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Dr. Pate’s Prescription for Change

St. Luke’s Health System’s Journey to Transform Health Care

Will CVS and Walmart fix health care?

By Dr. David C. Pate, News and Community
July 24, 2018

There are a number of examples of health systems that have developed, acquired or partnered for their own health insurance plans. The results have been variable, and often financially negative.

Large national insurers now are acquiring physician practices, ambulatory surgery centers, home health and hospice companies, and in one case, a health system. And two of these large national insurance companies are themselves acquisition targets: Aetna by CVS and Humana by Walmart. Will any of this be the answer to the costly U.S. health care problem?

It is possible that CVS and Walmart are focusing on something less beneficent than fixing health care – they may simply be looking to drive more volume to their stores. Both offer in-store clinics and pharmacies and the insurance plan design can be altered to financially encourage members of their newly acquired insurance companies to use their own clinics and buy their prescriptions at their own pharmacies, which would also increase store traffic and likely the sales of other items while patients are there for medical visits or to pick up prescriptions. This increased foot traffic can also help protect CVS and Walmart from the growing threat to big-box stores from internet sales.

So far, studies have not shown that so-called retail clinics save money. In fact, one study has shown that they increased the insurance plan cost (Health Affairs 2016; 35:449-455), perhaps because patients now went to the retail clinic for minor problems that they previously would have waited out or dealt with at home with over-the-counter remedies.

It also remains to be seen whether patients will trust physicians who are employed by insurance companies, give up their current physicians and abandon their current pharmacies.

Nevertheless, the move on the part of insurance companies makes a lot of sense, but only if they can execute on challenges that have remained elusive for physicians and health systems. It seems to me that the big advantage that these large national insurers have is their access to data and data analytic platforms.

If insurers can bring all of these pieces of the health care delivery system together to truly function in an integrated fashion (single electronic health record, commonly accepted evidence-based protocols of care, care coordination, disease management, management of care transitions, etc.), and drive enhanced performance with data, then they may in fact be able to achieve the best outcomes at a lower cost of care.

It’s a big if.

Insurers have long had care management and utilization management programs, yet in most areas of the country, care falls far short of well-managed benchmarks. And, while insurers have had care management and care coordination programs, the care management and coordination has been done by insurance company employees, often not embraced by patients and usually not embraced by physicians.

It seems to me that the key to success in these new arrangements will be whether insurance companies can effectively align incentives with providers such that care coordination and care management can be transitioned from an insurance function to a clinical function in which providers are active participants.

Of course, there are other potential benefits to these mega-mergers. The potential exists for more buying power for medications and medical supplies at lower costs. There is also the opportunity for a pharmacy/insurance company merger to cut out the middlemen – pharmacy benefit managers (PBMs), who are blamed by many for contributing to increased pharmaceutical costs.

The largest part of CVS’ business is its PBM, so in that case, the question is whether the PBM can be leveraged to benefit the medical management of the insurance members and subscribers to lower costs, rather than maximizing its own profits as a stand-alone PBM. And if insurers can provide more effective primary care than physicians currently do – and I’m not sure that they can – then there is the potential to prevent more illness, drive more care to lower-cost settings and reduce avoidable and costly emergency room visits and hospitalizations.

I think that primary care really is the lynchpin to all of this, and for these insurers to succeed in lowering health care costs, I think they will likely find the need to change the retail clinic model of their acquirers. That model works now because it has limited hours, limited services and is staffed by nurse practitioners. They will likely find the need to expand hours to give patients an alternative to going to the emergency room in the evenings.

They will also need (and I think there are plans to do so) to expand the services they offer from minor acute illnesses to the management of chronic diseases. Finally, they will have to confront the fact that some patients are going to be reluctant to give up their current doctor and/or to see a nurse practitioner. 

The tough questions for regulators are whether the cost savings achieved from these mergers would be passed on to consumers, and whether reducing choices for health consumers is likely to increase prices and inhibit competition.

If Aetna and Humana design their health plans to direct patients to their own providers and to their owners’ pharmacies, this will directly and negatively impact independent community physicians and pharmacies. Since some of the health care cost savings could come from more effectively managing care to prevent emergency room visits and hospitalizations, these mergers are also a perceived threat to hospitals. Loss of outpatient business to networks controlled by CVS and Walmart could also harm hospitals that count on that outpatient business to subsidize money-losing hospital services.

Further, in some markets, these mega-mergers may be so dominant that the insurance company involved could be in the position to negotiate deeper discounts for hospital services, which already operate on thin margins.

  • Will regulators approve these deals?
  • Can CVS and Walmart lower health care costs, and in turn, will their insurance companies offer lower premiums?
  • Will consumers accept fewer choices when it comes to receiving their health care and purchasing their prescriptions?
  • Will consumers be willing to receive their care in retail clinics, and will they trust physicians employed by insurance companies?
  • If approved and these deals proceed, do these new companies financially hurt independent physicians and local hospitals?

These acquisitions are worth following and watching for the answers to these questions.

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.