Bruce Feinberg, DO: Hello, and thank you for joining the American Journal of Managed Care® Oncology Stakeholders Summit® Fall 2018 Peer Exchange. Over the past several months, we’ve heard news about several healthcare megamergers: Walmart/Humana, CVS/Aetna, Cigna/Express Scripts, and Amazon/PillPack. They’re coming on the heels of several years of record mergers and acquisition activity across multiple healthcare sectors. Today we’re going to focus on 2 broad topics. First: What’s driving the current healthcare industry consolidation trend, and where do our panelists think it’s all heading? Second: How are these trends impacting integrated delivery networks, or IDNs, and other regional health system models? The panelists will also share their thoughts about how IDNs can preserve their leverage in the face of this market consolidation, as well as the future impact of 340B legislation; accountable care organizations; and alternative payment models, particularly in cancer care.
My name is Dr. Bruce Feinberg. I’m vice president and chief medical officer of Cardinal Health Specialty Solutions, and I’m joined today by a distinguished panel: Dr. Michael Kolodziej, vice president and chief innovation officer at ADVI Health; Ms. Dana Macher, senior vice president at Avalere Health; and Dr. Mark Soberman, immediate past president for the Association of Community Cancer Centers; medical director of Oncology Service Line and chief physician executive of Monocacy Health Partners, Frederick Regional Health System. Thank you for joining us. Let’s begin.
With a new round of megamergers on the near horizon—just naming them again, Walmart/Humana, CVS/Aetna, Cigna/Express Scripts, and Amazon/PillPack—I’d like to start with a brief history of healthcare consolidation. What has driven it in the past, and what’s driving it today? Mike, given that you’ve seen it firsthand in the developments on the provider side with Texas Oncology and US Oncology, I’d like to have you kick this off.
Michael Kolodziej, MD: Sure, Bruce. If we think a little bit about the history of cancer care delivery and how it has evolved over the past 40 years, cancer care was delivered in hospitals, typically inpatient. There were very few chemotherapy options, and radiation was done with cobalt machines. In the 1980s it changed, and we started seeing the delivery of care shift to the outpatient setting, predominantly being delivered by independent physicians.
Now, these independent physicians were not Marcus Welby. Giving chemotherapy in your office is complicated stuff, not to mention there’s significant financial risk associated with it. The business acumen that’s required to succeed is greater. What we saw in the provider sector in the late 1980s or early 1990s was the emergence of large, integrated, single-specialty groups focused on economies of scale: efficiency and negotiating power around the purchasing of drugs. It was a very efficient revenue cycle management, a back-office function. The 1990s were an era of practice-management companies. In oncology, 2 of them arose: PRN [Physician Reliance Network] and AOR [American Oncology Resources]. Ultimately, they felt that they were better off collaborating than they were fighting. And so around the year 2000, they merged. It was all about delivering a better product and having leverage with pharmaceutical companies but also theoretically with payers because these systems were very dense in particular geographic areas as opposed to diverse across the United States.
It’s interesting that we’re of course seeing similar things in hospital systems now, where they are integrating to achieve the same economies of scale, leverage efficiencies, etc. I think on the provider side, the lesson was that if you got bigger, you could actually do things better.
Bruce Feinberg, DO: Mark and Dana, what might describe how what happened beginning in the 1980s through the 1990s was not unique just to the provider side? It wasn’t unique only to oncology providers. It was happening across healthcare. We’ve been there before, lessons from history, and that’s why I thought this would be a great way to begin. I’d like to get each of your inputs on other market sectors in which you saw similar trends for consolidation. Dana, do you want to start?
Dana Macher: Do you mean outside physicians in general?
Bruce Feinberg, DO: Outside physicians and outside oncology.
Dana Macher: One thing that I just wanted to add to Mike’s answer in terms of provider consolidation first of all is that it was a very different situation a little bit later in the recent past in terms of hospital consolidation and the purchases of oncology practices in general. It was driven by a much different…
Bruce Feinberg, DO: It was before 340B.
Dana Macher: Right. Then 340B came along, so I think that we had a much different market dynamic that was driving a lot of that. I just wanted to add that to Mike’s answer. Do you want to go, and then I’ll follow along?
Mark S. Soberman, MD, MBA, FACS: Sure. The 1990s were also the beginning of a lot of consolidation on the hospital system side. Of course, I lived through one of those. I started my clinical career at what was a single tertiary care hospital, and when I left the organization 19 years later, it was a 10-hospital, $8-billion-a-year enterprise.
Bruce Feinberg, DO: The systems like MedPartners in the Washington, DC, Baltimore, area didn’t just happen because of 340B. They were in place well before.
Mark S. Soberman, MD, MBA, FACS: Absolutely. It was this desire to scale, thinking that bigger is better, more efficiencies, more diverse portfolio of services, and a bigger catchment area. It was all scale.
Michael Kolodziej, MD: Bruce, the truth is, you just drill down, right? There’s a lot of consolidation in the payer world, right? Prudential got out of healthcare, right? Prudential got out of healthcare. The payers operated under the same model, which is that getting bigger gives you leverage, gives you operating efficiency, and makes you a better company. In pharmaceuticals, it’s the same thing, right? Pharmaceutical companies partially grow by organic growth, but a lot of them grow predominantly through the acquisition model. And so each of them came to the conclusion that it’s really, really hard in oncology to be a mom-and-pop shop.
Mark S. Soberman, MD, MBA, FACS: Just to your point, Mike, the model in pharmaceuticals has changed a lot too. It used to be all in-house R&D [research and development], but now it’s small biotech groups going at risk and then being acquired by a larger company.
Dana Macher: I think that you bring up a good point there, Mike. There was so much consolidation, and a lot of that was horizontal. Now we’re looking at a very different type of consolidation industry with lots of vertical integration going on. I think that in the past, it was very horizontal, but now it’s a little bit different.
Bruce Feinberg, DO: Although there was that movement in the 1990s with practice management companies. I was involved with one in my practice where the goal was: If you don’t need the hospital, can you build a hospital without walls? If you had the practices, you had all the outpatient imaging, you had the laboratory, and you had the outpatient surgery and procedural; there was that migration of services that could all be done in the outpatient setting. Building of the medical mall was happening; it has happened once before.