CVS-Aetna merger

Many of you have already heard the news: CVS is buying Aetna for $69 billion.  As the New York Times reports:

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.

I have been a fan of retail clinics.  Offering more choice and convenience is a good thing, especially if it is less expensive.  Increasing access hours to care is also a positive.

Cost savings

However, I am skeptical that there will be substantial savings from increased use of retail clinics.   Most of health care spending, however, isn’t from taking care of kids with coughs or annual check-ups.  The real cost of health care is treating patients with severe diseases and/or multiple comorbidities.  These more severely ill people–who make up the lion share of Aetna’s costs–need to see specialists, not PCPs.  Secondly, the thought that there will be significant efficiencies from merging to very different business entities, markets and cultures likely is wishful thinking.

The one key area where there could be cost savings is through lower drug prices.  As Austin Frakt argues, oftentimes, drug prices rise with PBMs, and PBMs negotiate rebates for payers.  By reducing these rebates and cutting out the middleman, drug prices may be able to fall as CVS would now internalize these savings as part of Aetna.

One benefit of the merger is that health plans can internalize cost offsets.  If there are expensive pharmaceuticals that reduce hospitalizations, by owning a pharmacy benefit manager (PBM) and health plan, the combined company can realize these savings and make informed decisions on pharmaceuticals taking into account cost offsets.

The business of health care

What does CVS get out of the deal? Likely, CVS sees that getting relatively healthy people into CVS (i) builds trust in their brand, (ii) people will buy stuff while getting their health care, (iii) patients will be required/encouraged to fill their prescriptions with CVS.  As described above, Aetna will likely get lower drug prices by cutting out (i.e., internalizing) the PBM middleman.

On the business front, it is likely that Express Scripts–another PBM–will be a target for acquisition.  Bloomberg posits that the deal could portend a run health care businesses takeovers.  Could Wal-mart buy Humana? That is what one analyst proposes.

One thing is certain: the health care world is not going to stay the same for long.

 

 

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Six Healthcare News Stories to Keep Hospital CFOs Up At Night

At this moment, the healthcare job I’d least like to have is that of a non-profit hospital Chief Financial Officer (CFO). Five news stories, published in the past 24 hours, tell the tale:

First, Moody’s forecast for non-profit hospitals and healthcare in 2018 is negative due to reimbursement and expense pressures. The investors report cited an expected contraction in cash flow, lower reimbursement rates, and rising expense pressures in the midst of rising bad debt.

Second, three-quarters of Federally Qualified Health Centers plan to lay off staff given lack of budget allocations resulting from Congressional inaction. Furthermore, if the $3.6 bn in funding is not immediately restored, researchers from Milken Institute School of Public Health from George Washington University calculated, jobs lost in 2018 could range from 76,000 to 161,000 across the U.S. This would then ripple to a state economic loss of $7.4 bn to $15.6 bn in gross state economic product. Because health centers are sited in every U.S. state, the negative economic impact would impact the entire nation’s Governors and state budgets.

Third, emergency room spending nearly doubled between 2009 and 2015, although visit volume fell by over 1 million visits, Sarah Kliff reported in Vox today in a column titled, “Emergency rooms are monopolies. Patients pay the price.”

Fourth, the Commonwealth Fund’s Dr. David Blumenthal sees the erosion of the employer-sponsored health insurance market. “New data suggest that job-based health coverage provides far less protection to U.S. workers and their dependents than it once did,” which we’ve been observing here on Health Populi since our inception ten years ago. Dr. Blumenthal succinctly puts the situation as, “declining generosity.” The abridged version is that health care costs have increased much faster than workers’ wages. In recent years, though, health insurance premiums have grown more slowly, but employers have not shared cost savings with employees.

Fifth, the Children’s Health Insurance Program (CHIP) has yet to have its funding renewed by Congress, causing some states to alert CHIP families to the fiscal reality that they should begin research private health insurance options. While CHIP has had strong bipartisan support since it began in 1997 — jointly created by Democrat Edward Kennedy of Massachusetts and Republican Orrin Hatch of Utah — the 115th Congress today can’t agree how to pay for health for nine million American kids who have depended on it for a decade.

Finally, and sixth, to the patient-as-payor perspective: most consumers can’t find healthcare price information online, which makes it difficult for patients without health insurance or those in high deductibles to estimate what a health service will cost before receiving it. This research was published by a team from Duke’s Margolis Center for Health Policy in JAMA Internal Medicine.

Health Populi’s Hot Points:  Play out the logic, connect the dots, and do the simple math. Expect more Americans to visit hospital ERs due to lack of an on-ramp to primary care, for unpaid bills to increase at non-profit hospitals, and for their CFOs to face ever-growing bad-debt burdens.

Moody’s, have your green eye shades and calculators at the ready. You may well be re-defining what a “negative outlook” for healthcare providers, hospitals and physicians, really looks like for 2019.

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Coffee Teeth

Holiday parties, gift shopping and traveling to see family can leave you exhausted. When there doesn’t seem to be enough hours in the day, we tend to lean on coffee and other caffeine infused beverages to sustain us until our head can hit the pillow again. And while the holiday-inspired flavors might hit the spot in the moment, are they doing long term damage to our teeth?  

 

Giving up your morning nectar may not be in the equation, so how can you ensure what you’re drinking isn’t doing harm to your mouth and teeth? No worries—we at Dr. Ku’s office have outlined the best and the worst options when you hit the coffee shop this holiday season! 

 

Develop Healthy Coffee Habits 

 

Studies have shown that coffee in moderation can have nutritional benefits. Antioxidant properties have been proven to be good for the liver and reduce the risk of cancer. In addition, these same properties have been shown to be good for your teeth, too! But…don’t let this good news prompt you to drink coffee with abandon. Follow these dos and don’ts for maximum health benefits in your coffee consumption: 

 

• DO choose organic coffee to ensure the beans have not been previously sprayed with pesticides. 

 

• DO grind your own beans at home to protect the antioxidants in the coffee. Coffee grounds exposed to oxygen quickly lose these properties. 

 

• DO drink coffee with a meal to stabilize insulin levels. Drinking coffee on an empty stomach can increase sugar cravings. And excess sugar leads to costly and painful periodontal diseases. 

 

• DON’T load up your coffee with sugar or sugary creamers. Excess sugar can linger in the cracks of your teeth and on your gum line, causing cavities and tooth decay. 

 

Coffee Shop Choices 

 

If you find yourself crashing while Christmas shopping and hit your local coffee shop, don’t let the huge menu filled with holiday-inspired concoctions distract you. These drinks are loaded with excess sugar that will leave you on a sugar-high, and could damage your teeth. If you do choose to indulge, brush your teeth within 30 minutes of drinking or, at minimum, wash your mouth out with water. Below are the worst offenders by sugar content this holiday season: 

 

• Eggnog Latte: 52 grams of sugar which is equal to 16 mini candy canes. 
• Peppermint Mocha: 54 grams of sugar which is also equal to 16 mini candy canes. 
• Holiday Spice Flat White: 30 grams of sugar which is equal to 9 mini candy canes. 
• Caramel Brûlée Latte: 54 grams of sugar which is equal to 16 mini candy canes. 
• Peppermint Hot Chocolate: 61 grams of sugar which is equal to 20 mini candy canes.  

 

Protect Your Teeth  

 

Aside from coffee breath, coffee can have other harmful effects on your teeth. But to ensure you are not deprived of your daily cup of Joe, we have compiled a list of ways to prevent tooth decay AND stains to accompany your daily cup: 

 

• Drink more water: Coffee can make your mouth dry and sticky. And a dry mouth is a breeding ground for harmful bacteria that can invade your gum line. After you’re done with your coffee, up your water intake to prevent dry mouth (and coffee breath)! 
• Use a straw: Prevent coffee stains by drinking coffee through a straw. This eliminates the direct contact between the acidic coffee and your teeth. 
• Maintain good oral health: This includes washing your mouth out with water after drinking coffee, as well as brushing and flossing your teeth. Coffee is just like any other food, don’t ignore good oral hygiene. 

 

Ensuring healthy teeth doesn’t mean you have to give you your daily cup of Joe. Just like with other indulgences, make sure to practice moderation. Excellent oral care will also help prevent any negative effects of your favorite cup of coffee. Leave us a comment with your favorite Fort Worth coffee shops; we are always looking for great new places!

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CVS + Aetna: An Inflection Point for American Healthcare

The nation’s largest retail pharmacy chain signed a deal to combine with one of the top three health insurance companies. The deal is valued at $69 billion.

I wrote about this inflection point for U.S. healthcare four weeks ago here in Health Populi.

CVS is both the biggest pharmacy and pharmacy benefit manager in the U.S., as the first chart shows. In my previous post, I talked about the value of vertical integration bringing together the building blocks of retail pharmacy and pharmacist care, retail clinics, the PBM (Caremark), along with Aetna’s health plan member base and business.

As Amazon and other entrants bring their innovative approaches and technologies into American healthcare, consumers are expecting more streamlining, convenience, and lower prices. The legacy healthcare system — hospitals, insurance companies, and pharma — haven’t delivered on that expectation.

Vertical integration can help because patient hand-offs between different sites of care can be more continuous, information can be interoperable (that is, flow more effectively through and between health data systems — note that CVS uses Epic electronic medical records systems), and bolster better quality at a lower cost. The Economist noted that integrated care has been a secret in the sauce of the healthcare-integrated systems Intermountain, Kaiser Permanente, and the Mayo Clinic.

There will be regulatory scrutiny at the Federal Trade Commission to undergo. But this deal is vertical in nature, that is complementary health care business. This is not the kind of horizontal merger that would have consolidated Aetna and Humana — in a deal that got rejected by the FTC due to antitrust monopoly concerns.

Anticipating this deal would come to fruition, Reuters reported that CVS would look to expand brick-and-mortar healthcare services in the form of more ambulatory clinics. Underlying this strategy would be to leverage the company’s 9,700 storefronts and promote prevention, medication therapy management, and appropriately triaged clinic care to prevent unnecessary use of expensive emergency rooms.

Health Populi’s Hot Points: Last week, CVS published the results of a consumer survey, conducted in October 2017, about the state of U.S. healthcare. Most Americans say thinking about the nation’s healthcare system makes sad, pessimistic, and angry — not proud or optimistic. By far, the most serious issues facing American healthcare consumers are the lack of (1) affordable care, (2) affordable insurance, and (3) affordable drugs, shown in the bar chart.

Over the past few weeks, there have been several signs that the prescription drug industry has several eagle eyes focused on lowering the price of medicines. I’ll point to three key moments: first, during the hearing of Alex Azar II, President Trump’s appointee to lead the Department of Health and Human Services, testified to the Congressional committee that he would be keen to enact tactics that lower drug prices, such as allowing Medicare to negotiate directly with drug companies. Note that Azar was once CEO of Eli Lilly, among the world’s largest pharma companies and marketer of products that treat diabetes, among other conditions. During the hearing, Senator Patty Murray (D-WA) challenged Azar, “As a pharmaceutical executive, you raised drug prices year after year. Eli Lilly is currently under investigation for working, under your tenure, with other drug companies to needlessly raise the price of insulin.”

Second, the National Academy of Science published a well-researched report supporting government prescription drug price negotiation. The Academy convened a team with experience and gravitas to inform this report. In parallel with the publication of this report were also dissenting opinions from two participants who came out of the pharma industry: Michael Orsenblatt, formerly President and Chief Medical Officer at Merck, and Henri Termeer, former CEO of Genzyme. “Allowing all government health plans to negotiate as a single block would establish a near monopoly,” the document asserted.

Third, pharmacists in the state of Michigan launched a campaign to educate Michiganders about the high price of medicines in the state and potential solutions to the challenge.

CVS/pharmacy rebranded itself as CVS/health three years ago when the company quit the tobacco-selling business and doubled-down on health-focused investments. The Economist (whose art is shown in the third image), asked on November 4, 2017 whether this merged organization could deliver “the right dose” for U.S. healthcare. Clearly, CVS needs to grow behind the retail pharmacy and come out in front of the counter as part of its growing health/care focus as the company’s sale of prescription drugs has recently slowed and prospects for pricing and disruption via Amazon loom close.

Aetna’s business, too, needs to scale in new ways, as the health insurance business seeks certainty, business models, and scale economies.

Considering the CVS + Aetna combination through health consumers’ eyes, vertical integration can be a good thing for patients and caregivers if the company can streamline and artfully design delightful experiences while serving up value-based care in terms of both cost-value and patients’ own values with greater skin-in-the-healthcare-payment-game.

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Inequality in mortality is not as bad as you think

There have been numerous articles (e.g., Krugman in the NY Times) stating that disparities in life expectancy is growing.  It is known that income inequality has grown in recent decades but some claim that health inequality is also growing.  Janet Currie argues that the truth is not as bad as you think in a forthcoming article in Contemporary Economic Policy.

The main point here is that for the group with less than 12 years of education, life expectancy seems to be falling precipitously, whereas for the other groups, it is going up, so therefore, you have increased inequality in life expectancy. What is the problem with that? The problem is that…the population denominator is not staying the same, so you have a huge reduction in the share of White females who have less than 12 years of education.

Focusing on this particular subgroup is somewhat like taking a good news story, that is, that in the United States we now have many fewer high school dropouts in the White female population than we had in the past, and reporting it as a bad news story.

Currie also makes some technical arguments regarding how the U.S. Census’ decision to allow respondents to code multiple races has changed the reported racial composition of the country over time.  It may be more accurate, but racial definitions in the Census data have changed over time (which clearly any one individuals race is fixed in time). Currie investigates county level mortality rates and conducts a sensitivity analysis using 1990 racial definitions and 2100 Census racial definition plus combination racial individuals.  She finds that although mortality does increase with poverty, over this 20 year period:

…there is a strong reduction in mortality across the county-poverty spectrum. There are very large reductions for African-Americans, and those are even larger when multiple-race people are included. The reductions are largest in the poorest counties, which implies decreasing inequality in mortality for children.

Source:

• Currie, Janet M. “INEQUALITY IN MORTALITY OVER THE LIFE COURSE: WHY THINGS ARE NOT AS BAD AS YOU THINK.” Contemporary Economic Policy. 2018, January. DOI: 10.1111/coep.12267

 

 

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Links

• Real-world effects of Brexit.
• Cost of Obamacare = an election?
• Civil rights laws and health inequality.
• Chinese economic history as seen through eyeglasses.
• CHIP at risk?
• Last days of empire edition of HWR

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What does “value” really mean?