M&A mania: Employers concerned about constant healthcare consolidation, expert says

Amid a major “merger and acquisition mania” in the healthcare industry, one expert is concerned about what the consolidation trend will mean for employers and consumers.

Cheryl Larson, President and CEO of Midwest Business Group for Healthmade her comments to MedCity News after McKesson Notice that it acquired Rx Savings Solutions (RxSS) in an $875 million deal. She declined to speak specifically about the deal because it’s ongoing, but said she’s concerned that consolidating healthcare companies will result in higher costs.

“Everyone acquires everyone because they’re worried about what’s going to happen to the future of healthcare and their share of the floor,” Larson said. “I am not suggesting that this is consistent with what McKesson is doing and what this organization is doing … There is a fear that unless you are bigger and badder and better, you will be let down by market changes. So our concern in representing employers is that this will not only keep costs high, but actually increase them over time.”

Irving, Texas resident McKesson provides medical supplies, prescription and over-the-counter medications, healthcare IT solutions, and pharmacy management software while being based in Overland Park, Kansas Rx savings solutions is a prescription pricing transparency company that works with employers, health plans and consumers. Per the press release, McKesson is expected to close in the second half of fiscal 2023, paying $600 million upfront and a maximum of $275 million based on RxSS’ financial performance through 2025.

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Larson is right that the news comes amid an insane acquisition frenzy, including that of CVS Health to buy of home care company Signify Health and Amazon’s to buy of the primary care company One Medical.

“Every day when I read the media, I see another acquisition and merger,” Larson said. “It’s a bigger pot to look at… If you read the press releases, it’s kind of the same verbiage. ‘We’re going to do this, we’re going to do that.’ I’ve been hearing that from health plans for years. “We’re going to cut costs. We will treat patients better. We go to XYZ’ and we don’t see that in the results.”

As companies consolidate, they reduce competition in their market, increasing costs that “trickle down to patients,” Larson explained. Often these smaller startups are bought for less than they’re worth, she added. And these larger companies do so because it’s beneficial for them to make the acquisition and remain a strong force in the industry with a diverse offering.

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“I think it’s about acquiring as many diversified businesses as possible so that when things settle down you’re in a good position to be a dominant player,” Larson said.

While Larson didn’t name specific deals where companies bought startups at a price higher than they’re worth, the CVS Health/Signify deal makes that clear. The Wall Street Journal reported in August — when CVS Health was first rumored to be interested in the acquisition — that Signify had a market value of around $4.7 billion. However, the final purchase price was nearly $8 billion at $30.50 per share.

Larson said she also doesn’t expect the consolidation trend to calm down anytime soon. To combat the problem, she said, Midwest Business Group on Health is working to educate its employer members in the marketplace to improve pricing transparency.

“Lack of competition usually leads to higher prices. Research has shown that market consolidation in the healthcare sector – be it for healthcare systems or pharmaceuticals – leads to higher costs for employers, their employees and family members,” she said. “To get a handle on these rising costs and ensure the value of their healthcare and pharmacy monies, MBGH is working with its members to promote transparency in the marketplace. Strategies include encouraging the use of performance guarantees and requiring providers to share risk in contracts.”

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As part of the McKesson/RxSS deal, RxSS will become part of McKesson’s Prescription Technology Solutions business. Acquiring RxSS will help the company improve healthcare access, affordability and drug compliance, McKesson CEO Brian Tyler claimed.

“Rx Savings Solutions’ offerings to employers and patients will strengthen McKesson’s ability to help solve the most common drug access, affordability and compliance challenges,” Tyler said in a press release. “We anticipate that the acquisition of Rx Savings Solutions will accelerate McKesson’s growth priority in biopharmaceutical services by expanding our ecosystem of differentiated patient access solutions to medicines. Together with Rx Savings Solutions, McKesson will amplify our efforts to improve health outcomes for everyone.”

RxSS declined to comment on the deal until it is final, while McKesson did not return a request for comment.

Photo: designer491, Getty Images

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