Wow! Ahead of the 4th of July weekend Mark T. Bertolini (@mtbert) and Bruce D. Broussard (@BruceDBroussard) both savvy and seasoned managed health care industry players and visionary captains at @Aetna and @Humana respectively, announced their marriage via a $35 billion, see Bloomberg story: ‘Aetna-Humana Deal to Lower Consumer Costs, CEOs Say‘ deal. Yet the initial market reaction to this presumptive value added union has been somewhat of a Vulcan mind mood disappointment.
When the Bloomberg reporter Betty Liu inquired about the initial (and continuing as of the date of the post) bearish investor response to the transaction, Bertolini posited:
‘I don’t think its all investors Betty, I actually think it’s the ‘Arbs’ (arbitrageurs) that got in the deal looking for opportunity and I’m not quite sure they know how to do this trade. This is a longer term strategy. This is a very big combination that is going to have a longer term impact on the quality of healthcare, the cost of healthcare in an evolving consumer marketplace [emphasis mine, more later].. once the noise settles down we’re going to do just fine.’
Then the billion, perhaps trillion dollar question was lobbed to Broussard via Liu:
‘Ok Bruce so is it going to lower healthcare costs for consumers?’
To wit the Humana chief noted:
‘very much so, I think as you see the transition from a more employer based to a consumer based model and a value based reimbursement model from a fee-for-service model, these combined organizations will have the capability to meet both of those trends. Both in the way of our clinical capabilities on the Humana side and the deep, deep employer relationships that Aetna has on their side.’
Now lets step back a minute and first breathe in this fact: nowhere in evidence has the aggregate cost of healthcare, nor health insurance premiums as proxy, declined (except for a brief period in the 90s when the medical care cost (MCC) index actually fell temporarily into negative territory), then as risk was pushed back by providers to the health plans, resumed their inexorable movement UP. So on a trend basis, health care costs ALWAYS rise as a multiple of CPI. Only recently has that rate of growth fallen from high single or the double digit rate of increases witnessed historically to low single digits – perhaps due more to the economic meltdown (declining demand and higher deductibles/copays) than any proactive contribution via improved health plan clinical risk management, direct or delegated).
Yet in offering documents filed with the SEC and investors as to the rationale for the combined company merger that ‘benefit’ is always posited as an outcome of the transaction. We always hear about ‘scale’, ‘operating efficiencies’ and even better management as a byproduct of the combination.
Secondly, some ‘de-coding’ is in order here. Both Bertolini and Broussard two men I admire as exemplary disruptor’s of ‘legacy healthcare’ inertia, i.e., Bertolini grew up in the HMO industry back in the day when even though his experience was forged in the for profit side of the business, it was none-the-less a mission oriented member focused sector (more MHAs, MPAs, and MPHs than MBAs) much like the community based operators in the non profit sector (RIP).
Broussard on the other hand is not your typical health plan executive as his roots are forged on the provider side with senior roles as U.S. Oncology (the successor to Physician Reliance Corp and ‘TOPA’ Texas Oncology, P.A.), Sun Health (the hospital group) and Continental Medical Systems (a rehab company). So his zeitgeist is firmly rooted in the provider culture with which his company buys, contracts for or joint ventures with to bring products to market.
Now back to the ‘code phrases’ used as rationale outlined for the inked merger/acquisition. Bertolini referred to ‘an evolving consumer marketplace‘ which means as more costs are shifted from the plan (Aetna, Humana and all other health plans writ large) to the member or insured, we (the consumers) will demand more ‘accountability’ from the provider world and thus somehow restrain aggregate healthcare costs via transparency tools or so called ‘skin in the game’ as a result of the shift to ‘consumer directed’ (i.e., high deductible) health plans.
This strikes me as a somewhat disingenuous argument bordering on perhaps naiveté (though it is highly unlikely that this characterization can stick to either of them). But ask yourself, if Aetna, Humana, United, Anthem or the member licensees of the Blue Cross and Blue Shield Association as aggregate wholesale buyers of hospital and physician services, leveraging millions of members or ‘covered lives’ (insurance speak), backed by seasoned provider contracting staffs can’t restrain the cost of healthcare, how can an ‘app empowered’, health literate enabled retail ‘shopper’ (you and me) for health services do better? I don’t think so… There is just too much of a power differential to overcome. We, empowered or not, are generally ‘screwed’ with more or less support from our ‘friends’ at the health plan.
The second but related theme was outlined by Broussard:
‘as you see the transition from a more employer based to a consumer based model and a value based reimbursement model from a fee-for-service model’
The two strands here are movement from the employer sponsored model which retains some vestiges of ‘defined benefits‘ at least for union negotiated plans, to a ‘consumer based model‘ more akin to the ‘defined contribution‘ practice of limiting the plan’s liabilities by capping what it pays for on behalf of its members or insureds. The kicker and perhaps ‘game changer‘ here is the near unanimous recognition in the health wonk, including health plan world that fee for services medicine is a burning platform on a dying paradigm – yet, arguably 80-90% of the money in the healthcare eco-system today remains in a predominant FFS book of business – HHS Secretary Burwell’s value based healthcare announcement notwithstanding) so don’t hold yer breath.
So there you have it. Will it, can it be different this time? Can two demonstrated champions of patient centric healthcare in an industry valued slightly higher than tobacco companies get it done when ALL of their predecessors have tried and failed? The carnage is plain to see, but only if you have an event horizon beyond the 24/7/365 current headline news cycle. I don’t know, but maybe the market knows and may even be paying attention to what came before?
For those who want some academic consideration of the broader strategic question, industry history, if not possible glide-path in the consolidation orgy we are currently witnessing (both provider and health plan/payor/benefits solutions providers) with an exquisite dissection and analysis of the rise, fall and rise again (post Aetna/U.S. Healthcare acquisition), check out: ‘From Managed Care To Consumer Health Insurance: The Fall And Rise Of Aetna‘ by James Robinson, PhD, MPH the Leonard D. Schaeffer Professor of Health Economics and Director, Berkeley Center for Health Technology at my alma mater U.C. Berkeley.