The news during the last week of October that the mega-pharmacy retailer CVS was in talks to acquire the Hartford, Conn.-based Aetna—a deal that is now moving ahead, as documented in a December 4 announcement of the deal—has created waves of interest, and even discombobulation, across the various segments of U.S. healthcare, from the pharmaceutical manufacturing sector, to the retail pharmacy sector to the pharmacy benefit management sector, to the health plan sector, to the physician practice sector.
The talk of the potential for industry disruption has continued since the first reports of the deal in October, and for good reason: deals like the pending CVS-Aetna agreement do tend to disrupt the existing dynamics in any sector within healthcare that might be touched by them.
Shortly after the news emerged, David Friend, M.D., chief transformation officer and managing director in the BDO Center for Healthcare Excellence & Innovation (New York), made the following statement: “As Artificial Intelligence and machine learning enable the tech giants of the world to potentially manage prices more effectively than traditional pharmacy benefit managers and drug distributors, the latter need to defend themselves. The proposed merger between Aetna and CVS is a defensive move in the battle for the bottom line. It’s a watershed moment that may accelerate the push to value-based drug pricing. Merging prescription and medical benefits creates an opportunity for payers to figure out the real correlation between drug prices and clinical outcomes. Rather than paying an arbitrary price per pill, payers will start paying for drugs based on the clinical results, or outcomes. This is only economically feasible if the insurers and drug seller have aligned incentives, which the proposed merger will provide.”
Dr. Friend spent years in clinical practice in general medicine, and then in medical management, including overseeing clinical affairs at a health system and later at a nursing home. Meanwhile, as the BDO Center for Healthcare Excellence & Innovation notes on its website, “The BDO Center for Healthcare Excellence & Innovation is devoted to helping healthcare organizations achieve optimal clinical and financial performance. Drawing on a wide range of resources and a collaborative approach, our professionals create value for our clients through customized solutions. We leverage insight and experience across all aspects of the healthcare industry to help organizations anticipate change and overcome the many hurdles associated with risk-based reimbursement, policy change, and clinical outcomes. We help our clients find new opportunities to improve performance in the short-term as well as achieve longer-term transformational change.”
David Friend, M.D.
With activity of this type swirling across healthcare now, Dr. Friend spoke recently with Healthcare Informatics Editor-in-Chief Mark Hagland about the implications of some of these deals for U.S. healthcare. Below are excerpts from that interview.
Dr. Friend, what should we think about this potential acquisition, at a 40,000-foot level?
At a 40,000-foot level, this says we’re about to be disrupted by companies that historically were not largely present in healthcare, like Amazon and Google. They are going to disrupt the industry very intensively, because frankly, they have better tools around business intelligence; not unlike retail being disrupted by Amazon, except that Amazon started disrupting retail at least seven years ago.
And the reality is that most hospitals still think of the hospital down the road as their competition, right?
That’s right. It’s like the meteor hitting the planet and decimating the dinosaurs. And it’s like the bookstores looking at the bookstore down the road, and then a website came in and decimated them.
What do you think the Aetna executives see in this combination?
If you can learn prescriptions, and medical benefits, you can correlate the prices of drugs, and clinical outcomes. Right now, there’s no incentive for the pharmaceutical companies and the insurers to collaborate, because one person’s gain is another’s loss. It’s similar to a hospital cutting lengths of stay without appropriate incentive. That’s the same problem here: drug companies want to sell price per pill, and the insurers only want to pay for a pill that’s useful, and only the cost that makes sense. If I have a red pill and a blue pill and they both cost five bucks, but the red pill produces tremendous value by averting a hospital stay, and the blue pill doesn’t prevent a hospital stay, there’s no gain there. But if you use artificial intelligence and machine learning, and this red pill does that, then there’s the benefit. And the drug companies try to keep real prices secret, and they totally disrupt the pharmacy benefit business, which is very vulnerable.