|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Dropping the curtain on Act One of healthcare’s dramatic overhaul
Nearly a year after first announcing its intention to acquire the health insurer, this week pharmacy retailer CVS closed its $70B takeover of Aetna…almost. In a press release issued Wednesday, CVS CEO Larry Merlo said, “Today marks the start of a new day in health care and a transformative moment for our company and our industry.” The pharmacy giant reaffirmed plans to launch “foundational pieces of its new care model” across the coming year, alluding to its planned “Health Hub” pilot stores revealed earlier this month. Speaking at the Forbes Healthcare Summit this week, Merlo urged CVS customers to “think of the store evolving toward a healthcare destination”, in which pharmacists would come out from behind the counter and serve as health advisors, assisting in managing consumers’ health. Before that can happen, however, the deal will need to clear one additional, unexpected hurdle. On Thursday, US District Court Judge Richard Leon raised the prospect of not approving the acquisition, objecting to being treated as a “rubber stamp” in the midst of what otherwise would have been a routine legal proceeding. Although the deal passed Department of Justice muster, and all of the state regulatory hurdles it faced, agreements between the Federal government and merging companies are required to be approved by the D.C. District Court, where Judge Leon serves. By the end of the week, it was unclear when final approval might be forthcoming, although Judge Leon set another hearing for the deal next Monday.
Meanwhile, perhaps in reaction to prospect of competing with the newly-merged CVS-Aetna, Stefano Passina, CEO of pharmacy retailer Walgreens, said at the same Forbes event that his company is in discussions with health insurer Humana to extend their partnership—possibly in the form of a joint venture. The two companies have been jointly developing senior care clinics in the Kansas City market since June, and just before Thanksgiving the Wall Street Journal reported that the firms were in “preliminary discussions” to take equity stakes in one another. That’s a significant step beyond the scope of the relationship described by Humana CEO Bruce Broussard back in August, when he compared the Walgreens collaboration as “smaller clinics” as compared with Humana’s broader, longer-standing partnership with retail behemoth Walmart. Earlier this year, Walmart was rumored to be in takeover talks with Humana. With all these permutations and combinations of retailers, insurers and pharmacies, and with Amazon looming ever larger in the background, it’s clear that the CVS-Aetna deal is just the first of many transformative changes to come in healthcare. As we’ve been emphasizing in our work this year, a fundamental realignment is underway, aimed at disrupting high-cost, incumbent providers in favor of more consumer-friendly solutions. All of this should make for a fascinating, if turbulent, 2019.
Two health systems cleared to merge—with conditions
This Thursday, Massachusetts Attorney General Maura Healey signed off on the proposed merger between Boston, MA-based Beth Israel Deaconess Medical Center and Burlington, MA-based Lahey Health, moving the deal past its final regulatory hurdle. The new health system, to be called Beth Israel Lahey Health, will include 13 hospitals and provide about 25 percent of all care in the state. The system will be a close second in share to Partners Healthcare and will provide that system with the first real challenge to its dominance of the eastern Massachusetts market. State approval did not come without significant restrictions. Healey’s office investigated the merger for over a year, and concluded it might raise costs and reduce competition and access, particularly for lower-income residents. Rather than block the deal, however, the state chose to negotiate a settlement with the systems aimed at preventing these adverse outcomes.
Under the agreement, the new health system agreed to cap price growth at three percent per year, saving an estimated $1B in costs over seven years. The system must also “work in good faith” to ensure their doctors accept Medicaid and must produce advertising aimed at increasing the number of Medicaid patients served. These state-imposed restrictions are similar in nature to those recently set as part of California’s approval of the merger of San Francisco, CA-based Dignity Health and Englewood, CO-based Catholic Health Initiatives, under which the new system is required to maintain current levels of emergency care and women’s health services, invest $20M to address homelessness, and bolster charity care and financial assistance for low-income patients. As health system consolidation continues, we expect more merger approvals to come with these kinds of conditions attached, a positive sign that states are demanding scale that delivers value for patients and communities.
Crossing a line in genetic engineering
In a development that rocked the science world, Chinese researcher He Jiankui announced that he had created the world’s first genetically-edited human infants. Dr. He reportedly used the gene-editing CRISPR technique to remove a gene for a cell receptor used by the HIV virus to enter cells. Dr. He’s goal was for the twin girls, born last month, to be resistant to HIV infection. The scientific community worldwide responded with alarm, noting the numerous ethical questions in He’s work. Standard gene therapy techniques alter the DNA in somatic (or body) cells, and changes cannot be passed to offspring. Dr. He edited the DNA of germ, or reproductive, cells, meaning that the mutation will enter the gene line and be passed from parent to child. Scientists worry that the noble goal of editing a disease-causing gene could have adverse consequences, or be used to create a lineage that has special capabilities, so-called “designer babies”. It may sound like a work of science fiction, but it’s easy to see how gene editing to improve the strength of muscular dystrophy patients could also be deployed to create a line of athletes with “super-strength”. There are also ethical questions around patient consent. To prove that these infants are actually resistant to HIV infection would require lifelong monitoring at best, or deliberate exposure to the virus at worst.
Regulating gene editing worldwide presents a challenge, and members of the scientific community are moving toward an international resolution against the technique. However, one American university has a direct connection to the work. Dr. He did his graduate studies at Rice University in Houston, TX, and his advisor, professor Michael Deem, may have worked on He’s research in China. Rice is opening an investigation into Deem’s involvement, highlighting the need for universities to provide oversight of their faculty’s work beyond the university’s borders when there is a question of critical ethical issues.