Not all mergers are the same. We’ve seen the mergers of health systems like Advocate Health Care and Aurora Health Care, and Ascension Health and Providence St. Joseph Health (see Ascension & Providence St. Joseph In Talks To Form Largest Hospital Operator In The U.S. and Aurora Health Care And Advocate Health Care To Merge), And, we’ve seen the mergers of specialty provider organizations like Uspiritus and Centerstone of Kentucky, and Meridian Behavioral Health and New Beginnings (see Centerstone & Uspiritus To Merge and Meridian Behavioral Health Acquires New Beginnings Minnesota). These are mergers of scale—bigger geographic footprint, more negotiating power, and the spreading of administrative costs across a larger system.
But the recent CVS/Aetna merger is a new variety—the merger of health plan with retail. It has set off a ripple effect, with Optum announcing the acquisition of DeVita (see DaVita Medical Group to Join Optum). And rumors of a pending Walmart acquisition (see Aetna, CVS Merger Sparks Talk Of Humana Eyeing Deal With Walmart), and the pending acquisition of Kindred by Humana (see Humana In Talks To Buy Kindred Healthcare With Equity Firms: Source). I think these combinations are “a horse of a different color” (see Are Integrated Models A “Horse Of A Different Color”?). These combinations are bringing to scale a health service model that puts consumer convenience at the center, combining retail access and telehealth in a way that will change every provider organization in the field—primary care, chronic care management, and urgent care.
For specialty provider organizations, the strategy question is: how does this affect long-term sustainability and success of organizations serving complex consumers? What is the best strategic approach to this pending shift in service delivery? To answer this question, I turned to a few colleagues.
OPEN MINDS Senior Associate Bob Dunbar noted that, should this merger succeed, it continues the move to the “more convenient.” He noted:
We will see additional similar mergers because “retail” health clinics are convenient and accessible alternatives to traditional medical and hospital practices. Physicians and hospitals will be concerned about “losing” consumers to the retail outlets, and they will need to modify practices to compete for consumers, particularly younger consumers who expect and value “convenience.” In terms of CVS, traditional health provider organizations will be competing with planned health hubs that would be located within the nearly 10,000 CVS pharmacy locations.
OPEN MINDS Senior Associate Sharon Hicks reiterated that a possible change in health care delivery and administration could be in the works. She writes:
When the very large players make a move, it will inevitably shift and change the overall market. When CVS and others first opened their in-store clinics, it heralded a change in the way that consumers of services accessed their general care. PCP/general medicine groups responded by offering same day appointment, e-visits, etc. Perhaps these affiliations will result in a change in the ways that overall health care is administrated. I would assume that the first effect we see from this will be in the pharmacy benefit management industry, but fully expect that the role of primary care physicians will be the next area of significant change.
Jamie Stewart, Chief Executive Officer, Grafton Integrated Health Network noted that this merger shows the advantages that an organization like CVS has over a traditional health care organization.
If we think about the institutional type challenges a traditional mega provider hospital system has, it actually makes a lot more sense for an entity like a CVS or Wal-Mart to make the mega merger. The natural advantages of a CVS/Wal-mart over a traditional hospital provider are numerous.
- Community based, and by community I mean neighborhood centric. Not just one per city.
- They are not encumbered by huge regulatory issues around a major health facility.
- They are not encumbered by large and bloated salaries of practitioners and should be able to shift to a leaner provider model much easier than a hospital culture driven by medical professionals.
- They are not encumbered by administration whose sole background is health care and health care administration. They are managed by business people who are used to managing a diverse product line and leveraging what Wall Street is looking for, while providing a desired customer experience.
OPEN MINDS Senior Associate Jim Gargiulo noted that this acquisition is a game changer for health care, including provider organizations serving people with complex conditions. He writes:
In the same way that CVS, Walgreens, Home Depot, and Walmart “took out” the local drug, hardware, and five-and-dime stores in communities across America, the tight coupling of retail pharmacy with a major insurer likely threatens the local health clinic, mental health center, and primary care practice. In the same way that Amazon’s takeover of Whole Foods will transform traditional “brick and mortar” supermarkets to “on demand”, cloud-based service offerings that have great appeal and convenience to the consumer, we should expect similar disruption to the health care industry.
Imagine one-stop shopping for your health care, enabled through an online service offered by your insurer, with health care available on every corner of the neighborhood through your local CVS pharmacy. And imagine, what was formerly “just a pharmacy” could now become your “go-to” place for immunizations, routine exams, preventative, and urgent care as needed. And further imagine, this is all powered through an easy to use online portal that offers health care advice, telehealth, e-mail, or instant messaging access to a qualified provider; and when needed, access to an expanding network of specialists and hospital care. No waiting for pre-approvals-everything is covered under the Aetna/CVS plan.
What does this mean to providers serving people with complex conditions? Perhaps nothing in the short term. But make no mistake, the intent to integrate physical health to behavioral health as a way to better manage costs, is part of this program. Companies that can leverage their scale (like CVS and Aetna), recognize that by working together they can create a network or system of care that will appeal to the consumer, the provider, and to the payer community. If I am a provider in this new world of disruption, I want to be in front of this disruption, crafting programs and services that will bring value to this new network. As a provider serving people with complex needs, I want to market and sell (yes sell) programs that no one else offers, and show how we do it better and more efficiently. So at the end of the day, those who see the opportunity in this news are the ones who will take advantage and act now, crafting the programs and the marketing needed to position themselves as partners in this new paradigm, not as opponents.
How does this affect long-term sustainability and success of organizations serving complex consumers? What is the best strategic approach to this pending shift in service delivery? The question I keep asking is, what services for consumers with chronic conditions and complex needs cannot be met by these new hybrid organization? These are the market niches that specialty provider organizations should focus on.
If you’re organization is doing a good job of portfolio management in its strategic planning process (Sustainability Management = Portfolio Management); is leveraging technologies in new service line development (Connecting The Dots-Sustainability & Tech Leverage ); and can measure, report, and manage the value of the services delivered (The Value-Based Reimbursement Steeplechase), those are the building blocks of strategy success.
For more on combining leadership vision, strategy, and innovation with your operations, join me on June 6 at The 2018 OPEN MINDS Strategy & Innovation Institute, for my closing plenary, “Incorporating Innovation Into Everyday Operations: A New Strategy For Sustainability.”