Capital & Economics

Big Deals: How M&A And New Partnerships Could Reshape U.S. Health Care

February 7th, 2018


Making up about a fifth of its economy, and impacting over 320 million Americans, health care has a major impact on the U.S. From individuals looking for ways to protect themselves and their families, to employers facing rising health care costs, the evolution of the health care system is an increasingly high priority across various stakeholder groups.

In December 2017, U.S. pharmacy chain CVS unveiled plans to buy insurance group Aetna in a $69 billion deal. A few short weeks later, online retail giant Amazon, conglomerate Berkshire Hathaway and banker JPMorgan Chase announced they were to form a joint not-for-profit company to provide health care for their combined million-plus employees.

As more non-traditional players continue to enter the health care market, the already complex landscape could face even more challenges – and opportunities.

What does 2018 hold for the future of U.S. health care? Analyzing market and technology trends, we explore implications across the broader landscape.

In Depth

The cost of health care is one of the most pressing issues facing organizations around the world today, with global costs of medical care rising by a net rate of 5.4 percent in 2017, according to Aon research.

U.S. health care is a pressing policy issue, prompting legislation such as the Affordable Care Act (ACA), and the more recent Children’s Health Insurance Program (CHIP). Two notable efforts to overhaul U.S. health care have come from the private sector: Recent M&A deals and new models introduced by Amazon, Berkshire Hathaway and JPMorgan Chase, could radically change how the current system works.

Jim Winkler, Chief Innovation Officer for Health and Benefits at Aon, notes that these proposals have the opportunity not only to shift how the entire health care system works, but also “redefine how people access care in their community.”

Winkler specifically notes two health care trends to watch for in 2018:

Market Trends: Large-Scale M&A And Health System Consolidations

In 2017, the U.S. government refused Aetna’s attempts to acquire Humana, as well as Anthem’s bid to pick up Cigna. While the U.S. government blocked horizontal partnerships, it didn’t stop insurers looking to integrate vertically. The proposed CVS/Aetna union is just the beginning. UnitedHealth’s Optum, which manages primary and secondary care, consulting and data analytics, plans to acquire surgical center operator DaVita Medical Group, under an agreement announced in December.

In fact, a new landscape may be forming as employers, health systems, physicians, insurance carriers, and pharmacies start aligning in new ways for the first time. “The lines are starting to blur,” Winkler says.

With these consolidations, key stakeholders will be able to expand their services and even create community “health care hubs.” Patients can already pick up a prescription at one window and get a flu shot at the next. In the future, they might be able to get help from an insurance specialist, make an appointment with a physician, and talk to a case manager for their diabetes – all in one location, with a single phone call, or a swipe on their mobile device.

Beyond vertical mergers and acquisitions, there has been plenty of lateral movement in the provider world. Hospitals are buying physician-run clinics, health systems are absorbing hospitals, and several proposed mergers would create hospital chains of an unprecedented size. At the same time, there are players like Kaiser Permanente, a consortium of managed care providers that represents a complete integration of hospitals, clinics, physicians, and other providers.

As with vertical mergers and acquisitions, these combinations are all part of a strategy to manage the macroeconomics of health care for larger volumes of patients.

“The good aspect is, it creates a potential for continuity of care for patients,” Winkler says. “The flip side is, these large health care systems gain significant leverage when negotiating their contracts with health plans. This is definitely something we all need to keep an eye on.”

Yet simultaneously, insurers also seem to be moving toward taking on a “health system” brand identity. Aetna, for example, has five joint ventures with hospitals to form accountable care organizations (ACOs). In fact, health carrier/hospital ACOs like these are growing nationwide. Such consolidations are likely to continue as stakeholders make a commitment to drive down costs, particularly for Medicare and Medicaid patients.

Emergence Of New Entrants: High-tech And The Introduction Of New Models:

The announcement from Amazon, JPMorgan Chase, and Berkshire Hathaway focused mostly on changes in technology that might drive down health care costs. The companies haven’t finalized any details, but the Wall Street Journal noted the possibility of new health care data technology that improves patient tracking outside of care settings such as hospitals.

Amazon is likely to enter the retail pharmacy business in some form, according to the New York Times. Others imagined a “Dr. Alexa” approach – using an artificial intelligence to provide guidance for simple complaints like sore throats.

Tech isn’t a new solution for health care needs. Insurers have been using digital price transparency and provider locator tools for years. But tech-focused companies in health care, which are mushrooming nationwide, have their own plans to change the delivery of health care.

For example, Google partnered with Dexcom in 2015 to launch high-tech blood glucose monitors. Wearables (such as the Fitbit Ionic and the Apple Watch) promise a massive tide of new health data. Global Kinetics Corporation is using information from wearables to treat Parkinson’s disease. The potential uses of such firsthand user data could mean not just a more thorough information set for researchers, but customized health management for consumers.

The potential for high-tech entrants to integrate with health providers is almost limitless (Apple already partnered with the Mayo Clinic a few years ago to develop its HealthKit, which transfers heath informatics data into patients’ electronic health records). It’s possible that such vertical integration is the beginning of a new era as major health systems – with insurance companies and/or retail pharmacies on board – also start partnering with tech companies to manage patient health.

A key question will be which health care brand identities will resonate the most with the patients, if they’re given more choice in their health care delivery systems in the future.

The U.S. health care landscape is uniquely complex, its contours continually shifting according to prevailing market, political, demographic and technological trends. Staying on top of these trends can be a difficult task, but one that is critical for those that provide, pay for, and use the system.

“Costs are rising dramatically, and people aren’t as healthy as they should be. That’s the core problem we’re trying to resolve, and the marketplace is shifting to accommodate that.” says Winkler. “We’re going to learn some lessons, over the next five years. And while it won’t be easy, we’re likely to make progress in helping individuals, as well as employers, access the right care at the right time.”


Talking Points

“Our biggest opportunity will be accomplished through the efficient delivery of health care, focused on population health … There will be many additional opportunities to realize cost savings, including supply chain management” – Nick Turkal, CEO, Aurora Health Care

“Everyone’s been concerned about rising drug prices, and the question is, ‘Will a merger like this help slow that trend?’ … I don’t think that we have a good sense of which way that’s likely to go” – Amanda Starc, Associate Professor, Northwestern University’s Kellogg School of Management

Further Reading

Amazon, Berkshire, JPMorgan Partner To Cut U.S. Healthcare Costs – Reuters, January 30, 2018

Employers Brace For Impact Of CVS-Aetna And Optum Deals – Forbes, December 19, 2017

CVS-Aetna Deal Will Change The Way Many Big Employers Buy Employee Health-Care Benefits – CNBC, December 4, 2017

CVS To Acquire Aetna: More Than Just A Pharmacy Play – Aon Full Picture Webinar