Category: Economics

CVS Aetna merger goes through. I’m quoted in Chief Executive

published date
October 11th, 2018 by
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Hand it over!

The combination of CVS and Aetna will work out great for the investment bankers and members of senior management who are able to cash out. Beyond that I’m skeptical about what value this colossus will add to the health care equation.

When the deal was announced I expressed skepticism about the rationale (CVS + Aetna. Are we sure this adds up?)

If the idea is to get health insurers to offer plans that favor retail clinics, why not just contract with those plans? Aetna is a big company but as a national plan its market share in many geographies is relatively modest. Often –like here in Massachusetts– the local Blue Cross has the biggest market share. If CVS is big and powerful enough to actually buy Aetna, surely it can get that company and others to come to terms on retail clinics.

Now that the deal is done, Chief Executive asked me for my take. (CVS-Aetna merger approved by DOJ: What CEOs should know). They put me, quite rightly, in the “skeptical” category and quoted some of my concerns.


By healthcare business consultant David E. Williams, president of Health Business Group.

Partners and Harvard Pilgrim aren’t really going to merge, are they?

published date
May 7th, 2018 by

Friday’s news was full of stories about merger discussions between Partners HealthCare and Harvard Pilgrim Health Care. No one denied the reports, so we can assume there’s some truth to the rumors. But why would these organizations contemplate a merger and how likely is it to happen?

From Partners’ perspective:

  • After growing for decades by taking over other providers, Partners has run out of options for major acquisitions. The state blocked Partners’ attempt to buy South Shore Hospital, for example. Meanwhile, Partners’ biggest rival, Beth Israel is becoming more formidable as it combines with Lahey. In some ways a Partners/Harvard Pilgrim merger would be analogous to the proposed Aetna/CVS combination, which was pursued only after Aetna’s planned purchase of Humana was rejected on antitrust grounds.
  • After buying Neighborhood Health, Partners is comfortable with the idea of owning an insurer. But they want one that’s bigger and focused on the commercial market rather than Medicaid.
  • The shift to value based care means providers need more of the capabilities typically found within health plans. This becomes a buy v. build decision.

From Harvard Pilgrim’s perspective:

  • Even though it’s not the number one player in the market, it too may be too big to get away with acquiring a significant competitor, e.g., Tufts Health Plan.
  • The Partners account itself actually has about 100,000 members. Shifting that business away from Blue Cross could be significant even on its own. (Although it kind of reminds me of the Cheech and Chong sketch where Chong proclaims himself a “good customer” –of himself).
  • Possibly, Harvard Pilgrim could gain an exclusive relationship with Partners, where the only way to get care at Partners is by purchasing a Harvard Pilgrim plan. That doesn’t seem likely, but who knows?

Overall

It’s not unusual for health plans and providers to consider tying up. Remember, Harvard Pilgrim’s predecessor, Harvard Community Health Care was a staff model HMO with its own physicians and care facilities. More recently, you see combined payers and providers (“payviders”) emerging in the Medicare Advantage space. There is a certain appeal to combining health insurance and delivery in one entity–Kaiser is Exhibit A– but ultimately it’s not such a superior model.

I don’t think a merger of Harvard Pilgrim and Partners has a compelling rationale and I don’t see it happening. More likely is some kind of limited alliance or joint venture.

By healthcare business consultant David E. Williams, president of Health Business Group.

 

What Amazon can’t do

published date
February 13th, 2018 by
Watch out below!

Now that Amazon and its partners JP Morgan Chase and Berkshire Hathaway have decided to tackle healthcare for their employees, everyone  is tossing out ideas for what they might do to solve the system’s myriad problems.  I count myself among those lobbing in suggestions, with my emphasis on making the system more patient-oriented.

Two letter writers in the Wall Street Journal have interesting ideas about what the partnership should do, but ultimately they are misguided.

Fred Hyde, MD, JD, MBA thinks the team should take advantage of association health plan (AHP) rules to beat up providers over pricing, pointing the finger at “monopoly pricing by larger health systems” and prescribing reference pricing or a Dutch auction for the procurement of hospital care. He points to ERISA as a great liberator for larger companies and thinks  AHPs could be the answer for smaller businesses.

Well, all three partners already can take advantage of ERISA and that hasn’t really helped them. There’s also no particular reason to think providers are going to give the companies lower prices just for the heck of it.

Robert E. Mittelstaedt Jr., Emeritus Dean from Arizona State University, thinks full price transparency is going to be the answer, “forcing patients to make economic decisions” and pushing government to allow providers to compete on price. In my experience providers don’t want to compete on price and sick patients and their families are not well positioned to shop for most healthcare, especially the expensive and emergency stuff like cancer treatment and trauma care.

The writer says the partnership is “no different” than the history of Kaiser Permanente. In that case why not have all employees join Kaiser? After all there is already Kaiser Permanente Washington, based near Amazon’s headquarters, the former Group Health Cooperative. These plans are no panacea.

I’ve heard people quip that the best thing this group of companies could do for their employees is advocate for a single payer system in the US. I think they can do better than that, but it’s actually a better idea than a lot of what’s being discussed.

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By healthcare business consultant David E. Williams, president of Health Business Group.

CVS + Aetna. Are we sure this adds up?

published date
December 5th, 2017 by
CVS and Aetna. Love at second sight?

Many of the stories I’m reading about CVS’s acquisition of Aetna suggests the deal is a bold move to expand CVS’s retail clinic business.  See for example, CVS-Aetna deal has major implications for retail health, primary care practices in FierceHealthcare.

If the merger goes through, CVS plans to expand health services at its retail pharmacies, according to CVS and Aetna officials. Although it will take several years to accomplish, CVS will increase its number of clinics and add staff and equipment for a wider variety of treatments.

This seems like silly reasoning. If the idea is to get health insurers to offer plans that favor retail clinics, why not just contract with those plans? Aetna is a big company but as a national plan its market share in many geographies is relatively modest. Often –like here in Massachusetts– the local Blue Cross has the biggest market share. If CVS is big and powerful enough to actually buy Aetna, surely it can get that company and others to come to terms on retail clinics.

If there’s strategic logic behind the deal it’s more likely to be in the pharmacy management side of the business, where, for example, the combined CVS/Aetna will be the biggest player –but not a dominant one– in Medicare Part D pharmacy plans. That’s not so compelling.

Possibly, the two companies just wanted to do a big deal that wouldn’t get blocked by the Justice Department. Aetna already got slapped down for its attempt to merge with Humana, and CVS doesn’t have a lot of options for horizontal takeovers of other drug chains or pharmacy benefit managers.

There is some kinship between the companies. Both are New England based and CVS’s Chief Medical Officer, Troy Brennan previously held the same role at Aetna.

It seems just as likely that CVS will offer Aetna “products” through its stores. As @WilliamGerber points out on Twitter, CVS could sell Part D plans at retail. I’m thinking maybe CVS will eventually offer consumer friendly health plans from Aetna that go beyond pharmacy.

Certainly, the shadow of Amazon is hanging over the deal. CVS is extremely nervous about Amazon coming in and eating its lunch in a way that Walgreens never could. So it’s doing something Amazon won’t –getting more into third-party reimbursement.

Stay tuned. I look forward to seeing how this one plays out.

Ambulance bill rip-off: There’s always a public option

published date
December 1st, 2017 by

A Kaiser Health News story on sky-high ambulance bills caught my attention; I have a long-standing interest in out-of-network billing and a more recent experience of taking a pricey ambulance trip myself.

Taken for a ride? Ambulances stick patients with surprise bills, is not a new story. To sum it up: it’s not unusual for a patient to get a bill for thousands of dollars and then to be stuck with a big part of the charge, even if that patient is insured. That’s because many ambulance companies can make more money by being out-of-network. Unlike physicians and hospitals, ambulance companies don’t lose patients by being out of network and refusing to offer discounts. After all, if you need an ambulance you wouldn’t have time to shop around, and it doesn’t affect repeat business either.

The article cites an example of a Fallon ambulance in Chestnut Hill, MA, one town away from where I live. A patient was transported to Brigham and Women’s hospital four miles away and charged $3,660, which the article points out is $915 per mile. The insurer paid about half and half was the responsibility of the patient.

In my own case I was crossing the street in a crosswalk and was struck by a car making a left turn. My bill from Fallon was $3,427.50 for a one-mile ride, so at least on a per mile basis it was much higher than the Chestnut Hill example.

But to be fair, the bill comprises a base fee of $3,350 for an advanced life support ambulance plus $77.50 per mile. That works out to exactly the same rate as what the suburbanite paid ($3,350+4x$77.50=$3,660) and demonstrates that Fallon is not mainly charging for mileage, it’s charging for the equipment and personnel being ready to show up on a moment’s notice.

Much of the ire is directed at the ambulance company for price gouging and the insurance company for leaving patients hanging. There are calls to regulate prices and otherwise tighten the rules, and I’m sympathetic.

But notice this point a little further down:

” If the injury had happened just a mile away inside Boston city limits, he could have ridden a city ambulance, which would have charged $1,490, according to Boston EMS, a sum that his insurer probably would have covered in full.”

When you call 911 to report a fire or a crime in Chestnut Hill and anywhere else near Boston, fire fighters and police officers are dispatched at no charge. It doesn’t matter what insurance you have –or whether you have insurance– it’s a service provided by the local government as part of its budget. Police and fire fighters responded to my crash, too, but they aren’t sending a bill.

Cities and towns could do the same with ambulances if they want. Some, like Boston, do. Public ambulances can still bill insurance and individual patients, but they’re less likely to antagonize patients and insurers with outrageous bills.

So while we think of policy solutions for ambulance bill rip-offs, let’s not forget that there are public options and lots of hybrid solutions, too.


By healthcare business consultant David E. Williams, president of Health Business Group.