AHIP18: Duke antitrust expert says vertical mergers will drive healthcare’s ‘new architecture’

merger and acquisition
Vertical mergers could be the basis for healthcare's new architecture, one antitrust expert said. (istocksdaily)

SAN DIEGO—Following several decades in which hospital megamergers went largely unchallenged by regulators, healthcare could be on the brink of a new architecture driven by vertical mergers from CVS-Aetna and Cigna-Express Scripts.

That’s according to Barak Richman, a professor of law and business administration at Duke University, who said health systems have failed to deliver on their promise to reduce costs through large mergers and by scooping up physician practices.

“Almost universally, there have been found to be price increases after hospital mergers and in some cases, quite significant price increases,” Richman said during a presentation here at the AHIP Institute & Expo.

Those mergers, which began ramping up in the 1980s, were occasionally challenged by regulators, but courts frequently ruled in favor of the hospital systems. Those decisions created highly concentrated markets in which inpatient and outpatient providers were no longer competing with one another, and physicians now owned by a hospital had little incentive to direct care outside of that system, according to Richman. 

The courts were less lenient when four of the largest insurers proposed mergers in 2015. Regulators successfully challenged deals between Cigna and Anthem and Humana and Aetna, with courts agreeing the mergers would have reduced competition.

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But the new vertical mergers currently under consideration by the feds in CVS-Aetna and Cigna-Express Scripts represent a brand-new model in healthcare.

“They are proposing a different business plan,” Richman said. “This is the wave we’re witnessing right now and we’re seeing it on a large scale and small scale.” The small-scale mergers were a nod to insurers buying up providers.

Richman, who believes the CVS-Aetna deal will be approved by federal regulators, said the new architecture could put more control back into the hands of patients, particularly through the use of digital tools like telemedicine and mobile apps. It would also require hospitals to become more specialty-focused, a prediction that was echoed earlier in the week by Ralph Judah, a principal at Deloitte Consulting.

"In the future we’ll see the general hospital basically disappear,” Judah said during a presentation at AHIP, although he added that he was skeptical vertical mergers like CVS-Aetna would be successful long-term, arguing the companies are “working to build a moat around their existing populations.”

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Richman is more bullish on the potential of vertical mergers, even as the American Medical Association came out last week against CVS-Aetna. He argued the merger would “likely substantially lessen competition in many health markets.”

“It’s a different architecture that not only keeps the most costly care at arm’s length but maybe even the second most costly care at arm’s length,” Richman said of the potential benefits of vertical mergers.