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 the Midwest Business Group on Health, made her comments to MedCity News following McKesson’s announcement that it was acquiring Rx Savings Solutions (RxSS) in an $875 million deal. She declined to speak specifically about the deal since it is not finalized, but said she is worried that the consolidation of healthcare companies will create higher costs.
“Everybody is acquiring everybody because they are worried about what’s going to happen with the future of healthcare and their stake in the ground,” Larson said. “I’m not suggesting that this is in alignment with what McKesson does and what this organization does … There is a fear that if you’re not bigger and badder and better, you’re going to get left out in the cold if the marketplace changes. And so what concerns we have in representing employers is that this is going to continue to not only keep costs high, it’s going to increase them over time.”
Irving, Texas-based McKesson provides medical supplies, prescription and over-the-counter drugs, health IT solutions and pharmacy management software, while 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 year 2023, McKesson will pay $600 million upfront and a maximum of $275 million based on RxSS’ financial performance through 2025, according to the news release.
Larson is right that the news comes amid a frenzy of acquisition buzz, including CVS Health’s purchase of home care company Signify Health and Amazon’s purchase of primary care company One Medical.
“Everyday I read the media I’m seeing another acquisition and merger,” Larson said. “It’s a bigger pot that has to be looked 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 that for years. ‘We’re going to reduce costs. We’re going to better manage patients. We’re going to XYZ,’ and we’re not seeing that in the outcomes.”
When companies consolidate, they decrease competition in their market, which increases costs that “trickle down to the patients,” Larson declared. Oftentimes, these smaller startups are being bought for less than they’re worth, she added. And these larger companies are doing this because it’s beneficial for them to make the acquisition and remain a strong force in the industry with a diverse set of offerings.
“I think it’s all about acquiring as many diversified entities as possible, so that when it all settles down, you’re in a good position to be a dominant marketplace provider,” Larson said.
While Larson didn’t name any specific deals in which companies purchased startups at a higher price than they’re worth, it’s evident in the CVS Health/Signify deal. The Wall Street Journal reported in August — when it was first rumored that CVS Health was interested in the acquisition — that Signify had a market value of around $4.7 billion. But the final purchasing price ended up being nearly $8 billion at $30.50 per share.
Larson said she doesn’t anticipate the consolidation trend settling down any time soon, either. To combat the issue, she said Midwest Business Group on Health is working to educate its employer members on the marketplace to improve price transparency.
“Lack of competition generally leads to higher prices. Research has shown that market consolidation in health care — whether it be for 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 their healthcare and pharmacy dollars, MBGH works with its members to drive transparency in the marketplace. Strategies include encouraging the use of performance guarantees and requiring vendors to have shared risk in contracts.”
In 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 medication adherence, claimed Brian Tyler, CEO of McKesson.
“Rx Savings Solutions’ offerings for employers and patients will strengthen McKesson’s ability to help solve the most common medication 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 biopharma services by extending our ecosystem of differentiated medication access solutions to patients. Together with Rx Savings Solutions, McKesson will amplify our efforts to advance 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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