Amid a major “M&A frenzy” 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 Healthcare Business Groupmade his comments to MedCity News after those of McKesson message that it is acquiring Rx Savings Solutions (RxSS) in an $875 million deal. She declined to talk specifically about the deal because it has not been finalized, but said she is concerned that the consolidation of health care companies will create higher costs.
“Everybody is acquiring everybody because they’re worried about what’s going to happen to the future of health care and their stake in the land,” Larson said. “I don’t think that’s consistent with what McKesson is doing and what this organization is doing … There’s a fear that if you’re not bigger, badder and better, you’re going to be left out in the cold, if the market changes. So, what we have concerns with the employers’ presentation is that this will continue to not only keep costs high, but increase them over time.”
Based in Irving, Texas McKesson provides medical supplies, prescription and over-the-counter drugs, health IT solutions and pharmacy management software, while the Overland Park, Kansas-based Rx Savings Solutions is a prescription price transparency company that works with employers, health plans and consumers. Expected to close in the second half of fiscal 2023, McKesson will pay $600 million up front and a maximum of $275 million based on RxSS’s financial performance through 2025, according to the news release.
“Every day I read the media, I see a new acquisition and merger,” Larson said. “It’s a bigger pot to look at… When 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 health plans say this for years. “We will cut costs. We will manage patients better. We go to XYZ, but we don’t see that in the results.’
When companies consolidate, they reduce competition in their market, which increases costs that “trickle down to patients,” Larson said. Often, these smaller startups are bought for more than they’re worth, she added. And these larger companies do so because it is profitable for them to make the acquisition and remain a strong force in the industry with a diverse set of offerings.
“I think it’s about acquiring as many diversified entities as possible so that when it all settles down, you’re in a good position to be the dominant provider in the market,” Larson said.
While Larson didn’t point to any specific deals where companies have bought startups for more than they’re worth, that’s evident in the CVS Health/Signify deal. The Wall Street Journal reported in August — when CVS Health was first rumored to be interested in an acquisition — that Signify had a market value of about $4.7 billion. But the final purchase price ended up being nearly $8 billion at $30.50 per share.
Larson said he also doesn’t expect the consolidation trend to subside anytime soon. To combat the problem, she said the Midwest Business Group on Health is working to educate its employer members in the marketplace to improve price transparency.
“A lack of competition usually leads to higher prices. “Research shows that consolidation in the health care market — whether it’s health systems or pharmaceuticals — leads to higher costs for employers, their employees and family members,” she said. “To manage these rising costs and ensure value for our healthcare and pharma dollars, MBGH is working with our members to drive market transparency. Strategies include encouraging the use of performance bonds and requiring suppliers to share risk in contracts.’
In the McKesson/RxSS deal, RxSS will become part of McKesson’s Prescription Technology Solutions business. The acquisition of RxSS will help the company improve access to health care, affordability and medication adherence, said Brian Tyler, CEO of McKesson.
“Rx Savings Solutions’ offerings for employers and patients will strengthen McKesson’s ability to help solve the most common drug challenges related to access, affordability and adherence,” Tyler said in a news release. “We expect the acquisition of Rx Savings Solutions to accelerate McKesson’s growth priority in biopharmaceutical services by expanding our ecosystem of differentiated patient drug access solutions.” Together with Rx Savings Solutions, McKesson will increase our efforts to improve health outcomes for all.”
RxSS declined to comment on the deal until it is finalized, while McKesson did not return a request for comment.
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