By Will Owen
In an era of the American economy popularly dubbed the “New Gilded Age,” many patients, providers, and lawmakers alike are skeptical of market consolidation in healthcare. As key stakeholders across the industry cluster into new partnerships, proposed megamergers in the payer sphere have proven especially controversial. In 2017, federal judges blocked Aetna-Humana and Anthem-Cigna merger plans based on antitrust grounds, two rulings that received strong support from physician organizations like the American Medical Association and Physicians Advocacy Institute.1, 2
Since the failure of these two inter-payer megamergers, the healthcare landscape has been abuzz with news of cross-industry consolidation, such as CVS and Aetna, and early talks of Humana’s acquisition by Walmart.3, 4 The benefits and drawbacks of unconventional mergers are still ambiguous, but it is widely accepted that such policy will only accelerate over the next decade.
Why are payers interested in merging?
Since the ratification of the Affordable Care Act (ACA), the American healthcare industry has accelerated in consolidating to achieve a system of value- rather than volume-based care. Through large-scale mergers, payer organizations are better financially equipped to enter risk-based contracts with health systems that have become standard under the ACA.
Payers also claim mergers yield reduced administrative costs, better integrated data and analytics, and more streamlined, scalable processes. Along with its vast expansion of health plan enrollment, the ACA has brought regulatory turbulence for payers adapting to new processes and protocols; mergers allow for both the personnel and financial gains necessary to better adapt to these industry growing pains.5
The Benefits of Payer Consolidation for Patients:
Contrary to skeptics, payers assert that mergers will bring higher quality care at lower costs to patients. Aeta and Humana, for instance, staunchly defended their decision to merge in a joint press release issued in response to the Department of Justice’s lawsuit. Both parties claimed the merger would geographically expand and diversify Medicare Advantage plan options in a market where a consumer’s fate is largely determined by their spot on a map. They also emphasized the opportunity to align best practices and bring the consumer products and services that patients increasingly expect from their plans and providers.6
Proponents of payer-pharmacy mergers similarly point to improved patient experience as a benefit of cross-industry consolidation. In announcing their successful merger, CVS Health and Aetna promised patients more convenient and cost-effective ways of dealing with chronic conditions through face-to-face counseling between doctor visits; expanded telehealth technology options; and improved medication adherence resources—all in the context of their neighborhood CVS.7
The Drawbacks of Reduced Competition:
Had the Aetna-Humana and Cigna-Anthem megamergers been successful, the entire American healthcare marketplace would now be 80% dominated by just 3 insurers (UnitedHealth Group being the third).8 Providers and politicians, especially those with left political leanings, fear reduced competition will only bring higher costs and lower quality of care. Many doubt payers will decrease their already steep premiums by negotiating lower prices with providers, but rather will simply pocket the savings for themselves.9
Critics also fear mergers among payers and retail clinics will threaten the already tenuous livelihoods of primary care physicians. In a March 2018 New York Times article, “The Disappearing Doctor: How Mega-Mergers Are Changing the Business of Medical Care,” primary care physicians voiced concern over their inability to compete with the expansive hours of retail clinics like CVS, and asserted that greater convenience hasn’t brought higher quality or even less expensive care. Patients are losing a sense of trust and continuity of care they can only find in longstanding doctor-patient relationships.10
Adapting to a Market Transformed:
Consolidation is far beyond a healthcare phenomenon in America’s “New Gilded Age,” as seen in other industries like banking, retail, and airlines—and as CEOs of corporate titans gain the renown of the Rockefellers and Carnegies before them. The benefits and drawbacks of payer mergers are ambiguous and widely disputed, but one thing is certain: they will only continue, particularly alongside pharmacy organizations and retail clinics.
In adapting to this transformed market, hospitals are recognizing that by merging with larger health systems they are given a better position to negotiate value-based payment contracts with payers and other industry stakeholders. Both payers and the government favor working with consolidated health systems rather than traditional independent practices. Life science companies are also in an influential position to become key partners to their health system and payer clients, providing the consumer resources and tools that are increasingly in demand in today’s world of instant gratification.
- Gurman AW. AMA Applauds DOJ Effort to Block Creation of Two Health Insurer Giants. July 2016. https://www.ama-assn.org/ama-applauds-doj-effort-block-creation-two-health-insurer-giants. Accessed May 22, 2018.
- PAI Applauds Court Decision On Health Insurance Mergers. February 2017. http://www.physiciansadvocacyinstitute.org/Advocacy/Health-Insurer-Mergers/Health-Insurance-Mergers-Press-Release. Accessed May 22, 2018.
- Kacik A. CVS, Aetna shareholders greenlight merger. March 2018. http://www.modernhealthcare.com/article/20180313/NEWS/180319968. Accessed May 22, 2018.
- Coombs B. Why Walmart may have designs on Humana, and what it thinks it could get from a deal. April 2018. https://www.cnbc.com/2018/04/01/walmart-may-have-designs-on-humana-heres-what-could-happen-with-a-deal.html. Accessed May 22, 2018.
- Gruessner V. Does Blocking Health Insurance Mergers Impact ACA Exchanges? July 2018. https://healthpayerintelligence.com/news/does-blocking-health-insurance-mergers-impact-aca-exchanges. Accessed May 22, 2018.
- Aetna and Humana to Vigorously Defend Their Pending Transaction. July 2016. https://news.aetna.com/news-releases/aetna-and-humana-to-vigorously-defend-their-pending-transaction/. Accessed May 22, 2018.
- CVS Health to Acquire Aetna; Combination to Provide Consumers with a Better Experience, Reduced Costs and Improved Access to Health Care Experts in Homes and Communities Across the Country. December 2017. https://cvshealth.com/newsroom/press-releases/cvs-health-acquire-aetna-combination-provide-consumers-better-experience. Accessed May 22, 2018.
- Gruessner V, ed. How Health Insurance Mergers Could Change the Payer Industry. https://healthpayerintelligence.com/features/how-health-insurance-mergers-could-change-the-payer-industry. Accessed May 22, 2018.
- Gruessner V. DOJ Sees Continued Opposition to Health Insurance Mergers. July 2016. https://healthpayerintelligence.com/news/doj-sees-continued-opposition-to-health-insurance-mergers. Accessed May 22, 2018.
- Abelson R, Creswell J. The Disappearing Doctor: How Mega-Mergers Are Changing the Business of Medical Care. April 2018. https://www.nytimes.com/2018/04/07/health/health-care-mergers-doctors.html. Accessed May 22, 2018.