The business of health care is broken for consumers and taxpayers in America, and we can expect to see more mergers, acquisitions and even large alliances in the coming months and years, all forming in the name of trying to control rising costs and taking better care of patients. The question is, will they? Unfortunately, the answer usually is generally no. Let's take a look at two recent headlines, starting with the CVS acquisition of Aetna.
While the CVS acquisition of Aetna makes financial sense for shareholders, the same can not be said for consumers. CVS and Aetna, which individually represent severe conflicts of interest, together create an even larger systemic problem. American consumers need health care intermediaries to clearly represent the interests of either the patient or provider — they can't do both.
Maybe we're suffering from amnesia because we've forgotten why the Pharmacy Benefit Manager (PBM) industry exists in the first place. Years ago, insurers managed drugs themselves, however the conflict of interest and the resulting price gouging was so bad that the PBM industry took off in the 1980s and became the de facto broker (intermediary) for the drug industry. Over the next three decades, the PBM industry 'evolved' and today the PBM business model looks worse than the insurance industry it once set out to fix. Considering the conflicted business models involved, it seems highly ironic that today's largest PBM is buying one of the largest health plans. This was a bad idea 30 years ago and it's an even worse idea today.
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So why isn't this going to control costs? Because it really is just a mechanism to switch roles from the 'broker function' to that of the supplier. In this case there is the added benefit that Aetna can get over the 85 percent Medical Loss Ratio (MLR) limitations by paying themselves as a supplier. All this does is further reduce choice, lock out competition and increase profitability for them and increase costs for purchasers.
Planning on larger mergers to control costs is a fool's errand. Take a look at UnitedHealth Group (UHG) which owns UnitedHealthcare (UNH) and OptumRx. The company's structure and scale is on par with a combined CVS and Aetna. UHG owns one of the largest health plan providers, one of the largest PBMs and continues to aggressively acquire other health care services companies. Many corporate customers will tell you UNH is one of the most difficult insurers with which to work because of restricted data sharing and lack of transparency. UNH also makes it nearly impossible to use services other than their own. This is not a recipe to control costs and it's going to get worse because UHG recently announced the purchase of Davita's Medical Group, which has hundreds of care facilities and about 30,000 affiliated physicians.
Another major issue with this acquisition is that it enables the combined entity to collect even more patient data and constrict its availability and use. CVS CEO Larry Merlo states, "By integrating data across our enterprise assets and through the use of predictive analytics, we will create targeted interactions with patients to promote healthy behaviors and drive adherence, and this will further improve the quality of care for patients while also resulting in healthier outcomes." Mr. Merlo fails to acknowledge that the data they integrate, use for their benefit and sell for their profit is their customers' data to which they claim ownership and restrict use by others. industry outside of health care is working on expanding open data that spurs innovation and creates better solutions. After the CVS-Aetna deal closes, restrictive data hoarding will stifle potential health benefits and further limit innovation opportunities.
Just a few weeks ago, another headline about an alliance forming to control rising costs also captured our attention. Intermountain Healthcare, Ascension, SSM Health and Trinity Health announced they are joining forces to create a new generics drug company.
Again, on paper, the announcement seems very like it would help control costs and benefit consumers. But taking a closer look at the match, the marketing value to the hospital chains has already vastly exceeded the 'cost reduction' of the generic drugs in question and the 'pressure' that this places on big pharma by at least 3 or 4 orders of magnitude. 'Big Pharma' isn't in the generics business. As egregious as the examples are that we all keep talking about with Valeant and Turing, they are all rounding errors in aggregate compared to the global sales of just one brand drug, Humira, which was $14B last year alone.
Big Pharma is laughing to the bank as the popular press keeps writing about how big a deal this is and how four hospital chains are going to change the landscape. And in the meantime, these large monopolistic systems get the great publicity as they enjoy claiming the moral high ground. More importantly we have yet again the providers of the services (hospital systems) who already have the reputation for marking up Tylenol, the power to mark up these new generics that they are going to manufacture.
The most important announcement of the past few days is the one from Amazon, Berkshire-Hathaway and JP Morgan. While there are few concrete details, the message from the top is clear that they have decided to take matters into their own hands to control their own costs as all the intermediaries that they have relied on haven't delivered.
As those who represent consumers, benefits professionals have a crucial role to play as we keep learning about more mergers, acquisitions and large alliances. There are three things each of us as HR benefits professionals can do to help tame the M&A beast.
First, insist on transparency—this starts by making sure intermediaries – insurers and PBMs – never control supplier performance data. You should have the right to see whatever data you need about your suppliers just as you would in any other industry. Stop working with intermediaries and suppliers that restrict or refuse to provide data. You should also require your intermediaries to provide all supplier contracts that they have in place. Trust but verify.
Second, require your suppliers to pick a side—Yours or theirs, but not in between. You, not an intermediary, should be able to choose who provides services to you. You should never be penalized for choosing a supplier that isn't your intermediary's preferred choice.
Third, demand independence—Intermediaries must represent company and customer interests. There's an obvious conflict of interest when they also represent seller of goods that constitute a significant source of their revenue. Stop doing business with intermediaries who are conflicted. It's time to stop buying CVS because 'nobody ever got fired for buying CVS.'
Congratulations to all the CVS and Aetna stockholders out there. There's a big payday headed your way. Since one person's profit is another person's cost, expect the price of health care to increase in this brave new world. But in the long run the rest of us are going to bet on the new model from Bezos, Buffett and Dimon to lead the charge of purchasers taking control of their own destiny.
Pramod John is CEO of VIVIO health.
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