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.
The PBM business right now is vulnerable, because their profit is based on opacity. But with machine learning, once employers see how much money is diverted—and that’s why Anthem had a big fight with their pharmacy benefit manager—if a pill was prescribed because someone got a rebate on it, not because it was more efficacious—that could all be disintermediated by Amazon coming in. That’s why this deal makes sense. That whole supply chain doesn’t give people good value for good price, and isn’t customer-focused. And Amazon’s whole mantra is good customer service.
So this combination really is a defensive move, anticipating Amazon coming into healthcare?
Without a doubt. And in theory, Amazon could disintermediate both insurers and pharmacy. Examples of times when you go into a pharmacy and have no insurance, and can go in and get a drug for less money than if you have insurance. So customers aren’t happy. Now, will the government allow this to occur? Now, under a Republican administration, you would think so. You can lean towards regulation or towards competition. You would argue that the previous group leaned more towards regulation, and this one leans more towards competition. There’s also a dynamic between mandates versus choice. And subsidies or actuarial soundness. So I think if those trends all hold, unless there’s some other political wrangling, I think this transaction makes sense. And then this will allow Amazon to more forward more aggressively.
What does Amazon want to do, in your view?
I think they want to get into the pharmacy business, and use that as a wedge to get into the healthcare business. They see an opportunity wherever you can apply machine learning and artificial intelligence in healthcare. So, I have Alexa on my desk, listening to every word we’re saying. Maybe Alexa will know I’m running out of insulin, and will ship me insulin in a drone, for example. Could they ultimately grow something like that? Sure. Will there be an Amazon hospital? Maybe not. But we think the modern hospital as it’s been understood, is dead. We talk about computer science, global, money, and supply chain. What a hospital will be five or ten years from now really is a question. If you have the MACRA program, and under MIPS, providers have to provide data for how they’re using technology. Who knows? Maybe Amazon could help doctors.
We think this is a huge watershed event. Parenthetically, my son was working in hedge fund, but he’s working in the revenue cycle department of a hospital, working with the CFO. He’s got a great career ahead of him, because hospitals are almost in a Dickensian world in terms of using technology and intelligence.
Who thought Anthem would be hiring doctors, years ago? Yet they are. And healthcare leaders need to understand that they’re where the bookstore people were years ago. And Macy’s stock is down from $80 to $17. And even if Amazon doesn’t come today, they ignore this at their peril. Even the insurance industry is imperiled. I’m 61. And the next ten years will be the most fascinating ever, in terms of biomedical, in terms of mobile—I have an Apple watch. And they’re applying for FDA [Food and Drug Administration] approval for them to detect arrhythmia. And how valuable is that for you, to avert a heart attack? And for the insurance company to pay for that? This stuff is coming with a ferocity that no one expects.
What should CIOs and other healthcare IT leaders be doing, in looking towards these horizons, and towards changes in the landscape of the healthcare industry?
They have to be open to it. There’s more opportunity for healthcare to innovate across life science. And we spend 5,000 hours of coverage on the ACA, which is basically a sideshow to all this. A convergence of computer science and molecular biology is real. And this convergence, between the Amazon world, and healthcare, is coming. For example, they’re now paying for my son to get an online master’s in machine learning and data analytics; he’s in his 20s. Getting his master’s from Georgia State in analytics, because his CFO recognizes that they need to understand this. And the FDA wants to create more competition. They’ve created a pilot program with Apple, Johnson & Johnson, Samsung, around technology innovation. The FDA has said it wants to encourage these kinds of technologies, like Apple watch and arrhythmia… There’s even a company that is trying to develop a contact lens that can measure your blood sugar. This isn’t just science fiction that’s interesting, but doesn’t apply to your readers. If they don’t realize this applies to them, they’re not where they need to be. This should not be news to them. If it is, they need to learn about this. It’s on the FDA website. We have stuff on our website, too.
I’ve seen a lot of change over 40 years; by an order of magnitude, this is far greater. I’m amazed at what’s coming. I think it’s going to be tremendously positive, but it’s also going to be tremendously disruptive. And the pace of change is accelerating; that’s the key. It’s hard for most people to grasp it.