In this dystopian time, our government is leaning on the large conglomerates to rescue us with supplies. And they are doing just that. Walmart, Amazon, Google — we need them all.
After the virus recedes into a sad terrifying footnote, expect the conglomerates to expand.
Healthcare USA has already taken a page from Walmart’s playbook: vertical integration.
Physicians have bought diagnostic imaging centers, hospitals, and pharmacies. Hospitals have bought physician-practices and insurance plans. Pharmacies have outpatient clinics. CVS recently bought Aetna. Cigna bought Express Scripts (a pharmacy benefit manager). Costco bought a minority share of SSM Health Pharmacy Benefit Manager, owned by a St. Louis hospital system. All great deals, at least for the parties.
Consider healthcare a multi-package product — whether an appendectomy and/or rehabilitation and/or home care. In the end, why not integrate all the producers? Copy Walmart. Because Walmart controls production, it can give buyers rock-bottom prices. And at the same time capture market share, expand sales (thanks to Walmart, we amass more stuff than we did from costlier neighborhood stores), and earn a profit for investors. That is the goal.
Will vertical integration lower health care costs?
The healthcare product begs for cost-cutting. We spend more per capita than any other country. Plus individual patients bear a burden, gleaned from Bill of the Month exposes. The revenue comes from patients (via premiums, deductibles, co-pays, direct payments), employers and government. But the costs are protean. Payments go to lavishly paid executives, to physicians, to pharmaceutical companies, pharmacy benefit managers, pharmacies, hospitals, laboratories, diagnostic imaging centers, rehabilitation clinics, et al. Millions of staff cope with the multiplicity of insurance plans, of networks, of regulations. The administrative mishmash has spawned a software industry, all with investors in the background.
Will vertical integration prove a magic bullet?
Crystal balls are invariably cloudy.
Consider two measures of costs: individual and collective. If we ratchet down the cost of healthcare for individuals, yet expand utilization, we will not have lowered aggregate costs. We may have raised them - the Walmart model. In fact, physician-owned diagnostic imaging centers reported higher use than independent ones. Hospitals have bought physician-practices to bolster admissions. CVS sees a financial upside to buying Aetna. The pharmacies which installed clinics captured customers who might buy drugs, along with shampoo, vitamins, toys. Cigna bought Express Scripts: the verdict is out on who will benefit: pharmacy benefit managers or Cigna? These vertically integrated behemoths might lower costs for enrollees, but will not necessarily lower aggregate costs. In the end, the behemoths are accountable to their investors.
The insurer-payers (taxpayers, employers, employees) pay the tab: they have a vested interest in lowering individual costs, as well as aggregate costs.
But tamping down costs in such an inchoate system is hard.
Insurers have tried to lower utilization. Co-payments and deductibles, designed to do so, have added to the paperwork. Insurers have ratcheted down hospital stays, have instituted prior utilization, have limited drugs to strict formularies (in fairness to the pharmaceutical industry, those drugs may obviate the need for costly hospital procedures), have exempted pre-existing conditions. We patients haven’t helped; we would consume less healthcare if we lost weight, stopped smoking, wore seat belts, and got off opiates. And, of course, the virus has filled our hospitals beyond capacity.
An integrated system with the payers at the top might reduce costs, both individual and aggregate. Think Kaiser Permanente, or the early health maintenance organizations with salaried physicians, labs and diagnostic testing on-site, or the Veterans Administration. Optimistically, a more integrated system would have fewer transfer glitches, fewer transfer costs.
Yet the administrative mishmash drives costs. So long as we have a multiplicity of plans (under the banner of “consumer choice”), each with its own networks, regulations and fine-print exclusions we have a multiplicity of software for staff to process. Ditto for the various, variable networks of physicians, hospitals, laboratories. Now we let patients go “out of network” (though they pay dearly for that option). A more integrated system will close that option, cutting off patients from their trusted physicians and hospitals … but lowering costs.
And in our profit-driven system, investors stand in the wings, eager to reap benefits from vertical integration.
The sad news: vertical integration — so wonderful for Walmart et al, so helpful at marshalling people and machines to combat the virus - is not a magic bullet to lower America’s healthcare tab.
Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email retsinas@verizon.net.
From The Progressive Populist, May 1, 2020
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