Last week, the U.S. Department of Justice granted conditional approval to the $69 billion merger of Aetna and CVS pending the sale of WellCare Health, Aetna’s Part D prescription drug plan. The combination brings two strong brands with combined revenues of $245 billion, 9,700 retail locations, 1,100 clinics, a pharmacy benefits manager with 90 million customers, and a health insurer with 22 million enrollees.
It follows a series of mega deals that have reshaped the healthcare landscape in recent months: Cigna’s acquisition of Express Scripts, Optum’s acquisition of DaVita Medical Group, Humana’s acquisition of Kindred’s home care business, Amazon’s acquisition of Pill Pak and venture with JPMorgan and Berkshire Hathaway among others.
These combinations come at a time of unprecedented turmoil in our industry. What’s at stake is the authorship of its next chapter. But it’s unclear who will emerge to lead its transformation.
The Case for Change
Medical innovations are flooding the market, technologies that relieve administrative burdens are abundant, investments in facility improvements and digital connectivity are increasing, and investments by venture capital and private equity are at an all-time high. Its workforce is well-paid and enjoys attractive benefits—better than most industries. Unnecessary utilization is down; clinical integration is up, and the industry is shifting its focus from episodic care to chronic care coordination. Profits for its major incumbents—the hospital systems, insurers, drug companies—are strong. Access to capital for deals is at an all-time high. And the current pro-private sector, anti-regulation environment in DC is conducive to sustained success, especially for market leaders who consolidate their buying power to gain scale.
But there’s concern: costs. Total spending for healthcare is increasing at 6% annually, well above inflation and overall GDP growth rates. It’s 29% of federal government’s spending, over 30% of the average state’s outlay, and 14% of discretionary spending in the average American household—and the fastest growing in all three. A fourth of the population lacks access to primary care services on a routine basis, half have unpaid medical bills, and healthcare is the top issue to voters going into the mid-term election 22 days from now (PWC, NerdWallet, Harvard Chen Poll). Prices for hospitals, drugs and specialty care are going up even as their use is going down. And confidence in the system has plummeted: the majority are receptive to something better (Gallup).
That’s why many policymakers, economists, employers and industry experts believe transformational change—a fundamental re-set of the U.S. medical system—is inevitable. The question is, who will take the lead in defining its future?
The Three Change Agents
Three primary coalitions are postured to take the lead. Each currently plays a unique role in the status quo, and each has a vested interest in defining its future:
Incumbents: the market leaders in each sector of the U.S. health system delivery and financing who know how the system operates and where its vulnerabilities lie.
Progressives: the coalition of foundations, philanthropists and grassroots public-interest groups who strongly believe healthcare is a right, not a privilege, and favor replacement of the status quo with a single payer/universal coverage system.
Disruptors: outside organizations who reject the industry’s sacred cows and see need for dramatic improvement: large employers who purchase healthcare for their employees, technology producers who supply the industry, and retail/alternative health providers who interact with consumers in parallel with, but outside the industry’s scope.
| Incumbents | Progressives | Disruptors | |
| Scope of Influence: | 4900 hospitals, 880,000 physicians, 4000 medical device manufacturers, 800 insurers, 3000 drug manufacturers et al and their Trade Associations | Think Tanks, Academics, Safety-Net Providers and Grassroots Organizations focused on Access Issues | Conference Board, Business Roundtable, US Chamber of Commerce, Health Transformation Workforce, local Business Health Coalitions et al |
| Notable Combinations/ Strategic Relationships/Players |
Dignity-CHI, Advocate-Aurora, Humana-Kindred, Optum-DaVita, Baylor, Scott & White-Memorial Herman (pending), Astra Zeneca-ZS Pharma, Pfizer-Wyeth | Center for American Progress, Commonwealth Fund, George Soros, et al | Amazon-JP Morgan-Berkshire Hathaway, Amazon-PillPack & Whole Foods, CVS-Aetna, Walmart-Humana, Google, Microsoft, Intel, Apple |
| Positioning Declaration: “We should lead transformation because”’ |
The public-private system is improving. Safety, access and outcomes are better. Healthcare is complicated: its future is best defined by those accountable for its results. | The government pays 45% of the healthcare bill and funds innovations that improve its efficiency and effectiveness. Medicare, Medicaid and military health enrollees enjoy the system’s highest satisfaction and lowest administrative costs. The government’s role can expand over time to assure equitable access, affordability and protect quality. And, within that model, individuals can have choices for the doctors and hospitals they use. | The system is self-serving, unaccountable wasteful and inaccessible to many. It fails to harness technology to lower costs and improve service and is purposely inattentive to preventive and chronic care opportunities because they’re less lucrative. We pay for half of the population’s health and 80% of the profits enjoyed by its incumbents. It’s time for change. |
| Major Hurdles | Incumbents “circle their wagons and shoot in” Each is focused on the shortcomings of the others and non-attentive to the overall systemic needs and opportunities. | Trust in government and in the political system is at its lowest in 50 years (Gallup). Elected officials and policymakers must demonstrate their solutions work and operate effectively in a partisan environment. Resources spent to advocate against changes to the status quo is always an issue. | Incumbents are prone to incremental changes. Progressives think the government can fix a system it has broken. Urgent change is needed, but regulatory policies, laws, and a divided public view about healthcare’s future pose barriers. We will make the changes necessary for our employees and trading partners and seek forgiveness later. |
| Destination | A system wherein all have insurance and care is provided by regional systems of health accountable for costs, outcomes, access and service. Health and wellbeing of each population is coordinated and resources appropriated accordingly. | A system in which there is no longer private insurance: the government is the payer contracting with private providers who compete to deliver services that are high quality, accessible and innovative. Budgetary appropriations for government payments are prioritized to reduce overall spending over time without compromising safety and innovation. | A system in which individuals manage their own health and costs via catastrophic insurance provided by private or public insurers/employers leveraging technologies that enable self-care. (i.e. Alexa, Echo et al). Employers lead the transition from patient-centered to consumer-driven healthcare. Prices are transparent, treatment options readily accessible and evidence-based, provider performance consistently measured and outcomes routinely reported. |
| Sense of Urgency | Urgent that funding restrictions and regulatory restraints be lifted but moderated by policies that allow a steady, methodical transition. |
Stat: the 2018 and 2020 election cycles will be a referendum on healthcare. | Code Red: costs are not sustainable. Affordability is a systemic flaw that can and must be addressed. |
What to expect
Each coalition will advocate to elected officials and the public they’re best equipped to define its future. Each will assert its solutions to vexing issues: how to provide services in the cases of natural disaster, how to sustain and create greater access to clinical innovations and operational process improvements, how to engage patients to be change unhealthy behaviors, how to integrate health and social services programs and many others. Each will bring intensity as it makes the case for change.
The future of the health system is unclear. Who leads the transition from its current state to its future state is also unknown. There’s more at stake than an industry that employs 21 million: it impacts every American every day directly and indirectly…and they care!
Paul
P.S. Today marks the first day for enrollment in Covered California, California’s healthcare marketplace. Others will open November 1. Watch for the impact on enrollment resulting from the elimination of the individual mandate.
Last week, the administration lifted the gag clause that prohibited pharmacists from advising patients about possible changes to prescriptions given by their clinician. Might pharmacists in tandem with nurse practitioners be the new delivery channel for preventive and primary care services?
For three decades, I tapped Colleen Conway Welch, retired Dean of the Vanderbilt School of Nursing, when seeking to understand trends and issues impacting her cherished profession. She often reminded me that nursing was healthcare’s most trusted profession and its front line in patient care. My dear friend passed away Friday. Her impact will be felt for generations to come. She represents everything that makes nursing the noble, worthwhile profession it is.
