The U.S. Health care system is begging for disruption. It costs way too much ($3.3 trillion last year) and delivers too little value. Hundreds of millions of Germans, French, English, Scandinavians, Dutch, Danish, Swiss, Canadians, New Zealanders, and Australians get comparable or better health services for half of what we pay. For most Americans, care is not only expensive but is also fragmented, inconvenient, and physically inaccessible, especially to the sickest and frailest among us.
It should come as no surprise, then, that when titans of our private, for-profit health care sector — like Aetna, CVS, UnitedHealth Group (UHG), and DaVita — strike out in new directions, stakeholders react with fascination and excitement. Could this be it? Is free-market magic finally bringing Amazon-style convenience, quality, and efficiency to health care? Are old-guard institutions, like hospitals and nursing homes, on the verge of extinction?
The answer, frustratingly, is that it depends. It depends above all on the results. To be the change that many desire, these new mergers and acquisitions, and the others that will likely follow, must produce a higher-quality product for consumers (and satisfy physicians and other health professionals) at an affordable price. The details are crucial, and the details in health care — as our political leaders have recently learned — are complicated.
Even a high level look at two apparently similar deals suggests the importance of getting under the hoods of these arrangements. Both CVS’s planned $69 billion acquisition of Aetna and UnitedHealth’s $4.9 billion deal to buy DaVita Medical Group, bring together a very large national insurer and a large provider of health care services. Combining an insurance function with a delivery system has ample precedent in health care. Some of the nation’s most innovative, high-performing non-profit health care organizations use this formula. These include the Kaiser Health Plans, Intermountain Healthcare in Utah and Idaho, the Geisinger System in Pennsylvania, the Henry Ford Health System in Detroit, and HealthPartners in Minnesota and Wisconsin, among others.
The reason this formula works is that when care-delivery systems also act as insurers, they assume financial responsibility for the care they provide. This tends to focus doctors, nurses, and other health professionals on the value of what they do — finding the most cost-effective approach to managing their patients’ problems. The result can be a culture of economy and quality that is very hard to replicate in the prevailing fee-for-service environment, where health professionals get rewarded for the volume rather than the value of services.
So the big question is whether these bold new combinations of insurer and provider can generate promising partnerships similar to a Kaiser or an Intermountain, or find some other equally powerful formula for disruption. The answer is far from certain, and the uncertainties differ for the two mergers.
In the CVS-Aetna case, the care provider, a pharmaceutical retailer and pharmaceutical benefit manager, provides a very limited set of health services: drugs, drug purchasing, and selected, basic, routinized primary care at more than 1,100 local Minute Clinics located in communities around the United States. To become a Geisinger or an Intermountain equivalent, Aetna-CVS would have to acquire — or develop — seamless relationships with legions of primary care and specialty physicians and hospitals. It would have to turn its stores into medical clinics, with exam rooms, diagnostic laboratories, and x-ray suites. And it would have to install and link electronic health records with other providers in its communities. Having done all this, CVS would have to excel at the very challenging task of managing physicians and other health professionals — something that daily confounds even the most experienced, long-time, care-delivery systems. The challenge would be unprecedented, the expense considerable, and the outcome uncertain.
The CVS-Aetna partnership seems likely, instead, to set off in a very different, and intriguing, direction: offering an augmented suite of preventive and population health services for high-cost chronically-ill patients through its convenient, community-based outlets. CVS staff will serve as local case managers and coordinators for patients who might otherwise skip needed preventive services, have trouble getting to their primary care physicians’ offices, or just need help taking their medicines. The hope is that this will reduce patients’ use of more expensive emergency, hospital, and specialty services, thereby reducing Aetna’s bills and making its product more competitive. Aetna would incent its clients to use CVS services by exempting these from the normal deductibles and copays that most insurers charge, thus incidentally, increasing CVS’s business more generally. This strategy could attract customers to both CVS and Aetna, add health care value, and even drive up profits.
But uncertainties remain. In addition to those I’ve mentioned, one of the biggest challenges will be coordinating with traditional care providers, both primary care and specialists. Seamless teamwork is critical to effective care of complex, high-cost patients. And by adding another player to our already-fragmented health care system, the CVS-Aetna project could actually undermine coordination of services. And while better care for complex patients is clearly part of the solution to our cost and quality problems, it may not be the systemic disruption that some are hoping for.
The UnitedHealth-DaVita deal, in contrast, seems more likely at first glance to accomplish the insurer-provider partnership that has characterized Kaiser-style organizations in the past. The DaVita Medical group employs 2,000 primary care and specialist physicians in nearly 300 medical clinics, 35 urgent-care centers, and six outpatient surgery centers in six states. Among the group’s divisions is the formerly independent HealthCare Partners, which, as this Commonwealth Fund case study makes clear, has a long history of accepting and managing financial risk, using advanced information systems, and promoting quality-improvement programs.
That said, no one should underestimate the challenge of growing the UnitedHealth acquisition of dispersed physician groups into a national system capable of disrupting our floundering health system. Health care is a very local affair, and the organizations providing it tend to be creatures of their localities and histories. It can take generations for a provider-insurer partnership to develop a culture of trust, collaboration, and value orientation that has made existing examples of these combinations so uniquely effective. If the new entity seeks to grow, it will find that recruiting and training physicians who can leave the fee-for-service mentality behind is a challenge, as is finding leadership that can gain and keep health professionals’ trust. Kaiser has failed in several attempts to spread to new locations. And though UnitedHealth’s Optum division, which will run the partnership, has some limited experience managing selected specialty health services, making this new enterprise work could prove daunting.
Even if the Aetna-CVS and UnitedHealth-DaVita ventures contain the seeds of transformative health system change, it will take time for those seeds to germinate. But Wall Street is not a patient audience. The involved companies will face short-term pressure to prove the profitability of the new arrangements. From this standpoint, it does not bode well that DaVita was anxious to sell its medical groups because they were not performing financially.
The excitement about these two bold new health care arrangements says as much about the desperation with our current health care systems as it does about the promise of the mergers themselves. They may have compelling short-term business value to shareholders — though that, too, remains to be proven. As fundamental health care disrupters, however, they face challenging and uncertain futures.
Source: Harward Business
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Original article: Is M&A the Cure for a Failing Health Care System?.