
While this recent spate of merger activity may seem new, or at least unprecedented, it’s worth remembering the industry has seen some changes like this before: SmithKline Beecham’s (now GlaxoSmithKline) $2.3 billion purchase of Diversified Pharmaceutical Services (now Express Scripts); Lilly’s purchase of McKesson’s PCS (now CVSHealth, formerly Caremark); and the Columbia/HCA merger in the hospital space are just a few of the mergers that rattled the industry, all in 1994. Sometimes looking back provides perspective on the present and future.
Marsha K. Millonig, MBA, BPharm, is president and CEO of Catalyst Enterprises, LLC, and an Associate Fellow at the University of Minnesota College of Pharmacy’s Center for Leading Healthcare Change.