Top health industry issues of 2020 - A whole new you: Deals as makeovers

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In 2020, organizations will make strategic deals not to just grow larger but instead to expand into new identities with platforms anchored in value, innovation, customer experience and population health. As they weigh their options, health companies will need to ensure that the deals they pursue pass the sniff test of employers and consumers seeking more affordable care.

The megadeals of the past few years have created some “quiet giants,” whose breadth and depth of healthcare products and services continue to expand. Now traditional players face a more converged landscape peppered with new entrants that have made healthcare their business.

These seismic changes in the US health industry are forcing healthcare organizations to rethink their strategic identities as they struggle to compete and survive in business models that are becoming obsolete. Old business models favored control of geography, bricks and mortar, and narrow industry silos.

True or false? Healthcare consumers by and large believe healthcare deals activity benefits them.

False! Surveyed by HRI this year about their attitudes toward deals, US consumers are mostly neutral about whether healthcare deals result in lower-cost care, more personalized care, high quality docs or more innovative products or services.

Figure 7: Deal priorities differ among healthcare executives: Health plan and pharma executives are most concerned with remaining competitive and accessing new markets; providers want access to new technology.

Forty percent of healthcare executives surveyed by HRI said their companies are somewhat or very likely to acquire, partner or collaborate across healthcare sectors in 2020.[i] Health executives most frequently cited access to technology as a reason their companies would pursue a deal. They differed, however, on their top deal priority: While providers valued access to new technology, most health plans valued the ability to remain competitive in the market, and pharmaceutical life sciences executives valued gaining access to new markets (see Figure 7).

Figure 8: Healthcare organizations are considering new strategic identities that require deals to match

These priorities may shift as deal decisions become more influenced by the strategic identity or identities companies choose over the next several years (see Figure 8). Depending on the identities chosen, companies will consider deals to expand their footprint, innovate into new revenue streams, protect market share or collaborate with others.

Companies identifying as Product and Innovation Leaders will produce the most advanced care and scientific discoveries by acquiring the best and brightest doctors, scientists and researchers to preserve the brand. For providers, this could mean aspiring to gain international prominence like the Cleveland Clinic, which announced that it will open facilities in London starting in 2020, expanding a global presence that already includes locations or partnerships in Canada, China and the United Arab Emirates.[ii]

Cutting-edge technologies are another way to lead and innovate into new revenue streams. “At Intermountain, we’re spending a significant amount of time testing new artificial intelligence tools,” said Marc Probst, chief information officer of Salt Lake City-based Intermountain Healthcare, during a panel at the Cleveland Clinic’s 2019 Medical Innovation Summit. “It takes us months or years to create best practice care protocols for our physicians, but we recently partnered with an AI firm that was able to create better care protocols almost immediately.”[iii]

Some health plans may pursue deals that position them as Product and Innovation Leaders in financing and expanding access to high-cost care. Just 10 months after Cigna and St. Louis-based pharmacy benefits manager Express Scripts sealed a $67 billion merger, the combined company announced a program that would cover the costs of gene therapies.[iv]

Population Health and Outcomes Leaders will chase deals that help them improve communication channels between providers and patients, collaborate with patient and disease advocacy groups, and offer new services aimed at improving community health and access to care.

Pharmaceutical and life sciences companies choosing this identity may look to acquire smaller organizations focused on key patient segments as they focus product portfolios and develop patient engagement services to ensure optimal outcomes. In 2019, Boston-based Vertex announced a $950 million deal to purchase a biotech company with a burgeoning stem-cell therapy for type 1 diabetes.[v]

 In July 2019, San Francisco-based Medicare Advantage insurer Clover Health announced the launch of Clover Therapeutics, a research arm dedicated to developing medicines for older adults. In a partnership with South San Francisco-based biopharmaceutical firm Genentech, Clover Therapeutics is investigating genomic factors that can lead to ocular diseases.[vi]

Dallas-based Signify Health, an in-home care provider offering technology solutions and complex care management services through a network of 4,000 doctors and nurse practitioners, announced in March 2019 that it had acquired San Antonio, Texas, startup TAVHealth, a technology platform and network for connecting with community-based organizations. The acquisition is intended to help Signify Health address social determinants of health, such as food insecurity and transportation issues, for its patients.[vii]

Experience and Consumer Advocacy Leaders will compete for the lifetime value of the patient, be recognized chiefly for the unparalleled patient experience they deliver, and retain customers through excellent access, convenience and service.

Paladina Healthcare, a direct primary care services company based in Denver, acquired Activate Healthcare, an Indianapolis company that partners with employers to set up and manage primary care clinics on the job site or nearby.[viii] The combined organization will serve over 170,000 employees across nearly 100 clinics in 18 states, intending to provide more convenient and affordable healthcare.

For its Study Connect online platform, New York City-based Bristol-Myers Squibb has partnered with Inspire, an online umbrella group based in Arlington, Virginia, that manages patient communities for over 100 nonprofit organizations.[ix] The partnership helps BMS work toward the goal of designing clinical trials closely aligned with patient needs and expectations.

Value Leaders will rely on deals that help them to achieve the greatest scale and scope and to integrate vertically to cut out middlemen, align incentives, improve care coordination and translate efficiencies into savings for patients. Perhaps most publicized are Minnesota-based UnitedHealth Group subsidiary Optum’s completed acquisition of Denver provider DaVita Medical Group in June 2019, and CVS Health’s acquisition of Hartford, Connecticut-based Aetna in 2018.[x], [xi]

Yet other Value Leaders are emerging. In July 2019, Canonsburg, Pennsylvania-based Mylan announced plans to merge with New York City-based Pfizer’s Upjohn division, which focuses on off-patent branded and generic drugs, to expand the geographic reach of Mylan’s product portfolio and leverage Upjohn’s infrastructure and local market knowledge.[xii]

Think big, above all: That’s what Dr. Peter Diamandis, executive chairman of the XPRIZE Foundation, told an audience of healthcare executives at PwC’s 180 Health Forum. “There is more capital today than any time ever in human history, and it’s easier than ever to start a company,” Diamandis said. “Now, these companies are not smarter than any of us; they’re just willing to take a lot more risk. Risk is their friend because risk is your foe. Risk and being a public company just shackles you from experimentation.”[xiii]

Implications

A hybrid play may be the way

Some companies may find they will need to become hybrids of two strategic identities to fulfill their missions and remain competitive. “The Product Leader in the future will be a much harder sell,” said Dr. King Li, dean of the Carle Illinois College of Medicine at the University of Illinois at Urbana-Champaign and chief academic officer of the Carle Health System, in an interview with HRI. “It’s hard to say you are a Product Leader when people make decisions based on the same AI support. In this case, patient experience will become much more important in achieving a positive outcome.”[xiv]

For example, one academic medical center (AMC) may choose to be a Product Leader but decide that a community hospital in its system should be an Experience Leader that creates lifelong relationships with patients and directs them to the AMC when they need higher-acuity care. New digital technology that leverages advanced analytics and automation can help companies more quickly identify acquisition targets that match with strategic, operational and financial goals.

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Beware consumer and employer perceptions and expectations

Consumers are not convinced that healthcare deals benefit them, according to a recent HRI consumer survey. Health companies should pursue deal strategies with the patient in mind, communicate with patients starting when a deal is underway, and make sure they can deliver an experience in line with customer expectations on day one post-close. Segmenting consumers to understand priority populations and their unmet needs, such as the social determinants affecting their health, may help determine which acquisition targets will bring the most value to them.

Employers have considered megadeals — of hospitals, in particular — to be inflators of medical cost trend, at least in the short term.[xv] As they become more active in making healthcare more affordable, employers also will be looking for more value out of healthcare deals. Some are even pursuing their own, such as Haven Healthcare.[xvi]

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Consider private equity as a potential deals partner

As private equity firms broaden their footprint in healthcare, they are eyeing customer experience and innovation. In 2018, Washington, DC-based The Carlyle Group invested $350 million in One Medical, a consumer-focused, tech-enabled primary care practice based in San Francisco.[xvii] Executives at The Carlyle Group noted One Medical’s integrated technology and smooth, convenient access for patients as a remedy for an increasingly frustrating primary care environment.[xviii]

In July 2019, Swedish private equity firm EQT acquired a majority interest in Aldevron, a Fargo, North Dakota-based supplier of plasmid DNA to gene therapy developers.[xix] “There continues to be a lot of excitement and deal-making in the gene and cell therapy space, but there will be winners and losers,” said Les Funtleyder, healthcare portfolio manager at E Squared Capital LLC, a New York City public and private investment fund, in an interview with HRI. “Most of the companies working in this area haven’t yet proven that they can navigate logistical and supply chain processes to successfully break into the market.”[xx]

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