Mergers. Acquisitions. Mega-mergers. Recent years in healthcare have witnessed some of the biggest companies acquiring one another at alarming rates. However, the Wall Street Journal released an article at the end of October that has everyone talking. One of the largest drugstore corporations in the United States is considering buying one of the largest health insurers in the United States. That is right, CVS Health might be purchasing Aetna for approximately $66 billion.
Why this Type of Acquisition is Significant
Robert Samuelson recently covered healthcare mergers and acquisitions in an article in the Washington Post. Samuelson talks about the fact that this type of merger would be incredibly important, but why? Medical enterprises are striving to deliver a higher quality of care through the use of technology. Acquisitions are driven by financial reasons and by the need to have a stronghold on valuable data analytics. So it only makes sense that these types of mergers take place, right? Samuelson writes:
“CVS is a diversified healthcare company with operations in pharmacy benefit management, post-acute care and a strong network of health care clinics — it’s not just a drug store chain. By merging with CVS, Aetna gains access to these rich data sources to drive better healthcare practices. The same is true for CVS in reverse. It gets to tap Aetna’s databases and discover, say, which of its policy-holders haven’t received their flu shot and could be solicited by CVS.”
The article in the Washington Post points out that even though this acquisition-merger process has been accelerated in recent years – it’s only going to gain momentum in as we move into the future of healthcare.
And there are a lot of these deals going on. In October of this year, Modern Healthcare reported that “consolidation among hospitals and health systems in 2017 will likely outpace 2016’s mark and continue at that same pace through next year.” To quantify what is happening, the article continues “so far, there have been 87 provider deals made as of the end of the third quarter, putting those mergers and acquisitions on track to overtake 2016’s 102 tally, according to analysis from consulting firm Kaufman Hall.”
Adapting Care to Changes Brought on by Healthcare Mergers and Acquisitions
It’s important that all healthcare organizations and companies keep up with the fundamental trends and adapt to accommodate these changes as seamlessly as possible. All payers, including government-funded Medicaid and Medicare as well as private insurers, are distributing pay based on value and good patient outcomes, instead of by the volume of services provided.
Initiatives from Medicare and Medicare have paved the path with programs such as Merit-Based Incentive Payment System (MIPS) and CMS audits. These measures lead to consolidation of hospitals and providers, as it easier to make improvements to the quality of a large health system than to tackle this in small group practices or as sole proprietors.
All this plays into the reasons for the mergers which the article in Modern Healthcare sums up like this: “scale can insulate providers from looming policy changes, prepare them for expected reimbursement cuts, accommodate rising labor, technology and pharmaceutical costs, allow them to take on more risk and help tackle new payment models in an evolving value-based industry. Health systems can spread costs over a wider patient base and gain leverage in negotiations with payers.”
Another major factor to consider is how information technology and data analytics are used to improve patient care. As most healthcare systems and organization have their electronic systems in place, the challenge now becomes how to harness these digital mountains of data and transform them into actionable insights to improve care.
Acquisitions and mergers will continue and CVS is not going to be the only unfamiliar company getting into the healthcare insurance industry. Experts expect to see large tech giants such as Amazon and Google to enter the marketplace through healthcare mergers and acquisitions. We will continue to monitor and report on news for healthcare mergers and acquisitions.