Healthcare's 2018 began with a resounding sentiment that set the tone for the rest of the year: “We're tired of the current healthcare system, so rather than wait for someone to change it, we'll do it ourselves.”
Intermountain Healthcare, Ascension, SSM Health and Trinity Health kicked off 2018 by pledging to create a generic-drug company. The providers spoke on behalf of nearly every health system that faces daily shortages of critical drugs and the challenge of working around an unexpected price hike. The vast majority of providers endorsed Civica Rx as they aim to gain some control of a seemingly intractable problem.
About two weeks later, Amazon, JPMorgan Chase and Berkshire Hathaway announced a plan to cut out the middlemen in pursuit of more affordable and efficient healthcare coverage of their 1 million-plus employees.
These actions were echoed by a series of unconventional partnerships and unexpected entrants that will shape the healthcare industry well beyond 2018.
One binding theme was, “Together, we can do something differently,” said Brian Gragnolati, president and CEO of Atlantic Health System.
“We can't wait, we have to move forward,” he said. “It has ripened to a point where if you are a taxpayer, employer or individual, healthcare costs are at the top of your mind. My fear as a leader is if we don't take this into our own hands now and help those who pay for healthcare navigate the system, it will be regulated on us.”
Following that thought, Atlantic Health formed a partnership in February with fellow New Jersey health systems CentraState Healthcare System, Holy Name Medical Center, Hunterdon Healthcare, St. Joseph's Health and St. Peter's Healthcare System. The Healthcare Transformation Consortium set out to deliver a better insurance product to their around 75,000 employees after adding a seventh system to the group, Virtua Health System.
Using a common third-party administrator that oversees their self-insured plans will reduce fees. The economies of scale will yield indirect savings, executives said. The hope is that their employees will be able to access care closer to home.
“The Amazons and others are thinking outside the box and leading innovation. This is the same flavor but with the notion that the delivery of healthcare is very local,” said Kevin Joyce, vice president of insurance networks for Atlantic Health.
Walmart said it was open to joining one of the employer groups looking to crack the code, "but they would have to be willing to go all the way," said Marcus Osborne, vice president of health and wellness transformation at Walmart.
"What you are seeing is a reflection of the frustration from these groups," he told Modern Healthcare earlier this year.
Proponents of the recent efforts are hopeful that the momentum will inspire other movements, big and small. Critics argue that the current stakeholders are too dug in to change direction.
One thing is certain, healthcare is becoming part of the larger economy, said Ben Isgur, leader of PricewaterhouseCooper's Health Research Institute.
Healthcare has often lagged other industries, given its outdated payment system, complicated regulatory barriers and reliance on face-to-face interaction. Finally, what PwC's recent annual report describes as the new health economy is kicking into gear.
“The new health economy is here,” Isgur said. “The health ecosystem that has largely operated outside of the general U.S. economy is much more a part of the U.S. economy.”
The same forces of consumerism that have impacted other industries are trickling down to healthcare, he said.
“To upskill your workforce and implement emerging technologies, you have to collaborate with technology and hospitality companies that can provide the consumer experience you need and other services more efficiently and at a lower cost,” Isgur said.
While partnerships like the CVS Health and Aetna merger; UnitedHealth Group's acquisition of DaVita Medical Group and other physician practices; and Amazon's venture have made headlines, many other partnership are reshaping local markets and will transform the industry in 2019.
Eighty-four percent of Fortune 50 companies are involved with healthcare, PwC researchers found. Venture capital funding for digital health startups is projected to top $6.9 billion in 2018, an increase of 230% from five years ago. American consumers have told PwC that they're eager to embrace more convenient, digitally enabled and affordable care. Private equity firms, long operating on the margins of the health industry, closed 487 healthcare deals in the first three quarters of 2018, more than double the number of deals they closed a decade earlier, according to PwC. That number is projected to hit nearly 750 in 2019.
The value of private equity deals in healthcare across the globe reached $42.6 billion in 2017, up 17% from $36.4 billion in 2016, according to a report by Bain & Co.
Kohlberg Kravis Roberts & Co. completed its purchase of Nashville-based physician staffing firm Envision Healthcare for $9.9 billion in October. TPG Capital and Welsh, Carson, Anderson & Stowe also teamed up with insurer Humana in April to buy Mooresville, N.C.-based hospice provider Curo for about $1.4 billion in July.
And investment firm Deerfield Management has committed nearly $500 million to early stage drug research at academic institutions.
Universities have typically shied away from early stage drug development without willing partners to share the financial burden given the low rate of success and high cost of failure. But that has changed as science has advanced, said James Flynn, the managing partner at Deerfield.
Deerfield has worked with more academic institutions to develop treatments for oncology, central nervous system disorders and gene therapy. In 2018 alone, Deerfield partnered with the Broad Institute of MIT and Harvard, Vanderbilt University, Northwestern University, University of California at San Diego, University of North Carolina and the Dana Farber Cancer Institute.
Universities increasingly want to produce these therapies on their own terms and own the intellectual property, Flynn said.
Institutions can reap the benefits of related royalties, an equity stake in spinoffs or milestone payments. They also earn recognition and prestige with each breakthrough.
These affiliations are poised to become more common as partners like Deerfield are willing to put more skin in the game.
One of the longtime health system clients of Drinker Biddle's John D'Andrea told him that it will only do business with vendors that take on some risk.
“They told me, 'I don't talk to vendors anymore unless they put some skin in the game,' ” D'Andrea, a partner at the law firm, said. “ 'I am a health system paid based on quality and cost efficiency. I expect vendors who come to me to get paid on the same basis.' ”
This type of mindset will shape partnerships across the healthcare industry, he said.
“Organizations have to be willing to step outside of their comfort zone. If they don't, they will miss opportunities and fall behind,” D'Andrea said. “Whether you are a hospital, health system or private-equity firm, you need to find ways where you can add value.”
Comcast, for instance, formed a partnership in April with Independence Health Group, part of Independence Blue Cross. The goal is to give patients access to pertinent healthcare information, nationally distributed across multiple channels and devices.
“Historically, Comcast hasn't been involved in healthcare,” said Justin Watkins, a partner at Drinker Biddle. “But their tech base and cable system have access to hundreds of millions of homes. That is an eye-opening platform for increasing access to telemedicine.”
All kinds of nontraditional healthcare players are jumping into the mix. The rate and scope of those ventures will only increase, Watkins said.
The inability to bring different voices to the table has led to a fragmented system full of unnecessary utilization, higher cost and lower patient satisfaction and engagement, Atlantic's Gragnolati said. This has left patients in the lurch who at times have to choose between healthcare and housing.
But this will require companies to cede a little control for the greater good, he said.
“We have to stop using old tactics where we beat the heck out of each other and find win-win associations,” Gragnolati said. “Whether you are an insurance carrier or health system, everyone has to change the way they do business. We have a responsibility to do this as leaders in healthcare to our community and the next generation.”
