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December 09, 2017 12:00 AM

Editorial: Financial engineering won't solve healthcare's cost woes

Merrill Goozner
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    Merrill Goozner

    The architects of the slew of major healthcare deals announced in the past week offered a common rationale: The combinations will lower costs and improve care.

    Yet a closer examination of the deals suggests these hookups merely tinker around the edges of the major drivers of healthcare spending. And, for the two deals hatched on Wall Street, a good argument can be made that they are more motivated by the profits that come from financial engineering than the savings that can be derived from lowering the cost of care.

    The biggest deal involves CVS Health's plan to buy Aetna for $67.5 billion. It presumes the lower cost of storefront medicine at pharmacies and big box retailers, where CVS is a major player, will soon transform primary-care delivery.

    Unfortunately, there's no evidence to back that assertion. A study published in Health Affairs last year-based on insurance claims at Aetna-showed that 58% of retail clinic use was new utilization, not replacements for a visit to a primary-care doctor's office. Overall costs went up $14 per patient per year, a modest amount yet still moving in the wrong direction.

    Storefront clinics face the same roadblocks as primary-care practices when it comes to managing patients with multiple chronic conditions, who account for most healthcare spending. Payers like Aetna already have access to pharmacy claims records, which are key to identifying patients who might benefit from targeted intervention and help with medication compliance.

    The problem has always been finding the resources to pay staff to conduct outreach. Will Aetna now be more willing to pay CVS (as opposed to a primary-care office) simply because they are part of the same organization? The only way to get to yes on that question is if they are willing to spend now to achieve long-term returns-not likely given the massive debt taken on to complete the deal.

    The same issues confront UnitedHealth Group. The nation's largest private health insurer last week announced plans to acquire DaVita's medical group, the former HealthCare Partners, for $4.9 billion. UnitedHealth's Optum unit has been quietly assembling a service delivery arm made up of physician practices, ambulatory surgical centers and the hospital advisory practice of the Advisory Board Co.

    When DaVita acquired HealthCare Partners in 2012, its intention was to transform itself into a company capable of coordinating care-the same goal UnitedHealth now claims for its acquisition of the unit. It didn't work out, and DaVita has struggled financially.

    The merger of financially ailing Catholic Health Initiatives and Dignity Health will create the nation's third-largest hospital system with a combined $28.4 billion in revenue in 2016. But the plan, announced just as this editorial went to press, is to keep both management structures in place to oversee organizations that have no overlapping markets and thus few opportunities for improving care coordination or rationalizing facilities.

    Ditto for the linkup between the Chicago area's Advocate Health Care and Wisconsin's Aurora Health Care. While the resulting $10.7 billion system should not face the same antitrust scrutiny as Advocate's failed attempt to take over NorthShore University HealthSystem, since they had overlapping service territories, the cost-saving opportunities from care coordination will also be missing. With both systems maintaining their headquarters and management structures, other options for cutting costs like bundled purchasing won't amount to much.

    It's telling how the for-profit firms shedding assets plan to use some of the proceeds. DaVita said it will buy back stock. Aetna CEO Mark Bertolini will walk away with an estimated half-billion dollars in bonus pay and converted stock options.

    What none of these deals address is how to marshal resources within new organizational forms to improve care coordination and move upstream into prevention and better population health management. Constantly re-arranging the deck chairs on the Titanic won't get us there.

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