Is bigger better? It appears when it comes to healthcare, some serious players in the world of retail believe so. I wrote earlier about Amazon’s foray into our industry. The past several months also saw news of a proposed CVS-Aetna merger, and more recently, the announcement of a planned Walmart-Humana pairing. These moves are precipitated by a need to serve a growing “I-want-it-now” culture of convenience, and of course, the desire by these firms to gain share and profits. But how will these market shifts affect today's physicians and hospitals?
First it is important to realize that, regardless of how much healthcare professionals believe in the traditional delivery of medical care, people – especially the younger demographic – are continuing to seek health services from “minute” clinics and urgent care centers that are scattered throughout the community. A recent study noted that more than 12,000 such locations exist, with more coming daily. The expediency these health outlets offer consumers is stiff competition. And if you add the benefits these pending mergers bring to a “patient”, it becomes clearer to understand the impact we will all experience.
In the CVS-Aetna deal for example, both can rapidly grow their businesses due to CVS’s pharmacy benefit manager business – widely known by its moniker – CVS Caremark. CVS Caremark receives copays and sets prices – effectively operating as an insurer. By layering a true insurance company onto all of what is already in place, they will create what they’ve termed “health care hubs,” an attractive one-stop location for healthcare, especially so for consumers with Aetna insurance. The location will offer pharmacists, nurse practitioners or physician assistants, and a seamless health insurance experience – a massive selling point to millions of consumers who are beyond frustrated with the way their current healthcare insurance works. The Walmart-Humana deal is similarly designed to take advantage of the two companies’ distinct strengths.
Though the Justice Department and Federal Trade Commission have, over the last couple of years, blocked proposed mergers of insurance companies, these deals seem to bear more favorable chances because they aren't two specifically similar organizations (i.e., two insurance companies).
While the pending transactions signal movement toward risk-based care and other “future-looking” actions necessary to sustain operations in the turbulent healthcare industry, the one piece that has yet to be part of the mega-merger equation is the provider (physicians and hospitals).
Only UnitedHeathcare, through its OptumCare brand, have started to acquire providers. Late last year they bought a large physician practice (DaVita Medical Group) allowing the company to have a presence in 75 markets across the U.S. with more than 30,000 employed physicians. The company also owns 250 MedExpress urgent-care clinics and a chain of surgery centers, moves the company said could lower the expense of both immediate-need healthcare services and outpatient surgeries – some estimating by more than 50 percent.
I believe CVS and Walmart – if the deals come to pass – will initially address this issue with the addition of allied healthcare providers, followed by a strategy to align with physicians who can deliver the needed technical expertise for the insured lives their new partners will bring.
The result of these actions is the acceleration of moving from fee-for-service to value. These large national retailers and their potential partners must adapt to the concept of value much quicker than insurance companies have in the past. Basing reimbursement on value is why these mergers are happening, and why they will succeed in changing the industry, and in changing the way doctors and hospitals will do business, too.
Hospitals will need to change their mindsets around bed charges and percent of charges on ancillary centers, moving instead to true risk-based care. The same with physician groups. Delivering the “right care at the right cost at the right place” is where they must move, and quickly, to continue to be relevant. There is no doubt insurers will continue to seek partnerships with hospitals and physician groups, looking for ways to deliver care outside the expensive setting of a hospital.
Craig Garthwaite, a health economist at the Kellogg School of Management at Northwestern University, sums up the situation nicely. “To change how people receive medical care, the parties are going to have to reorganize. There’s no chance that the existing companies, be they a hospital, physician group or insurer, have the right configuration of assets to be successful at turning health care into a business where the parties are able to produce better outcomes at a lower cost,” he said.
This healthcare landscape of the future bodes well for small, nimble organizations with lower costs. By being able to adapt quickly to volatility in the environment, they will achieve an advantage over larger, debt-laden health systems (dinosaurs?) with which they currently compete.
Comments