It has been over 30 years since Paul Starr won the Pulitzer Prize for “The Social Transformation of American Medicine.” This work and others predicted the metamorphosis of the sovereign profession of medicine into a vast “industrial complex.” At various times, the predictions have centered on corporate medicine, hospital consolidation or the rapid rise in public sector expenditures — particularly Medicare and Medicaid spending. Indeed, these trends are present, but with no defining movement. The events of the past few weeks may provide that defining moment. Let’s look at how a sequence of recent events may, in fact, be redefining the future health care marketplace.
In the past 60 days, two blockbuster mergers of health insurers have been announced: Aetna combining with Humana, and Anthem merging with Cigna. AddUnited Healthcare, and the health insurance market is expected to result in three major players, each with approximately $100 billion in annual revenue.
The scale alone is significant. All three would be included in the top 25 largest companies in America, measured by annual revenue. Additionally, inside each of these combinations is a tale of not only scale, but also a more important story — growth path. In each case, the growing segment of the business is government revenue, particularly Medicare and Medicaid managed care revenues. In the case of United Healthcare, 33 percent of revenues will be from government sources; in the case of Aetna-Humana, it will be 47 percent; and in the case of Anthem/Cigna, it will be 25 percent. Of a combined $300 billion in 2014 annual revenue, over $100 billion will be from government sources. Extrapolate to 2020, and add to the mix Affordable Care Act exchange credits and governmental employee health spending, and the government revenue could be $150 billion to $200 billion combined, approaching almost 50 percent of revenue and virtually all of the growth.
Concurrently, America’s Health Insurance Plans, the national association for health insurance companies, announced Marilyn Tavenner as its new president and CEO. Like past CEOs, Tavenner has a distinguished political and business resume (including a past leadership position with HCA) and a current board position with LifePoint. Tavenner also is the immediate past administrator of the Centers for Medicare and Medicaid Services(CMS). CMS is the principal regulator and purchaser of the services that are the growth paths for the major insurers. It appears insurers are coming to the realization that their revenues and growth may depend more on Pennsylvania Avenue than Main Street or Wall Street.
One could add to this discussion the consolidation in pharmaceutical companies and medical device manufacturers, but the length of the column does not permit. For example, the Teva Pharmaceutical acquisition of Allergan last month leaves two major generic manufacturers.
When one considers where the health care revenues of the future will come from, this is starting to look a lot more like the Pentagon, only larger. In the world of defense contracting, there are only a few companies who make, and thus bid on, aircraft carriers, fighter planes and tanks. Health care may be headed in the same direction. All three major health insurers will be larger (in annual revenue) than Boeing, the nation’s largest aerospace and defense contractor. As the White House celebrates its recent victories in the Supreme Court, it should also come to the realization that, with over 20 percent of our nation’s economy in health services, the big business of Washington is now health care.
Date: August 5, 2015