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Perspectives on a selected key topic April 2018 |
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what ways will mergers such as CVS/Aetna; Cigna/Express Scripts,
potentially Walmart/Humana, as well as Amazon’s initiatives,
materially change healthcare delivery beyond the prescription
drug benefit?”
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Bill Copeland
Vice
Chairman
US Life Sciences & Health Care Industry
Leader
Deloitte LLP |
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Cigna Corp. said it had agreed to buy Express Scripts, the
nation’s largest pharmacy benefit manager. Other major deals
between large health plans and companies from other
industries are being discussed.
These proposed deals
represent distinct approaches to convergence—where a company
merges its capabilities with another organization in an
adjacent industry. Convergence is a form of innovation only
if the combined company’s product or service offerings break
the preexisting competitive and economic barriers and
constraints to offer something that has greater value to the
customer for less cost and complexity. Convergence is more
than size and scale. It is an opportunity to build something
that is much greater than a sum of the parts.
Convergence can create opportunities to offer something that
fills a gap in what the customer wants, but is not able to
obtain. I believe convergence in health care is driven by
the simple fact that consumers are not satisfied with the
value and the cost of what is available to them in today’s
marketplace.
Health consumers are generally looking
for an organization that can help them:
• Stay in
good health.
• If not healthy, help restore their health
to meet their goals.
• Help them remain financially
secure while meeting their health goals.
Health care
is the largest industry in the US, but there are no health
care companies that can deliver on these three jobs to be
done. Our health care industry is fragmented and organized
in silos.
Can health care companies become platform
companies?
Successful innovation though convergence
is evident in some of the most successful consumer
companies. Their offerings are typically based on a core
platform that allows them to launch many different
applications and products. These platform companies create
their own marketplace by filling the unmet needs of
consumers.
Convergence could help break FFS
constraints
Using a job-to-be-done lens, step back
and consider what our health care industry offers to its
customers—hospital stays, physician visits, drugs and
devices, and insurance. In context to the consumer’s health
needs, I call these point solutions. Even if they are
excellent, these solutions typically fall well short of what
most people want for their overall health care. There are
disconnects, duplications, waste, lack of continuity, and
gaps that could be eliminated through convergence.
Convergence in health care is most likely to succeed if it
breaks the constraints of the fee-for-service (FFS) model,
which can inhibit a holistic health care evolution.
Convergence could help create something personal and
precise. We are still a long way away from meeting the three
main consumer health goals that I mentioned above. I think
convergence in health care is here to stay until an
innovator is able to address the health and well-being needs
of each consumer. New entrants might not know how to restore
health, but their focus will likely be to assemble the
existing and new point solutions to help ensure the consumer
is satisfied with the job they are looking to hire.
For my full article addressing this topic, please
click here.
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Bill Eggbeer
Managing Director
BDC Advisors LLC |
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The Amazon/JP Morgan Chase/Berkshire Hathaway, Aetna/CVS,
Cigna/Express Scripts, and potential Walgreens/ Humana
initiatives are part of the overall healthcare market push
to encourage innovation and develop new delivery systems, as
well as to lower costs, and improve patient care.
The first initiative appears to be a recognition on the part
of these mega-employers of the massive cost of employee
health coverage, and their dissatisfaction with the current
health care delivery and insurance model. Their stated goal
is to create an affordable non-profit employer health
system. These efforts are not entirely new. For the past
several years, a variety of large self- insured employers
have been working with large provider systems in value-based
benefit design; centers of excellence programs in cardiology
and orthopedics; ACO direct contracts for total cost of
care; and employer supported clinics and intensive
outpatient care. Intel, Boeing, Walmart, Lowe’s, Oracle, and
a few others are all testing types direct provider
contracting in one form or another. Despite some promising
results in meeting cost and quality goals, these contracts
have been a learning experience for both sides, and best, a
mixed success, with some providers dropping out of contracts
entirely because of their inability to earn acceptable
margins. The wild card this time around is Amazon’s
extraordinary technology resources and capability to shape
the consumer experience.
The major health plan deals
on the horizon are an effort to radically reshape these
companies and reflect an understanding on the part of
investors and leaders that traditional health insurance
margins are in decline. Key elements of the Aetna and Cigna
deals would appear to be an effort to gain more influence
over pharmacy costs and control of the profitability
inherent in pharmacy benefit management. Aetna/CVS and
Walmart/Humana could be more interesting for their impact on
health care delivery and reshaping the consumer experience.
These combinations could challenge health care system’s
attempts to “own” the consumer health care relationship,
though it’s likely these impacts will be long developing.
The lesson learned from Boeing, Intel, Walmart, and
Lowe’s is that to control costs and improve quality, large
employers will need to create deep and direct relationship
with provider systems with multiple aligned interventions
with regards to payment and benefit redesign; provide
transparency on outcomes and clinical improvement; and
assure data can flow securely and openly among all members
of the provider team. Fluid cross-vendor data exchange is
necessary to ensure providers have cost efficient workflows
with comprehensive, accurate clinical data at the point of
care. If these global employers are able to build a fully
interoperable business model then---and most likely only
then---will they have a chance to move the prescription drug
benefit needle, and get a handle on their overall benefit
costs.
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Lindsay R. Resnick
Executive Vice President
Wunderman Health |
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As the business of healthcare approaches 20% of America’s
economy – a $5.5 trillion marketplace by 2025 – we’re seeing
horizontal consolidation and vertical integration run
rampant. What has unleashed this reshaping of the business
of healthcare? Some point to the politicalization and ad hoc
dismantling of the Affordable Care Act…replacing Obamacare
with Trumpcare. Others say corporate America is finally
fed-up with rising healthcare costs and declining health
status indicators on the global stage.
Following are
5 areas of focus where the healthcare transformation
movement will bring change.
1. Fragmentation:
As much as the term ‘healthcare system’ is thrown
around…it’s not a system! Across every vertical, the
healthcare value chain is broken. Care is uncoordinated,
stakeholders are siloed, and communication across the care
continuum is disjointed at best. As consolidation brings key
health delivery components together – providers of care,
payers of care, suppliers of care –fiefdoms will breakdown
and begin to unify around the consumer.
2.
Scalability: As many healthcare upstarts are finding
out, without customers it’s a long road to growth and
profitability. Operating costs represent a huge drain, not
to mention challenges of low brand recognition and immature
market presence that goes with a small base of existing
customers. Food for thought: combine CVS’ 9800 retail
outlets, 1100 clinics, 94 million PBM members, 5.5 million
Medicare drug plan members with Aetna’s 38 million customers
(including over 2 million drug plan members)…scale can be a
beautiful thing!
3. Efficiency:
Unsustainable administrative costs, red-tape bureaucracy,
and legacy information systems will be the death knell of
healthcare as we know it. Waste represents more than 20% of
total healthcare expenditures in the United States. While
the jury is still out on efficiency gains of consolidated
health systems, mass-negotiated pharmaceutical rates, and
even value or outcomes based reimbursement schemes, these
are the boundaries that must be pushed.
4.
Dominance: Driven by both a spirit of entrepreneurship
and need to achieve efficiencies and scale in order to
contain costs, new market dominators or ‘titans of
healthcare’ will emerge, and be formidable adversaries. At
risk in this ‘healthcare oligopoly’ is competition. Think
about it: 90% of Americans live within 10 miles of a Walmart…now
add Humana’s almost 9 million Medicare members; 75% of
Americans live within 5 miles of a Walgreens…now add
lab-testing partnerships with LabCorp and Quest.
5.
Consumerism: Ahhh, lest we forget about the
customer! There’s a reason why so many health care entities
are hiring a Chief Experience Officer (CXO). Healthcare
customer service sucks! At every step along the health care
customer journey there’s friction, complexity and
frustration. If there’s anything driving the healthcare
industry to change healthcare delivery it’s consumers. From
GenY to Millennials to Boomers – they will not engage with
healthcare the way it is now. They are demanding change:
virtual health, telemedicine, retail clinics, wearables, and
active aging.
Uncertainty and volatility will reign
for the foreseeable future – count on it! While there may be
a period where ‘deal-of-the-day’ dynamics die down, given
the number and size of transactions in the current pipeline,
absorption and integration will take time. Fallout from
industry consolidation we’re seeing today will need 2-3
years to settle into a mature state. In the meantime,
markets will be disrupted and competitors disintermediated.
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