Tag: merger

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

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?

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.

 

CVS + Aetna. Are we sure this adds up?

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.