Health Care Mergers: Major Impacts of a Consolidating Market

ActiveRADAR is a health care analytics and technology company that specializes in prescription-based reference pricing. It provides a reference pricing solution to self-funded employers looking to control their pharmaceutical spend. David Henka has been in the health care industry for well over 30 years, most recently working as a health benefits consultant for a large trust fund based out of San Francisco.

A common thought running through the minds of many professionals in this industry pertains what is going on with health care mergers. It seems like bigger is better in health care. Large organizations trying to merge together to form even larger organizations certainly is the trend. 

Most recently, Cigna and Express Scripts have merged. What the meaning of this for the consumer is that it will be status quo. There will not be any benefit to the consumer in terms of lower prices. The benefit is actually to the merged companies where they are able to merge together their resources, streamline their administrative processes, and actually become more profitable entities.

Who is Benefitting From Major Mergers? 

History has shown that these merged entities do not typically provide any great relief or any marginal increase in terms of performance. Performance is measured by decreasing rates or increasing outcomes in terms of
health benefits.

I expect to see mergers continue in the marketplace as the market continues to consolidate. We also expect to see additional alliances between retail pharmacies, between pharmacy benefit managers, and between health plans with the idea that market share helps an organization drive better prices.

The problem here is that since there is not any significant pricing regulation for pharmaceuticals in the United States, there is no direct incentive for a pharmaceutical manufacturer to lower prices. Their business model is to price to the market and to price to what they feel an insurer will pay for their product or their service.

That trend will continue. How far can a large merged organization negotiate with pharmaceutical manufacturers? 

They will get the best price, but the best price is still a price that continues to increase. I have yet to see a brand name drug go down in price. There may be examples of this, but it does not exist on a regular basis.

The same trend is actually occurring with generic drugs, as well. Even though there are more generics coming to the market, generic drugs continue to be very expensive, specifically different categories of generic drugs; for example, antidepressants, drugs for diabetes, and drugs that have been on the market for a very long time. There are generic equivalents, but prices for these well used and commonly used medications continue to increase.

How Do Mergers Effect Cost Control?

There are two things that we know for sure that are going to occur in the very near future, 2019 and beyond. We can forecast that there will be an economic downturn coming in the next year or two which will last for, probably, 18 months to 2 years. That is a bold prediction.

Health care costs will continue to rise in the mid to high single digits over that same period. When these two trends occur simultaneously—a mild recession—with continuing increases in health care costs. Additionally,  what does that mean for plan sponsors, for employers, for people who are paying for insurance?

It means that they will have less buying ability to provide coverage. The concept here is just that.What can you do about it as a plan sponsor or employer? 

You need to continually innovate and look at solutions to help mitigate your cost. The old idea of cutting benefits, raising copays, and going to high deductible plans have only worked to a certain extent.

At this point in time, it is very difficult, if not impossible, for an employer to continue to cut benefits or to raise deductibles to keep health plans, health coverage, affordable. The concept is that the innovation of how care is delivered, on how your benefits are structured, maintaining a level of choice and increasing transparency is the way that the savvy, good student as a benefit manager can help control cost.

Continuously innovating and pulling these levers on a manual basis, one or two innovations per year, in an effort to control cost is a way to help stay ahead of the curve. 

There’s going to be more and more economic pressure from the CFO office to the benefits
department to help control these costs because it does impact the bottom line of an organization on how they remain not only profitable, but how they retain and attract employees, and how they are able to manage the wellness of their employee population.

These are topics that need to be addressed, especially during the strategy session of the calendar year which typically occurs in the first and second quarter of each year.

The beginning of 2019 is the time for the savvy benefits professional to take stock, evaluate what options they have available, and to implement plans that can be effective on January 1, 2020 to make their health benefits plan affordable and proactive to the market changes that we see in the United States.