The enactment of the Affordable Care Act in 2010 has turned health care on its head. Even though the ACA didn’t cause immediate consolidation of hospital systems, over the last five years the legislation has expedited integration within health care.
In fact, around 71 percent of health care leaders indicate that in the next three years they expect to experience some form of M&A in their organization. And while much debate circulates around the cost benefit of consolidation for patients, in most cases these health care mergers lower expenses within both of the organizations involved.
When medical systems consolidate they can share expenses that improve delivery such as collective nurse hotlines and EHR systems. Plus, mergers often allow for greater interoperability.
The pro-M&A argument goes something like this: As these consolidated providers’ costs decrease, they should ideally be able to offer services at a lower cost to patients.
What’s driving these changes in health care?
Regardless of what anyone thinks about health care mergers, they’re likely to keep happening. The ACA and other value based legislation has shaken up the health care environment so that nearly everyone involved in the industry needs to take action in order to survive the upheaval.
But behind all this tumult, is another disrupting force—consumerism. Patients (or consumers) want to be in charge of their own wellness. They’re used to controlling many aspects of their life with the click of a button as with online banking, entertainment, grocery orders and transportation.
Consumers have very little patience when it comes to health care that isn’t convenient and feels out of their control.
Consider, for example, CVS. They’ve taken tremendous steps to empower health care consumers. For one, their Minute Clinic offers an alternative option for patients who can’t get to the doctor because of work schedules or other complications. In addition, in 2018, they implemented prescription delivery services.
The result of these consumer-based health models is that hospital systems must adjust to consumer expectations in order to prosper. In the case of CVS, consumerism disrupts traditional referral paths for health systems as patients seek the most convenient, affordable options for medical care.
Why are M&As becoming the norm in health care?
Increased expectations and pressures are being placed on health systems—from patient-reported outcomes to lower cost incentives. As a result, many providers have reached a tipping point. Over the last few decades, the cost of care has skyrocketed as chronic diseases multiply. But these increased expenses aren’t necessarily improving the quality of care.
Many payers, including Medicaid, are looking toward capitated payment models as opposed to fee-for-service. These same health systems are required to show better patient outcomes instead of simply increasing the amount of services they deliver. Plus, analytics and AI are making health care ripe for disruption, both from within and outside of the industry.
Because of digital health technology and the potential for disruption, many health organizations including hospitals, private practices, health insurance plans and pharmaceuticals, are compelled to move toward consolidation. How else are they going to survive competition from large companies like Amazon, CVS, and others seeking market share within health care? The market share that was once dominated by traditional providers.
Health care mergers are becoming more commonplace because of disruption from government regulation, newer digital health capabilities, and greater competition for market share.
Why do partnerships matter in the current health care climate?
Mergers and acquisitions point to a growing need for partnerships in health care. In the past, M&As were often focused on combining two similarly aligned companies to increase market share. However, what we’re seeing today is that health care organizations are joining with diverse companies—companies that have different abilities and strengths.
Who’s merging these days?
Cigna recently acquired Express Scripts with the goal of making prescriptions more affordable and more aligned with health plan incentives for patients. By partnering with this PBM, Cigna can monitor patients’ medical history as well as needed prescriptions.
Then there’s the merger between CVS and Aetna. By combining forces, they both bring different sectors of the health care market together. As a result, both companies benefit from the strengths of the other, ultimately making health care more accessible and convenient for consumers.
And then there’s Amazon, the consumer giant, who’s never been involved in health care before. Their recent merger with Berkshire Hathaway and JPMorgan Chase has them challenging the status quo in employee wellness.
Every industry seems to want a piece of the health care pie made available by the disruption. This demand is causing those who’ve been long-standing shareholders in the industry to form partnerships in order to avoid takeovers.
How alliances can benefit health plans
Insurance needs a sufficient risk pool, a mix of both the healthy and the unwell, to offset expenses and stay in the black. And while health plans benefit from having healthy patients in their program, until recently many of these payers haven’t made strides to convert themselves into health service companies.
Humana, for example, is making the switch from a fully insured health plan to a data and analytics services company. What payers like these are realizing is that partnerships with provider networks simplify expenses while allowing both to share in the savings. As a result, payers and providers become more of a “pay-vider,” sharing aligned goals and incentives.
Historically, health plans help share in the risk, but hospitals and IDNs haven’t taken those same chances. As these two health care organizations align incentives, however, they should be able to multiply quality of care and wellness outcomes for patients.
In addition, partnerships enable providers and payers to offer a seamless consumer experience. By sharing in patient engagement services and programs geared toward certain at-risk groups, payers and providers can retain patients, stabilize risk pools, and ultimately monetize on the back end of services rendered.
If health plans want to thrive in the new health care ecosystem, they have to reinvent themselves to be a value and service provider for patients. One way to add value is by empowering patients to take control of their health by making digital tools available to them so they can manage their chronic illnesses and comorbidities.
By introducing a platform like Melon to patients, health plans and health systems can provide what consumers really want—convenient 24/7 access to education, tools and support. As a result, patients will be less likely to invest in other consumer models of care and bring their business back to traditional providers like primary care.
Ready to begin engaging patients with a consumer driven model? Download our guide to supported self-management to learn how.