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Factors Behind Healthcare Consolidation


Bruce Feinberg, DO: Dana, there is some precedent for this, but as you were alluding to before, a lot of movement was still more horizontal. We had the wave of specialty pharmacies merging with PBMs [pharmacy benefit managers], very much related. It’s the distribution side of the management side. And then we started to see it again even within hospitals. But the way that started to happen, as we had a pause, was with this diversification that Mike is alluding to where we saw Highmark start to also become a provider. We saw UPMC [University of Pittsburgh Medical Center] become the payer. Geisinger became everything to everyone. Why did it always happen in Pennsylvania? But we also had UnitedHealthcare and Optum. There’s all this talk about what’s happening now with the mergers we’ll get into specifically. But again, we had this prelude, but it was paused. It looked like it was going to be a wave, but it wasn’t a wave. I’m curious what you think. Why did it happen, but why was that not the wave, whereas it’s happening now?

Dana Macher: I think of the big drivers right now, we all know that healthcare costs are not sustainable. That’s obviously one to put out there. But I think the big driver now in terms of why it’s happening more is that we have the capability. We have the data that are driving these mergers and acquisitions. To Mike’s point earlier, is it more about saving costs, or are we moving toward more population health? How can you actually save costs in the system, and how do you get there? A lot of it is through data. There is more opportunity for efficiency and really driving down their cost, either from a payer perspective or health system perspective. There’s just a lot more opportunity to do that, whereas that wasn’t really available 10 or 15 years ago.

Bruce Feinberg, DO: Does anyone want to be more cynical and say that it really isn’t about lowering cost for the companies that have been involved in this process? Mike was really talking about growing your market share through diversification of services. That’s a little different from really having this noble intent of lowering cost of healthcare.

Dana Macher: The one other thing I would add is it’s lowering cost of healthcare while making it a better service for the patient. But the other thing is to make it more patient oriented, and I think that’s the second really big driver right now. That’s where I was going with the data. A lot of these mergers and acquisitions are really focused on the consumer and making it about consumer, a better experience for the consumer. If you think about the Amazons and even the Walmarts of the world, those are somewhat stunning in terms of what they bring to the table.

Michael Kolodziej, MD: But you shouldn’t forget for a second that those are not independent. It’s always a good thing to grow your membership. The more beneficiaries you have, the better off you can be. You want the right kind of beneficiaries, right? You don’t want the ones who have 18 comorbidities, where they’re going to cost you a million bucks. Growing your membership is always a good strategy. Enhancing the patient experience allows you to grow your membership.

Dana Macher: Absolutely.

Michael Kolodziej, MD: Controlling costs allows you to lower, or at least reduce, the rate of rise of your premium, becoming more attractive to your self-insured plan sponsors. Now, a Home Depot would very, very much like to spend less money next year on healthcare. They’re interrelated. I think that the ability to execute on a consumer-friendly model, the ability to control cost, is dependent on harnessing the information that is there with your data, right? They’re interrelated. This is all interrelated.

Now, in terms of limiting horizontal integration, I have 3 words for you: Department of Justice (DOJ). They just did not look very kindly on the idea that Aetna was going to purchase Humana. They didn’t look kindly on the Anthem/Cigna deal. There were clear concerns regarding limited choice within specific markets, right? There were markets where there was a lot of overlap. They were going to wind up representing 60% or 70% of the commercially insured population. The DOJ was not into that because they were, I think, legitimately concerned that it would impact the consumer choice, consumer experience, and consumer cost because, of course, when you have monopoly, you can do what you want to do when you’re a big business.

Bruce Feinberg, DO: All right. Let’s focus now on these mergers. Let me enumerate them: CVS and Aetna, Cigna and Express Scripts, Walmart and Humana, and Amazon and PillPack. I want to do something that will hopefully be fun, but it takes me back to watching the McLaughlin Group. For those who aren’t familiar, that was one of the early political talk shows in which he would do rapid-fire questioning as the host to the guest: Yes or no? I won’t pin you down that much.

Michael Kolodziej, MD: Do I get to be Buckley?

Bruce Feinberg, DO: You can be Buckley.

Michael Kolodziej, MD: Good.

Bruce Feinberg, DO: We can trade off. He wants to be Will Rogers. He wants to be folksy, but he’s so smart, he can’t help himself. What I wanted to do was more rapid fire: not 1-word answers necessarily, but I want to run through some comments that have been out there in the media coverage of this. The first one would be, Which of these proposed mergers do you consider to be the most logical? Which of these are the most surprising? Somebody, take one.

Mark S. Soberman, MD, MBA, FACS: Amazon and PillPack. Logical and, quite frankly, brilliant.

Bruce Feinberg, DO: Right, because you need pharmacy licenses in 50 states. It’s really nothing about PillPack. It’s all about how to get 50 licenses quickly. Agreed?

Dana Macher: Yes, agree. We really had that one.

Mark S. Soberman, MD, MBA, FACS: I took the easy one.

Dana Macher: Well, I would say the surprising one to me was Walmart and Humana. Walmart has a very consumer-friendly business, and moving into healthcare was a bit surprising to me.

Bruce Feinberg, DO: Not to you?

Michael Kolodziej, MD: Not completely. As somebody said to me once, there are many places in America where the closest Walmart is a heck of a lot closer than your doctor’s office. The idea of bringing care to the consumer in a consumer-friendly environment is a really interesting thought.

Bruce Feinberg, DO: The CVS mini-clinic, MinuteClinic…

Dana Macher: Yes.

Bruce Feinberg, DO: Moves into Walmart now…

Mark S. Soberman, MD, MBA, FACS: They’re already in pharmacy. They already do prescription pharmacy.

Dana Macher: I didn’t say it wasn’t logical.

Bruce Feinberg, DO: Right, but surprising.

Dana Macher: Yes, I just said it was surprising.

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