Over the past two weeks, health care industry merger announcements have accelerated dramatically, indicating that the battle for control of financing and delivery and the quest for scale will take center stage in 2018. CVS is buying Aetna for $69 billion, combining a leading health insurer with the largest drugstore chain, the largest chain of immediate care clinics, and a major pharmacy benefit manager (Dec 3). (Even before this acquisition, CVS was the largest healthcare company in the country by revenues.) Advocate and Aurora Health Care, the largest regional health systems in Chicago and Milwaukee, respectively, are merging to form a multi-state system with 27 hospitals (Dec 4). United Healthcare is buying DaVita’s HealthCare Partners medical group with 2,200 physicians and advanced practice clinicians (APCs), one of the largest risk-taking medical groups in the country (Dec 6). Dignity Health and Catholic Health Initiatives have signed a definitive agreement to merge, creating a national Catholic system with 139 hospitals and over 25,000 physicians and APCs (Dec 7). Providence St. Joseph Health (which just merged last year) and Ascension Health are discussing a merger to create the largest hospital system in the country, with 191 hospitals in 21 states (Dec 10).
 
Key people are moving, too. On Friday, Dr. Peter Pronovost, one of the country's leading experts on patient safety, announced his decision to leave Johns Hopkins’ Armstrong Institute, which he founded, and join United Healthcare as SVP for Clinical Safety. He follows several other prominent provider system executives who have recently joined health insurers – e.g., Dr. Craig Samitt, former CEO of HealthCare Partners MG and the Dean Clinic and Health System, and Dr. Mai Pham, Chief Innovation Officer of CMS’ Center for Medicare and Medicaid Innovation (CMMI), both of whom joined Anthem.

Clearly, a major realignment of healthcare financial and human assets is underway. What is going on here? The answer is simple: After realizing that the federal government is not going to solve our healthcare cost crisis, payers and providers have taken the gloves off in their war over control of how healthcare is financed and delivered. Health plans are employing their capital aggressively to expand control over care delivery, and provider systems are consolidating to protect their historical hospital franchise. This war is not new. It last broke out in the 1990s when insurers allied themselves with independent medical groups to pressure hospitals and health systems to reduce costs, but this effort dissipated because most independent medical groups didn’t have sufficient access to capital or management structures that could manage risk.

Today, the battle lines are different. The ACA promoted provider-sponsored accountable care organizations that could help not-for-profit provider systems move into the insurers’ business of managing population health. It also capped the profit margin that insurers can earn on their books of business. In response, health systems have stuck their toe in the insurance water with ACOs that take risk and provider-owned plans. They have also been rapidly buying up physician practices and now employ 40% or so of the nation’s physicians. At the same time, for-profit companies like United, CVS, and Humana have been aggressively acquiring physician practices and/or building primary care clinics in their continuing effort to force the sector to become more cost-effective on behalf of their customers and members. Who will win? What will the industry look like in a decade? Will a handful of national insurers be fighting with ten to twenty national provider systems? Will we have cross-sector mergers that create more combined financing and delivery companies like Kaiser Permanente? My advice (as always): Bet on the money!