Health Beat: Mergers May Give Medical Industry A Shot In The Arm
Amazon and Walmart are among the giant companies that may be bringing their penchants for efficiency into the world of health care.
There have been a lot of recent mergers within the health care industry – insurance companies and pharmacy benefit managers, such as Cigna and Express Scripts, CVS and Aetna.
Walmart has hinted at a merger with Humana. Amazon has committed to creating their its own health care plan to disrupt the industry. Apple has posted jobs for physicians to work at its campus in Palo Alto, California.
What’s next?
Will merger mania just make health care more complicated? Or might it be the antidote for an industry that has been moving at a glacial pace to change course and lower the rampant inflation in health care costs?
Right now, the way things work in most systems is a bit fragmented. People pay premiums to their health insurance company to cover the administrative costs of running the company in addition to the cost of care for the subscribers.
These costs of care are spread out over all hospitals, each with their own cost structure, overhead and administration. There are also charges associated with diagnostic testing, radiological imaging, and all manners of care that are provided, in surgical centers and private offices.
Hospitals want to stay in business, so the cost of care for the uninsured is spread out over all those who do have insurance to cover the losses. Many of the uninsured just can’t afford the premiums for coverage anymore, and with the loss of the mandate, no longer have to carry insurance for their care.
Pharmaceutical costs are also skyrocketing, and most insurers partner with a pharmacy benefit manager to handle the medication portion of the health insurance plan. That results in additional overhead to help pay for the administrative costs of the manager, in addition to the cost of medication that is prescribed for the members. Last year, Express Scripts made over $4.5 billion dollars in business activities.
Making changes to this system requires a multi-company commitment to lowering overhead and administrative costs and combining with others to do the same.
But as with most endeavors, it’s very difficult to get everyone on the same page at the same time.
What could consolidation do to help?
First, it might lower the overhead costs for each separate entity. Money can be saved on the administrative time that it takes to have an insurance company work with different pharmacies by having a benefits manager handle all medication claims. Savings should be funneled into lowering the cost of insurance, especially if we keep the requirement that insurance companies spend 85 percent or more of their collected premiums on health care services.
The merger of CVS and Aetna might provide additional opportunities for care to be delivered in a wider variety of locations, like urgent care offices or minute clinics that offer expanded hours for the working population or those who need help after-hours. Emergency care could be provided at a lower-cost location. The savings are direct to the insurance company, but should translate into lower costs for individual insurance plans. That means lower premiums, in an ideal world.
Medical supplies and equipment represent another area of opportunity. Amazon has an internet-based shipping network that reaches worldwide. The market is wide open to provide telemedicine services to remote locations and medication shipping to any address in the U.S. within a few days, if not the same day. The bulk savings alone would be an advantage that is unmatched, except perhaps by another giant, like Walmart.
Over 10 years ago, Walmart slashed the price of some generic drugs to $4 and began to dominate the pharmacy business by lowering the cost of medications almost overnight. Since then, it has opened 19 health clinics, in addition to offering vision centers and screening events in their stores. Its employee base of 2.2 million workers provides a great incentive to lower the overall cost of care, as it is a self-insured employer bearing all of the health care costs for their workers directly.
Its possible partnership with Humana could result in offering its own brand of health care. Many older Walmart shoppers are no doubt looking for cheaper alternatives to the standard costs of care in the marketplace. Many of the stores are in rural locations with doctor shortages.
Major employers already are partnering with medical centers of excellence like the Cleveland Clinic and Mayo Health Systems in an effort to eliminate the middle man of the health insurer, and provide care directly at a pre-set costs. By establishing direct contracts with these major powerhouse medical centers, the employers who pay for the cost of health care for their workers are now improving their own bottom line, potentially offering greater salaries to their employees and increasing the profits for investors.
The potential disruptions of all this to the health care industry are endless. But the old way of doing business is going to be gone soon, and those who are creating the integrated health care delivery system of the future will need to take a fresh approach to providing care in new ways, new locations, and under one virtual roof.
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