Friday, October 30, 2015
Bigness Begets Bigness in Health Care
Business is business!
And business must grow
Doctor Seuss, The Lorax>
To survive in today’s health care’s business climate, you have to get bigger, so bigger you get.
To grow bigger faster, you merge or acquire other health care businesses, so health care mergers and acquisitions are at an all time high, comprising 24% of total U.S. merger and acquisition deals.
• Drug stores – Walgreens has agreed to buy Rite Aid for $9.4 billion to create a chain of 12,700 stores. That leaves 2 huge drug store rivals - Walgreens-Rite Aid with 12,700 stores, 459,000 employees, 46.5% market share: CVS with 7,800 stores, 217,800 employees, and 30.8% market share.
• Health insurers- The proposed Aetna-Humana and Anthem-Cigna deals . along with UnitedHealth would leave three insurance giants in its wake, each with more than $100 billion in revenues.
• Pharma and Biotech - Valeant Pharmaceuticals and others have struck more than $240 billion in merger and acquisition deals in the last year. Pzizer may grow even bigger by moving to Ireland to form its headquarters to escape U.S corporate taxes, the highest in the world.
• Hospitals - Hospitals are acquiring and merging with other hospitals at an accelerating rate, converting themselves into large integrated systems with multiple hospitals, multiple outlets, and dominant state and regional integrated systems.
What is the cause of this massive trend toward bigness of these segments of the health care industry?
Response to big government is one answer. Under Obama and Obamacare, health care has grown into a centrally controlled massive business enterprise. Medicare, Medicaid, ObamaCare, and the VA now cover 150 million Americans, nearly half the population, and CMS (Medicare and Medicaid) set the fees and the codes and regulate the activities of the private sector.
Health care has become a $3 trillion yearly business. To protect themselves against government and contract with huge government agencies, health care participants must become big themselves - to cope with regulations, to remain profitable, to install costly information technologies, to hire expert managers, to mobilize specialists with their expertise in creating profitable hospital lines of business, and to cushion against loss.
Government bigness begets health system bigness. Bigness begets bigness, money begets money, and organizations beget counter-organizations.
Not that bigness begets efficiency or effectiveness. The VA is a prime example of the badness of bigness. The VA is the biggest health system in the United States, with 9.1 million enrollees, 20,000 physicians, 1600 facilities, 288,000 employees, and an annual budget of $59 billion.
“Yet everybody – veterans, the government, the public at large, and physicians – agree the VA is one big mess. An independent blue ribbon panel of experts, conducted by the Institute of Medicine, concluded “ VHA systems for patient scheduling, staff hiring, supply-chain management, billing, and claims management are stagnant and have more limited capabilities than their private sector equivalents.”
Bigness begets higher costs. Premiums are rising under ObamaCare health exchange plans. Thirty percent of 30% of Medicare recipients’ costs are set to rise 52%. Fees for hospital-acquired practices may double. Fees for common procedures in regions with a high concentration of large group practices are higher than those of small or single practices.
Where does this leave private physicians? In a lurch, frankly. Physicians as a whole as yet have no cohesive national organization representing their business interests. Only 15% belong to the AMA. Their numbers are fractured into 300,000 primary care and 600,000 specialists, each with its own set of priorities.
Movement towards a large physician organization is growing among physician organizations- such as the United Physicians and Surgeons Association, Physicians4patientcare, SERMO, and the Physicians Foundation- to unify physicians, but the movement is still young. Meanwhile, in response to organizational bigness, physicians are retiring early, going to work for hospitals, serving as temporary locum tenens practitioners, entering concierge practices, forming big physician groups, and creating specialty, disease, and urgicare, and other focused centers, to ease the pain of bigness and to cope with its consequences.
Health care is big deal, and it’s begetting even bigger deals.