A Blog by Jonathan Low

 

Mar 29, 2018

How Amazon Is Already Reshaping Health Care

It is causing extreme concentration in the health care industry.

While potentially good news for the few remaining health care providers, this will likely mean that most Americans will have narrower options with regard to plans and pricing. JL 

Max Nisen reports in Bloomberg:

Amazon's interest in health care rattled investors. Three of the biggest U.S. PBMs will be tied to three of the country's biggest insurers. CVS, Express Scripts, and UnitedHealth process 70% of U.S. prescriptions. Three companies will insure more than 90 million people. Consumers' drug and provider options may narrow. Less competition means more pricing power for the companies that remain. It would be a large deviation from capitalist practice if these conglomerates don't capture those savings for shareholders.
Without having done much yet, Amazon.com Inc. is already transforming U.S. health care -- and not necessarily for the better.
The mere threat of the online giant getting into the health business prompted the country's two largest pharmacy benefit managers -- CVS Health Corp. and Express Scripts Holding Co. -- to join forces with two of its largest insurers, Aetna Inc. and Cigna Corp. These deals will put more U.S. health care under the control of fewer companies. The merging companies say this will lower costs for consumers and the country. But the reality will likely be less rosy and more complicated.

That these companies can even make such deals is due partly to the Federal Trade Commission and the Department of Justice, which blocked the mergers of Anthem Inc. with Cigna and Aetna with Humana Inc. Those mega-insurers would have been too busy digesting to make big vertical deals and too large to be acquired by other insurers.
UnitedHealth Group Inc. has been another major motivator for these mergers. It successfully pioneered a strategy of aggressive diversification by buying a large PBM in 2015 and with its Optum health-services unit. The gravitational pull of its success -- it leads peers in patient enrollment, revenue growth, and market valuation -- has inspired copycats. Profit pressure on PBMs, meanwhile, likely helped make them receptive to merging with insurers.
But Amazon's long shadow also helped instigate these deals. With its technological prowess, long investment horizon, bottomless appetite for new business and tolerance for thin margins, any mention of its interest in health care rattles investors, particularly in the industry's middlemen.
If the deals go through, the result will be an unprecedented level of market concentration.
All three of the biggest U.S. PBMs will be tied to three of the country's biggest insurers. CVS, Express Scripts, and UnitedHealth process more than 70 percent of all U.S. prescriptions. Post-merger, three companies will insure more than 90 million people in some capacity, process more than 3.5 billion prescription claims, and generate more than $500 billion in revenue.
Not every American will have both their medical and drug benefits managed by the same company. But many more will in the years to come. These integrated companies have more information about their customers and more ability and incentive to manage the totality of their health spending.
UnitedHealth is already all-encompassing, with its continuing investment in everything from ambulatory surgery centers to physician groups. CVS and Aetna -- which will add retail pharmacies and primary care clinics to the equation -- could have an unprecedented role in patient lives.
The deal spree may continue. Anthem and Humana look lonely. While Walgreens Boots Alliance Inc. focuses on retail pharmacies in the U.S., its
main rival's increasing breadth puts it at an uncomfortable disadvantage.
Even if this is the end of the deal-making, the impact of what has already happened will be far-ranging. Drugmakers and providers won't enjoy negotiating with these new giants. As for consumers, drug and provider options may narrow. Aetna and CVS will want to drive people to its own clinics, as UnitedHealth already does with its own provider network.
And PBMs are more effective and profitable when more people use tightly controlled drug plans; enrollees at newly affiliated insurers may find their drug choices are more restricted. The more people PBMs can push toward or away from a given medicine, the more negotiating leverage they have with drug manufacturers.
The merging companies have claimed huge cost savings will flow to consumers from these deals, but I'm skeptical. Research suggests costs can actually end up rising in some cases of health-care consolidation. Less competition means more pricing power for the companies that remain. Markets with more insurers have lower premiums, while prices rise when hospitals buy physician groups. Though these are vertical deals, they will add to the market power of major players in already heavily consolidated industries, which seems like a recipe for monopolistic behavior.
 True, reducing the number of middlemen who get a taste of nearly every transaction should theoretically cut costs. And these giants will be able to compel larger discounts from drugmakers and providers. But it would be a rather large deviation from standard capitalist practice if these conglomerates don't capture most of those savings for shareholders.
The newly merged companies will have debt to pay off and must prove to investors the deals were smart. That likely won't leave much in the way of cost savings for the average customer
Amazon and its partners say they hope to create a new and better health-care system, free of the profit motive, for their employees. But the unintended consequences of their interest in the sector will impact a far larger group of Americans much sooner.

2 comments:

ADRE_A said...
This comment has been removed by the author.
ADRE_A said...

I don't like VAPE. I smoked cigarettes all my life, which negatively affected my potency. By the age of 40, I began to notice that my sexual organ was working worse and worse. However, I found a solution in http://www.tadalafilfromindia.net/. Thanks to this remedy and the fact that I quit Smoking, my potency has returned.

Post a Comment