CVS-AETNA merger (I told you so, mom)

The things going on in corporate health care these days. Woo! It’s like my own personal Boiler Room. Our care system is at the point in its spring cleaning when all drawers have been dumped on the floor to sort out the junk for donation, the cleaning products are strewn about, and there’s a half-built really expensive organization system that refuses to fit together. Here come the tears because HOW IS IT EVER GOING TO GET BETTER!

I get the pleasure of interviewing corporate executives, medical directors, and patients all doing the work of trying to straighten this place up — it gives me a great deal of faith that it will in fact, get better. It is going to be messy.

Today’s Upshot by Austin Frakt gives a superb sum-up of the why and what for of Sunday’s $69 billion merger. Two pull quotes below. Dust off your macroeconomics text books, it’s vertical integration in the land of the free (who pay an average of $10,000 a year on health needs). Consolidate. Cut middle men. And as always, gather ye customer base while ye may.

The CVS-Aetna deal would be just another of the many recent mergers across business lines in health care. Insurers are buying or partnering with health care providers. Health systems are offering insurance. Hospitals are employing physicians. Even Amazon is jumping into the pharmacy business in some states. This may be part of the motivation for CVS to buy Aetna — defensive jockeying to maintain access to a large customer base that might otherwise begin to fill drug prescriptions online.

One source of optimism: Research shows that coordinating pharmacy and health benefits has value because it removes perverse incentives that arise when drug and nondrug benefits are split across organizations. When pharmacy benefits are managed by a company that’s not on the hook for the cost of other care, like hospitalization, it doesn’t have as strong an incentive for increasing access to drugs that reduce other types of health care use. That could end up costing more over all.

As a postscript, I know the first thing that comes to mind when seeing “billion dollar merger” is monopoly. We hate those. With intact heavy regulation, however, monopoly is not at the top of my nightmare list for the health care industry. What is? Corporation as person, with all the legal rights of, and free from the deterring power of class action legal suits. That keeps me up.

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