In 2018 the CVS-Aetna “Unicorn” will buy a mega-hospital system and become a very disruptive patient “ownership” trajectory

2017’s headline is the rapid transformation of the American health care system with disruptive hybrid private sector mergers, mega-hospital system mergers creating horizontally and vertically super-sized systems, and major capital expansion investment by academic medical centers to retain national and regional “anchor” supremacy.
And the explanation by pundits of the various competing trajectories.
My approach is to curate an annotated synopsis and let the readers reach their own conclusions.
So get started! (And Happy New Year!)
JMM

“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?” (A)

“CVS Health said on Sunday that it had agreed to buy Aetna for about $69 billion in a deal that would combine the drugstore giant with one of the biggest health insurers in the United States and has the potential to reshape the nation’s health care industry…
The merger comes at a time of turbulent transformation in health care. Insurers, hospitals and pharmacy companies are bracing for a possible disruption in government programs like Medicare as a result of the Republicans’ plan to cut taxes. Congress remains at an impasse over the future of the Affordable Care Act, while employers and consumers are struggling under the weight of rising medical costs, including the soaring price of prescription drugs. And rapid changes in technology have raised the specter of new competitors — most notably Amazon.
A combined CVS-Aetna could position itself as a formidable figure in this changing landscape. Together, the companies touch most of the basic health services that people regularly use, providing an opportunity to benefit consumers. CVS operates a chain of pharmacies and retail clinics that could be used by Aetna to provide care directly to patients, while the merged company could be better able to offer employers one-stop shopping for health insurance for their workers.
But critics worry that customers could also find their choices sharply limited. The deal risks leaving patients with less choice of where to get care or fill a prescription if those with Aetna insurance are forced to go to CVS for much of their care.” (B)

“Ana Gupte, PhD, a senior healthcare services analyst at Leerink Partners, told CNBC she could see Walmart and health insurer Humana joining forces to compete in the shifting healthcare landscape.
“Humana and Walmart have been in a very tight relationship for six, seven years,” she said, and Humana members already receive deals on prescription copays at Walmart pharmacies. Increasing competition and the threats posed by CVS’ deal with Aetna may be enough to push Walmart to consider buying Humana, according to the report.
Anthem, Cigna and Walgreens may also be among the healthcare companies interested in striking a deal, according to Dr. Gupte.” (C)

“In another example of the blurring boundaries in the health care industry, UnitedHealth Group, one of the nation’s largest insurers, said on Wednesday that it is buying a large physician group to add to its existing roster of 30,000 doctors.
UnitedHealth’s Optum unit will acquire the physician group from DaVita, a large for-profit chain of dialysis centers, for about $4.9 billion in cash, subject to regulatory approval. DaVita operates nearly 300 clinics across a half-dozen states, including California and Florida.
With the purchase, UnitedHealth is increasingly moving into the direct delivery of medical care…
The potential threat of new competitors like Amazon entering the pharmacy business and technology companies delivering medical care through cellphones has led former adversaries to become partners, driving insurers to team up with hospitals and doctors’ groups. They are seeking to deliver care in novel ways, outside the expensive setting of a hospital…
Even if insurers succeed in lowering medical costs as a result of the new ventures, economists and other experts warn that shareholders, not consumers, could benefit unless the lower costs yield lower prices for coverage. There must be sufficient competition among insurers for consumers to benefit, Professor Garthwaite said. (D)

“Health care Goliaths are cutting out the middleman. The American health care system is full of intermediaries chasing after a share of the industry’s profit, often by gaming one another. UnitedHealth’s $4.9 billion purchase of a physicians group from DaVita is the latest example of trying to cut costs by eliminating such links in the chain.
The health care system in the United States is akin to one of Rube Goldberg’s zany cartoon contraptions. America spends far more than other countries on treating or preventing ailments, yet with mediocre outcomes. It also ranks worst among 11 industrialized countries in the percentage allocated to administration, the time doctors need to receive insurer approval for treatments, and how long patients spend disputing costs, according to a 2014 Commonwealth Fund study.
The multiplicity of players — drugmakers, doctors, pharmacies, pharmacy benefit managers, insurers, wholesalers and hospitals — means lots of hands trying to grab money from other participants. (E)

“U.S. health insurer Humana and two private-equity firms agreed to buy home health-care and long-term care operator Kindred Healthcare on Tuesday for about $4 billion, the latest expansion by a U.S. health insurer into patient care….
Humana, the fourth-largest U.S. health insurer, will pay $800 million for a 40 percent stake in Kindred at Home, which will contain Kindred’s 40,000 caregivers that serve about 130,000 patients daily.” (F)

“Catholic Health Initiatives (CHI) and Dignity Health have signed a definitive agreement to combine ministries and create a new, nonprofit Catholic health system. The combination brings together two leading health systems, allowing the organizations to expand their mission of service and create a healthier future for people and communities across 28 states….
The new health system will include more than 700 care sites and 139 hospitals, offering people and communities access to quality care delivered by approximately 159,000 employees and more than 25,000 physicians and other advanced practice clinicians. The organizations are geographically complementary with no overlap across hospital service areas.” (G)

“Two major hospital systems are in talks about a possible merger that would create the largest U.S. owner of hospitals, as a series of deals shape up to further consolidate control of the health-care landscape.
Ascension and Providence St. Joseph Health, both nonprofits, are talking about combining, according to people familiar with the discussions. A deal would create an entity of unprecedented reach, with 191 hospitals in 27 states and annual revenue of $44.8 billion… (H)

“Looking to grow their brands and health services, several Catholic-owned hospital operators have announced or are reportedly involved in merger talks….
The more than 300 Catholic hospitals involved in these deals mean fewer acquisition targets for HCA, Tenet, Community and other for-profits. These investor-owned giants are already seeing their hospital admissions deteriorate in the move to value-based care that emphasizes payments to outpatient providers and doctor’s offices to make sure more care is given upfront before it reaches an inpatient facility. In Tenet’s third quarter, for example, “same hospital patient revenue decreased 2.3%” which “reflects a 2.2% decrease in adjusted admissions,” the company said last month.
Tenet is evaluating options for the entire chain of 77 hospitals and 460 outpatient centers including possible sale. “We have and we will continue to review, analyze and pursue all options to enhance shareholder value,” Tenet’s Ronald Rittenmeyer, executive chairman and CEO said in November. (I)

“Franklin, Tenn.-based Community Health Systems completed its 30-hospital divestiture plan Nov. 1. Now, the company expects to sell another group of its hospitals with combined revenue of $2 billion, Chairman and CEO Wayne Smith said during a third quarter earnings call.
To improve its finances and reduce its heavy debt load, CHS put a turnaround plan into place last year. As part of the initiative, the company announced in early 2017 that it intended to sell off 30 hospitals. In August, CHS extended its divestiture plan. The company said it would sell a group of hospitals with combined revenue of $1.5 billion in addition to the 30 hospitals already announced….
“Our goal is to emerge from this process with a sustainable group of hospitals that are positioned for long-term success and growth,” he said.” (J)

“Carolinas HealthCare System, the Charlotte region’s dominant hospital chain, will partner with UNC Health Care of Chapel Hill to form a medical giant – one that leaders of the two systems predict will expand access to care, improve quality and boost the state’s economy…
It marks a major development for Carolinas HealthCare, Charlotte’s largest employer. The new system would run more than 50 hospitals and employ more than 90,000 people, making it one of the nation’s largest hospital chains.
But experts in hospital consolidation cautioned Thursday that deals like these tend to drive up health care costs. That’s because larger systems have more leverage to negotiate higher payments from insurance companies, which then pass on the higher costs to patients.” (K)

“The University of Pittsburgh Medical Center plans to invest $2 billion to build three “specialty hospitals” that include top-of-the-line technologies, the health system announced.
The $2 billion is in addition to $1 billion already set aside by UPMC for capital improvements, the organization said.
The three new facilities will be built near existing UPMC hospitals in Pittsburgh: UPMC Vision and Rehabilitation Hospital at UPMC Mercy; UPMC Hillman Cancer Hospital at UPMC Shadyside Hospital; UPMC Heart and Transplant Hospital at UPMC Presbyterian. (L)

San Diego-based Scripps Health is planning a $2.6 billion expansion — the largest construction project in the organization’s 125-year history.
The expansion will include constructing a $1.3 billion replacement hospital for Scripps Mercy Hospital San Diego; a new seven-story patient tower for San Diego-based Scripps Memorial Hospital La Jolla; and a three-story acute care structure at Scripps Memorial Hospital Encinitas (Calif.). In addition, seismic retrofitting construction is planned for Scripps Mercy Chula Vista (Calif.) and Scripps Green Hospital in San Diego. (M)

“Ohio State University intends to build a new hospital tower, which the university calls “the largest single facilities project ever undertaken at Ohio State.”
The university announced requests for qualifications Wednesday, seeking design professionals for two Wexner Medical Center projects anticipated to cost more than $2 billion: the tower and a new ambulatory center.
The envisioned hospital tower will have up to 840 beds in private rooms to elevate patient-centered care, safety and training for future physicians, the university said…
“This is an important moment in time,” said Wexner Medical Center board member Robert H. Schottenstein in a statement. “We are positioned to take a bold step forward by aligning all the operations of the medical center for the delivery of care, research and innovation that will have life-changing, long-term benefits for central Ohio, the State and beyond…. (N)

“Virtua Health can proceed with its plans to build a $1 billion hospital complex in Westampton, Burlington County, as long as it meets 13 conditions, the New Jersey Health Planning Board decided Thursday after reviewing the proposal…
The new hospital, which would have 339 beds and private rooms for all patients, would replace the Virtua Memorial Hospital in Mount Holly, three miles away…
The 399-bed Voorhees hospital, which opened in 2011, also was part of a $1 billion medical complex. A third Virtua hospital is in Marlton. (O)

“Moody’s Investors Service has issued a negative outlook on the nonprofit healthcare and hospital sector. The outlook reflects Moody’s expectation that operating cash flow in this sector will decline by 2 to 4 percent over the next 12 to 18 months.
The outlook revision comes amid uncertainty regarding federal healthcare policy for nonprofit hospitals and after the sector experienced a larger-than-expected drop in cash flow this year….
This marks the first time in several years Moody’s has issued a negative outlook on the nonprofit healthcare and hospital sector. The debt rating agency has maintained a stable outlook on the sector since August 2015. “(P)

Fitch Ratings’ outlook on the nonprofit healthcare sector is negative for 2018, as the sector faces regulatory, political and competitive challenges.
“..Fitch expects nonprofit hospitals and health systems’ profitability to continue to weaken over the next year. “Growth in Medicare and Medicaid volumes are weakening provider payer mixes at a time when providers are moving from volume-based reimbursement in greater numbers,” said Fitch Senior Director Kevin Holloran.” (Q)

“Dr. Peter Pronovost, one of the nation’s top patient safety experts and advocates, is leaving Johns Hopkins Health System for a job at insurance giant UnitedHealthcare, he announced Thursday on Twitter.
In a statement welcoming Pronovost to UnitedHealthcare, the insurer said he “has distinguished himself nationally and internationally with his ground-breaking work around saving lives, improving patient safety, and improving both the quality and value of health care…
“Dr. Pronovost’s patient-centered approach to care and deep clinical expertise will help bring a provider point-of-view deeper into UnitedHealthcare and improve how payers and care providers work together to share best practices, build appropriate value-based incentives, and effectively use data to improve the patient experience.”” (R)

“Rapid changes in the larger health care field are leading hospitals and health systems to explore new ways to enhance quality, reduce costs, and provide more convenient access to care to meet patients’ needs on their terms…hospital mergers can lead to substantial savings and provide needed funds to finance innovations that will enhance quality and convenience.
Benefits apply whether the hospitals involved are nearby, across the state or even across the country. A larger system allows hospitals to share infrastructure costs for expensive IT and reduce overlapping overhead costs.
It also expands the types of services available to patients and communities, and provides a stable foundation on which to deliver more comprehensive, coordinated and convenient care.”
America’s hospitals and health systems continue to build a high-performing, patient-centered system that benefits us all.
In some communities, mergers might be the only practical way to preserve services and enhance quality. In every case, the changes in the hospital field are in the service of providing a strong foundation upon which to build the health care system of the future and to continue to provide communities with the care they need in the consumer-friendly ways they expect.” (S)

“In theory, insurance companies hold down costs by driving hard bargains with providers. In reality, they find it difficult to do so.
UnitedHealth Group is the largest private health insurer, with about 11% of the overall market. Everyone else is less than 10% (though in local and regional markets there is more concentration).
That makes these insurers plenty big enough to beat up on consumers, but too small to take on powerful providers.
The result: In the USA, 18 cents of every dollar spent goes to health care each year. In other developed countries, health care expenditures are much less, in the range of 10 to 12 cents per dollar.
Which makes recent trends in the hospital industry all the more troubling. Two major hospital chains, Ascension and Providence St. Joseph Health, are in talks to merge, a move that would create a 191-hospital colossus operating in 27 states…
These massive businesses run much as their for-profit brethren — and will put pressure on for-profits to merge as well. That won’t be good for consumers, or the ridiculously high premium the American economy pays for a health care system that lacks effective cost controls.
Not all mergers in health care are problematic. The proposed combination of CVS, the owner of drug stores and walk-in clinics, with Aetna, a major insurer, holds intriguing possibilities for efficiencies and more comprehensive tracking of health care decisions.
It could also be argued that there should be more consolidation among insurance companies. This might not be a hugely popular concept, but it would give them more leverage to say no to costly increases demanded by hospitals and other potent health care providers.
At the very least, it’s time to take a critical eye to the mega hospital empires being erected. They could be very hazardous to your health.” (T)

“The CVS-Aetna deal did not come as a surprise to industry leaders who have been keeping their ears to the ground and have paid attention to recent trends. But nevertheless, this merger is a major shake-up that cannot be ignored. Google, Amazon and IBM Watson are all looking to stake out a piece of the healthcare field, and deals such as Optum’s purchase of DaVita Medical Group underscore the ever-evolving nature of the ways people access and pay for care and services. Providers should not view this movement as a threat that must be stopped. Instead, we should spur innovation on our end. We can’t sit still. That’s why, in Northwell Health’s case, we have been forging new partnerships and pursuing ventures that will enable the organization to compete more effectively in this rapidly changing environment.
It will be especially intriguing to see what market segments CVS and Aetna pursue after the merger is finalized. Undoubtedly, they will offer prescriptions, preventive care and other primary services to supplement CVS’ “Minute Clinics,” but it remains to be seen what other health services will be provided as part of this new collaboration. Regardless of what new competitors enter the healthcare market, the seriously ill, elderly patients with chronic conditions and those who have suffered traumatic injuries will still be relying on hospitals to take care of them. It’s highly unlikely that any of the new players will be providing inpatient care. As we all know, the bulk of healthcare funding is spent on long-term care for people at the end of life. The Amazons and Googles of the world are not targeting that population.” (U)

“It’s all about the patient.
Or at least about keeping patients and the revenue generated for their medical care.
As health care is rocked by deals aimed at shattering traditional boundaries between businesses, some of the nation’s biggest hospital groups are doubling down on mergers that seem much more conventional. Skeptics say some of these hospital deals are more of the same: systems seeking to increase their leverage with insurance companies and charge more for care…
But the frenzy of mergers and other alliances taking place also reveals a frantic attempt to court and capture patients as people have more choices about where to go for care. Patients are increasingly relying on walk-in clinics, urgent care centers or an app on their cellphone to check out a nasty rash or monitor their diabetes, and they are looking for places that are both less expensive and more convenient than a hospital emergency room or doctor’s office…
The fundamental question is whether hospital groups have what it takes to use their increased scale to radically change,…
But the challenge cannot be underestimated in asking these massive institutions to come together and change into something radically different. “You’re taking a zebra and a zebra,” Mr. Cassels said. “What they want to become is a unicorn.” (V)

“The $69 billion merger between CVS and Aetna is a powerful example of the “attacker’s advantage,” according to Ram Charan in an op-ed for strategy + business.
Mr. Charan is a business adviser and teacher who has spent 40 years consulting CEOs and executive boards. He defines the attacker’s advantage as “the competitive edge generated by leaders who can detect subtle shifts in consumer behavior, markets, and economic and social systems; who can spot an opportunity before others do; and who can lead their enterprises decisively to execute on that opportunity.” (W)

“….. 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.” (A)

“Many Mayo Clinic doctors, nurses and other employees will be free to roll up their sleeves and show their ink in 2018 with a new policy allowing tattoos to be visible.
Mayo Clinic is loosening up its “Dress and Decorum Policy.” Currently, employees with tattoos are supposed to keep them covered at work or face discipline.” (X)

“New Hyde Park, N.Y.-based Northwell Health named Michelin Star chef Bruno Tison assistant vice president for food services and the corporate executive chef.
In his new role, Mr. Tison will oversee food quality, culinary training, menu and recipe development for the entire health system. His responsibilities will include teaching the health system’s cooks to make healthier and tastier food.” (Y)

(A) Is M&A the Cure for a Failing Health Care System?, David Blumenthal, https://hbr.org/2017/12/is-ma-the-cure-for-a-failing-health-care-system
(B) CVS to Buy Aetna for $69 Billion in a Deal That May Reshape the Health Industry, By MICHAEL J. de la MERCED and REED ABELSON, https://www.nytimes.com/2017/12/03/business/dealbook/cvs-is-said-to-agree-to-buy-aetna-reshaping-health-care-industry.html
(C) Why the CVS-Aetna deal could push Walmart to buy Humana, by Ayla Ellison, https://www.beckershospitalreview.com/payer-issues/why-the-cvs-aetna-deal-could-push-walmart-to-buy-humana.html
(D) UnitedHealth Buys Large Doctors Group as Lines Blur in Health Care, by REED ABELSON, https://www.nytimes.com/2017/12/06/health/unitedhealth-doctors-insurance.html?_r=0
(E) UnitedHealth’s Deal May Point to Health Care’s Future, by ROBERT CYRAN, https://www.nytimes.com/2017/12/06/business/dealbook/unitedhealth-davita.html
(F) Humana, private-equity firms buy Kindred Healthcare for $4 billion, by Ty Wright, https://www.cnbc.com/2017/12/19/humana-private-equity-firms-buy-kindred-healthcare-for-4-billion.html
(G) Dignity Health and Catholic Health Initiatives to Combine to Form New Catholic Health System Focused on Creating Healthier Communities, https://www.dignityhealth.org/about-us/press-center/press-releases/dignity-health-and-catholic-health-initiatives-announcement
(H) Hospital Giants in Talks to Merge to Create Nation’s Largest Operator, by Melanie Evans and Anna Wilde Mathews, https://www.wsj.com/articles/hospital-giants-in-talks-to-merge-to-create-nations-largest-operator-1512921420
(I) Catholic Hospital Mega-Deals Pressure For-Profits Like Tenet And HCA, Bruce Japsen, https://www.forbes.com/sites/brucejapsen/2017/12/12/catholic-hospital-mega-deals-pressure-for-profits-like-tenet-and-hca/#41a1d7844c08
(J) CHS to sell additional hospitals worth $2B in revenue, by Ayla Ellison, https://www.beckershospitalreview.com/hospital-transactions-and-valuation/chs-to-sell-additional-hospitals-worth-2b-in-revenue.html
(K) CEOs describe health care partnership as a ‘marriage’, by Ames Alexander, Deon Roberts and Ann Doss Helms, http://www.charlotteobserver.com/news/business/article170440017.html
(L) UPMC will invest $2B to build 3 specialty hospitals, by Paige Minemyer, https://www.fiercehealthcare.com/finance/upmc-capital-investment-allegheny-health-network-hospital-expansion
(M) Scripps Health to launch $2.6B expansion, by Alia Paavola, https://www.beckershospitalreview.com/facilities-management/scripps-health-to-launch-2-6b-expansion.html
(N) New hospital tower would be Ohio State’s largest single project, by Jennifer Smola, http://www.dispatch.com/news/20171129/new-hospital-tower-would-be-ohio-states-largest-single-project
(O) Virtua wins health planning board OK to build a $1 billion medical campus in Westampton, by Jan Hefler, http://www.philly.com/philly/news/new_jersey/Virtua-Health-Westampton-hospital-Mount-Holly-medical-project.html
(P) Moody’s: Outlook is negative for nonprofit hospital sector, by Ayla Ellison, https://www.beckershospitalreview.com/finance/moody-s-outlook-is-negative-for-nonprofit-hospital-sector.html
(Q) Fitch issues negative outlook for nonprofit hospitals: 4 things to know, by Ayla Ellison, https://www.beckershospitalreview.com/finance/fitch-issues-negative-outlook-for-nonprofit-hospitals-4-things-to-know.html
(R) Top patient safety expert, innovator of checklists, departs Johns Hopkins, by Meredith Cohn, http://www.baltimoresun.com/health/bs-hs-peter-pronovost-leaves-hopkins-20171214-story.html
(S) Health care mergers benefit patients, by Rick Pollack, https://www.usatoday.com/story/opinion/2017/12/17/health-care-mergers-benefit-patients-editorials-debates/108704794/
(T) When hospitals merge, you pay the bill, https://www.usatoday.com/story/opinion/2017/12/17/when-hospitals-merge-you-pay-editorials-debates/953998001/
(U) Michael Dowling: 4 most important healthcare trends in 2018, by Written by Michael J. Dowling, https://www.beckershospitalreview.com/hospital-management-administration/michael-dowling-4-most-important-healthcare-trends-in-2018.html
(V) Hospital Giants Vie for Patients in Effort to Fend Off New Rivals, by REED ABELSON, https://www.nytimes.com/2017/12/18/health/hospitals-mergers-patients.html?_r=0
(W) Why the Aetna–CVS Deal Is a Lesson for Leaders, by Leo Vartorella, https://www.strategy-business.com/blog/Why-the-Aetna-CVS-Deal-Is-a-Lesson-for-Leaders
(X) Mayo to allow visible body art, with some exceptions, by Jeff Kiger, http://www.postbulletin.com/news/local/mayo-to-allow-visible-body-art-with-some-exceptions/article_4b0c7713-633b-5230-86d7-5468901bcf3c.html
(Y) Northwell first health system in nation to hire Michelin Star chef, by Anuja Vaidya, https://www.beckershospitalreview.com/hospital-executive-moves/northwell-health-appoints-assistant-vp-of-food-services-corporate-executive-chef-3-takeaways.html

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