Will Health Care Consolidation Lead to Innovation?

Health care spending in the United States continues to escalate and is hovering around 18% of Gross Domestic Product (GDP). A recent worldwide Kaiser Family Foundation analysis shows that 2017 U.S. health spending per person was $10,224, which is 28% higher than 2nd place Switzerland. Regardless of methodology, the U.S. consistently ranks at the top of the international lists for total health care spending. Health care is big business and its major players are getting bigger and bigger.

The public sector (congress, executive branch, government agencies) have been focusing on a series of election cycle-driven health policy battles that could completely change the rules (nationalized health care, Medicare for All). The private sector is adapting as well with a series of mergers and acquisitions (M&A) that will fundamentally change how health care is financed and delivered.

After a couple of horizontal integration mega deals collapsed (Aetna & Humana, Anthem & Cigna), the industry has recalibrated and has been focusing on a more vertically integrated model that connects Insurance with Pharmacy Benefit Management (PBM). This model isn’t completely new (UnitedHealthcare formed OptumRx through acquisitions) and industry behemoths have been scrambling to make sure they aren’t left without an Rx dance partner. One recent example from December, 2017 had CVS buying Aetna for $69 billion. Shortly thereafter in March, 2018, Cigna announced it would be buying Express Scripts for $67 billion. In response, Anthem, an Express Scripts customer accelerated its transition to its own, in-house PBM called IngenioRx, by the end of 2019.

These new integrated models make a lot of sense from an operational and financial perspective. Their true value, however, will be delivered only through lower costs, higher quality and a better, more seamless member experience. Now the hard work begins. How will these companies be able to take advantage of their new-found scale and massive mountains of data? The integration of clinical and transactional data is foundational to any future strategies to help capture a fuller view of each member. Once collected and analyzed, the data will have to be transformed into actionable information that can be used to improve customer touch points and offer members insights into their health. These new integrated plays will need to offer customers something new and never-before-seen to make their mark. Understanding the voice of the health care customer as a customer and active participant in their health care journey remains the Holy Grail.

We also continue to see payer and provider (health care, services) consolidation. Many entities are seeking to become Integrated Delivery and Financing Systems (IDFS) where the financing and the delivery of care are both under one parent company umbrella. IDFSs can offer better care coordination, quality and experience, although results often vary depending on the level of integration. There is also a steady increase in partnership models built around coordinated care and pay for performance (cost, quality) standards including accountable care organizations (ACOs) and patient-centered medical homes.

Despite payer/provider consolidation, employers and individuals are inundated by an overwhelming volume of insurance products. They come in different flavors with different network arrangements (narrow network, tiered networks) and payment mechanisms (traditional volume-based, pay for performance). This complexity is difficult to manage and can make the shopping experience confusing. As discussed before, there are many solutions to help navigate this ever changing provider complexity.

The industry merger and acquisition activity is far from over. Centene and Wellcare are in the midst of a courting process. We recently saw Anthem acquire Beacon Health Options, the largest independently held behavioral health company in the country. There is also a flurry of additional merger and acquisition activity bubbling under the surface.

Regardless of the specific integrated model, we see many opportunities to use data and member insights to transform the customer experience end to end, from shopping to day-to-day health management. The ultimate industry goal should be to “delight” its customers. In the lead up, we should make the experience as “frictionless” as possible. As you see additional M&A activity in the news, don’t only focus on the terms of the deal sheet or the stated company synergies they are looking to create. Instead, ask, how will the deal result in lower customer costs and increased satisfaction? How will it spur innovation and new care delivery models that lead to increased health and quality? Industry consolidation focused on answering these questions is paramount...otherwise it’s just the big getting bigger.