Entries in Finance (15)


Wal-Mart and Humana: How Healthcare on Wall Street Imitates Hollywood

Wal-Mart and Humana: How Healthcare on Wall Street Imitates Hollywood


By Clive Riddle, March 30, 2018

Hollywood notoriously chases a hot movie trend with much more of the same – imitation being the most sincere form of flattery.  Wall Street when it comes to healthcare continues to flatter Hollywood by imitating this strategy as best they can.


In the 1980s, public hospital companies rushed to acquire health plans. They subsequently rushed to spin-off or otherwise unload them. That’s how Humana become just a health plan company. In the 1990’s, the PPM industry was born as integrated delivery systems where split up, giving birth to PhyCor an others who subsequently flamed out.


More recently, on the heels of ACA implementation, the mantra was to increase clout to succeed in the Marketplaces and expanding Medicaid and Medicare Advantage programs. Aetna announced the Humana acquisition and Centene announced the HealthNet acquisition within a day of each other in early July 2015. Three weeks later Anthem announced the Cigna acquisition.


Then in February 2017, Aetna-Humana and Anthem-Cigna separately announced on the same day the death of their proposed mergers, thanks to DOJ opposition, and in Anthem-Cigna’s case, merger indigestion. Additionally, the new Trump administration and Republication Congress’ zeal for Repeal made the merger’s marketplace strategy seem moot.


But a year later a new blockbuster movie formula has developed. There is Amazon style retail market disruption looming over the pharmacy sector in particular but the rest of healthcare as well, and the specter of the mysterious Amazon-BershireHathaway-JPMorgan healthcare venture. There is the outcry over pharmaceutical costs, and the questioning of the PBM sector’s role.  From this backdrop the CVS-Aetna merger emerges in early December.  Then early this month Cigna announces their Express Scripts acquisition.


And now the Wall Street Journal and many others report Walmart is in early stage acquisition talks with Humana. WSJ notes the annual revenue of WalMart is $500 billion and Humana’s is $54B, compared to $185B fir CVS, $61B for Aetna, $42B for Cigna and $100B for Express Scripts.


Will the Walmart-Human movie deal get inked? Will any of these new projects make it through production and get released? And what sequels and similar projects are under development?


CVS, Aetna, Retail Integrated Delivery Systems and the Strange World of Frenemies

by Clive Riddle, October 27, 2017

As widely reported, including in the Wall Street Journal, CVS is making a very serious bid to acquire Aetna for more than $200 a share, equating to $66 billion. The most often cited drivers behind this deal include:

  • CVS’s strategic response to Amazon’s potential entry into the pharmacy business
  • CVS strategic response seeking growth outside core business, after antitrust regulators rejected Walgreens/Rite Aid merger
  • Aetna strategic response seeking growth outside core business after antitrust regulators rejected Aetna/Human and Anthem/Cigna mergers
  • Aetna would serve as significant source of members for CVS PBM division, customers for CVS pharmacies and patients for Minute Clinics
  • CVS and Aetna’s strategic response to competitors aligning health plans and PBMs such as UnitedHealth acquisition of Catamaran

Much attention has been given to initiatives for integrated delivery systems between hospitals and medical groups that take on purchaser functions. Does this signal a different focus – on retail integrated instead of clinically integrated systems - bringing together pharmacies, retail clinics, health care coverage, wellness services, patient engagement and care coordination?

But Wall Street experts remind us that doesn’t mean this deal is a sure thing.  Things could fall apart simply due to details in the financial terms, or because of new changes in direction by competitors or in the overall market. The Street quotes Jeremy Bryan, a portfolio manager at Gradient Investments, a minor CVS shareholder: "There's just no case study for this. There could be regulatory hurdles. But we have cautious optimism." The Wall Street Journal states “The deal almost surely would attract close scrutiny from U.S. antitrust enforcers who have expressed concern about health-care consolidation.”

Assuming however there is a clear path forward for CVS and Aetna, the question remains for them what lies in wait for them down the road? A few potential concerns include:

  • Would the deal jeopardize the recently announced Anthem/CVS relationship whereby CVS will service Anthem’s new PBM?
  • Would the deal drive other competing health plans away from the CVS PBM and pharmacies?
  • What if CVS is counting on Aetna becoming a more significant force in Medicare Advantage to drive CVS PDP business, and Aetna fails to deliver?
  • What if the Trump Administration and Republican Congress succeed in further scaling back Medicaid, causing Aetna’s significant investment in Medicaid business to erode and become a drag on CVS overall performance?
  • What if Aetna focuses its pharmacy and retail clinic network offerings on CVS locations, and loses market share to competitor plans with broader offerings?

On the other hand, maybe the deal wouldn’t cause competitors to blow up relationships with CVS or Aetna. The Washington Post quotes Adam Fein, president of Pembroke Consulting: “This is part of the strange world of the health insurance and PBM industry. Many companies are frenemies.”


Just Doing Our Jobs

by Kim Bellard, December 14, 2016


Health care fraud is bad.  Everyone agrees about that (except those who profit by it).  We'd similarly agree it is all too pervasive.   Some estimate that fraud could account for up to 10% of health care spending.  But that's chump change: estimates are that other kinds of wasteful spending, such as unnecessary care and excessive administrative costs, are easily double that

An op-ed in The Boston Globe may have it right:  we need an overdiagnosis awareness month.The op-ed was a tongue-in-cheek suggestion to highlight the various cancer awareness months, the most famous of which is October's Breast Cancer Awareness.  These campaigns promote the need for the associated screenings, but don't typically also mention how controversial many of them are.  

Overdiagnosis goes much further than screenings.  As Atul Gawande 
wrote last year, we're getting an "avalanche of unnecessary care," getting too many services of not just low value but of at best no value to patients -- and, at worse, actually harmful to them.  Not just pointless tests or unneeded prescriptions, but also too many questionable procedures, such as total knee replacementsheart stents, or spinal fusions

The real problem is that most people involved in the "
epidemic" of overdiagnosis and over-treatment our health care system, well, they think they're just doing their jobs. 

They don't think they're trying to rip anyone off, they certainly don't think that they're harming anyone, and they most definitely don't think their role is superfluous.  This is all only possible because it is still too hazy about what is the right treatment for who, when, not to mention what a "fair" price might be for anything.  So, when in doubt, do more.

As a result, health care employment is booming.  
Some project it will be largest job sector within three years.  Indeed, as the chart below shows, virtually all of the U.S. job growth this century has been in health care jobs.  That, quite simply, is astounding. 

Yet, despite all this growth, there continue to be 
urgent cries of shortages of key health care professionals.  We just cannot seem to get enough qualified health care workers.  If you're looking for a job, that's good news, but if you're paying the bill for all those jobs, it should be scary.

In health care, we just add more jobs.

Overtreatment works, at least if you're the one doing the treating.

And everyone in health care keeps doing their job.

Look, this fantasy isn't going to continue.  Health care isn't going to become 100% of GDP.  It's not going to get to 50%, or 40%.  At some point the revolt will happen, the revolution will occur, and health care spending will finally slow, stop, and eventually plunge. 

Then all those health care jobs are not safe.  People will lose their jobs.  A lot of people.  People who, until then, thought they were doing good.

So when the next health care innovator comes along, we should try to get past the hype and ask: OK, specifically, what jobs will this eliminate -- which ones, how many, when?  If they don't have answers, or only offer vague promises, well, smile politely and get out your wallet.

In health care, perhaps one way to do your job might just be to find a way to eliminate it.


This post is an abridged version of the posting in Kim Bellard’s blogsite. Click here to read the full posting


Hot Healthcare M&A Market Starting to Cool

By Clive Riddle, May 6, 2016

Irving Levin Associates reports that healthcare merger & acquisition activity, which has been relatively overheated, is starting to cool a little. Lisa E. Phillips, editor of Irving Levin’s Health Care M&A News tells us “the slowdown in deal volume in the first quarter of 2016 might simply be fatigue setting in after a record-setting year in 2015. Also, some buyers are still figuring out where the best opportunities are, as the shift to value-based reimbursements gains momentum.”

Health Care M&A News states that “health care merger and acquisition activity began to slow down in the first quarter of 2016. Compared with the fourth quarter of 2015, deal volume decreased 7%, to 351 transactions. Deal volume was also down 7% compared with the same quarter the year before. Combined spending in the first quarter reached $79.5 billion, an increase of 87% compared with the $42.5 billion spent in the previous quarter.”

Here’s a snapshot the publication provided of the quarter’s activity:

How big was 2015?  Bigger than 2014, which was also a huge year.  Irving Levin’s Lisa Phillips says “health care mergers and acquisitions posted record-breaking totals in 2015. The services side contributed 62% of 2015’s combined total of 1,503 deals, which is even higher than 2014, when services deals accounted for 58% of the deal total.” A separate Irving Levin publication, the Health Care Services Acquisition Report, cites that “deal volume for the health care services sectors rose 22%, to 936 transactions versus 765 in 2014. The dollar value of those deals grew 183%, to $175 billion, compared with $62 billion in 2014. Merger and acquisition activity in the following services sectors—Behavioral Health Care, Hospitals, Laboratories, MRI & Dialysis, Managed Care, Physician Medical Groups, Rehabilitation and Other Services—posted gains over their 2014 totals. The exception was the Home Health & Hospice sector, which declined 33% in year-over-year deal volume.”

In the hospital sector, for 2015, they report that “activity remained strong in 2015, up 3% to 102 transactions, compared with 99 transactions in 2014. An average of 2.6 hospitals were involved in each transaction, compared with an average of 1.8 in 2014 and 3.3 in 2013.” Philips noted that “several deals resulted from the mega-mergers of 2013,” and that “we’re seeing more sales resulting from bankruptcies, especially in states that have not expanded Medicaid coverage.”


Healthcare Innovation Models and Accelerators

By Clive Riddle, November 7, 2014

Intermountain Healthcare and Healthbox just announced an interesting healthcare innovation collaboration, with their Innovation at Intermountain Healthcare Initiative. Intermountain is the Utah-based health system non-profit juggernaut with 22 hospitals, 185 clinics, 1,100 employed physicians, and the SelectHealth health plan.

A physical structure in Salt Lake City is being constructed next to Intermountain’s flagship medical center to house the initiative, which includes three components:

  1. The Intermountain Foundry which they state “provides a structured framework for help high-potential employee ideas and near-market concepts become commercial businesses.”
  2. Strategic Investments that “will source companies from the broader healthcare ecosystem and develop partnerships that include investment and potential customer relationships.”
  3. The Healthbox Salt Lake City Accelerator, which launched in September in partnership with Health Equity, Zion’s Bank and BD.

Healthbox sees themselves as a “preeminent source of healthcare innovation and drives actionable collaboration between inventors, entrepreneurs and the healthcare industry.” They have operations in five key markets across the U.S., in addition to London and Tel Aviv, and a portfolio of more than 80 active companies and strategic partnerships with more than 30 healthcare organizations.

Speaking of Accelerators, the just released November issue of Healthcare Innovation News addresses the question “how can healthcare accelerators ensure success in their quest to nurture entrepreneurs and support their startup ventures?” in their Thought Leaders’ Corner. Below are three selected responses to this question from their Thought Leader panel.

Tom Olenzak, Director, Innovation at Independence Blue Cross in Philadelphia says “we believe that the key issue facing healthcare innovators is access to customers. The investment of time, expertise and resources by potential customers is critical to help startups turn their innovative ideas into sustainable businesses and products. That’s why we participate in healthcare accelerator programs, such as DreamIt Health Philadelphia. DreamIt Health puts a focus not only on providing funding, but also on the mentorship and access needed to nurture the startups.  I’ve seen firsthand how access to a customer’s point of view, along with business knowledge and data, can have a direct impact on the success of startups. Last year we provided anonymous claims data to the startup Grand Round Table and these data helped the company to solidify its value proposition, helping doctors find appropriate diagnoses faster and reducing the number of unnecessary tests and treatments. The healthcare industry, as we know it, is experiencing dramatic change, and the future of the industry relies on innovative thinking to overcome our biggest challenges. Healthcare accelerators that establish the perfect blend of entrepreneurial coaching and corporate support are the ones that will be successful in developing ventures that push the envelope, and deliver solutions that provide high-quality, affordable care that patients deserve. The future of our industry depends upon innovation, but the opportunities are endless when you embrace partnership and have the right mix of bright minds. Most accelerators help companies grow, but those that provide access to customers and other decision makers breed startups that develop sustainable and scalable solutions to the most pressing challenges.”

Scott Shreeve, CEO at Crossover Health in California says he believes “the challenge for health accelerators is to nurture disruptive ideas and companies yet remain connected to the needs of healthcare providers and payers. Accelerators are good at incubating consumer-focused, digital health innovations. Exciting for sure, but we don’t always see how these isolated innovations bridge the ongoing divide between consumers and providers, and the realities of our current third-party payer system. This is critical in our view because transforming the costs and quality of care won’t be consumer, provider or payer led, but a powerful mix of all three. Crossover Health works with leading employers to deliver primary care services directly to employees via worksite, near-site and virtual care models. We focus on delivering an exceptional patient experience, which not only develops deep patient/provider relationships but also inspires people to take ownership of their health. Innovative provider-led, care delivery and new direct payment models support our experience-centered approach. And, critical to its success are our discovery and adoption of digital health technologies that create new channels of communication, enable population health analytics and facilitate chronic health management in new and different ways. Accelerators can help ensure the success of their startups by making a strong effort to collaborate with equally disruptive providers, who are working with payers that are willing to think differently about health. It’s the responsibility of the accelerator to match different key players together to yield the greatest opportunities and results. By creating a mutual selection process, accelerators can show the power and values of true technology and market disruption.”    

Jason Wainstein, Principal at Deloitte Consulting in Philadelphia shares that “ensuring success is a lofty quest given the nature of accelerators. Not all ideas will pan out. So it’s not about batting 1000; its about providing the best environment to foster the maturation of concept into a viable business. Four dimensions that are critical for accelerator success are: Maintain the right temperature. Many start-ups are focused on building their product/service offering and can benefit from enhanced structure and commercialization cadence, as well as lessons learned from prior startups. Providing a playbook allows the thought leaders to stay focused on building the business. Perfect the role of super connector. One of the greatest values of an accelerator is connecting startups with industry leaders, potential investors and target distribution channels. The top accelerators work relentlessly at building their networks and actively connecting their portfolio companies to these relationships. Be a talent agent. With top talent in high demand, having a network of highly skilled resources that can be brought to bear on short notice can make the difference between success and failure given how aggressively startups must move. Know the white space. There is no shortage of ventures that pop up to capitalize on the hype of the moment, for example, analytics, patient engagement, chronic disease and remote monitoring—like moths to a light. Knowing the white space within these areas and guiding startups to differentiated positions are critical. Otherwise, young companies risk becoming noise in an overcrowded system. Accelerators must treat each startup as a customer, focus on the four dimensions above and be selective in which ideas are brought into the fold based on cultural and content fit.”

Derek Newell, CEO of Jiff in Palo Alto says that “accelerators, by definition, exist to help develop very early stage companies. At this stage, entrepreneurs must transition their companies from a concept phase to a delivery phase. In order to do this effectively, they need to clearly define their value proposition, product and business model. There are two key ways accelerators can support entrepreneurs in facilitating this process.

First, accelerators should connect entrepreneurs to potential customers. Customers validate the product and let companies know they have a commercially viable concept. Talking to customers is the most important thing a startup can do to refine its value proposition. In addition, customers provide critical feedback on product. For the first time, the venture will understand the problem and their target customer’s’ needs at the level of detail necessary to create a meaningful solution for it. Finally, accelerators can help startups figure out their business models early. Many entrepreneurs coming into the healthcare space lack a deep understanding of the complexities and nuances of the industry. Unless the venture is developing a new technology, there is probably a good reason that the solution doesn’t already exist. Within an accelerator, industry experts can help the entrepreneur identify and understand the stakeholders, existing systems and barriers to entry. The forces inhibiting the adoption of the company’s solution could include technology, regulation, operations and/or sunk costs, just to name a few.

By introducing entrepreneurs to potential customers and helping them better understand the healthcare industry, accelerators can help startups navigate this space and support them as they refine their value proposition, business model and product.”