The mega merger of CVS Health Corp. CVS with Aetna Inc. AET announced recently has sent jitters across the hospital sector, which is already suffering from low patient volumes, soaring costs, increasing bad debts, and an uncertain regulatory climate among other issues.
Increasing Encroachment
The deal between a health insurer, Aetna and a pharmacy benefit manager and a pharmacy store company, CVS Health, is expected to eat into the business of hospital companies. The companies aim to bring affordable cure to patients at increased convenience. This implies greater emphasis on value-based care rather than fee for service care.
The players are structuring their offerings in a way that should keep patients away from hospitals. In this regard, they are being provided necessary services at home or an outpatient location. This should shift patient traffic for emergency rooms away from hospitals.
"The overuse of emergency department adds an estimated $38 billion in wasteful spending every year, so tremendous savings can be realized by utilizing local care solutions in a more integrated fashion," according to Aetna's CEO Mark Bertolini.
Further competition is being posed by UnitedHealth Group Inc. UNH, which is voraciously spreading its business in this space via its OptumCare unit by acquiring doctor clinics, urgent care facilities and surgery centers. Last week, UnitedHealth Group's Optum unit announced that it would pay nearly $5 billion to buy DaVita Healthcare Partners Inc.'s DVA Medical Group and its clinics and urgent care centers.
The expansion of UnitedHealth and CVS Health in outpatient facilities is likely to create challenges for big names in the hospital industry such as Tenet Healthcare, HCA Holdings and Community Health Systems. The country's nonprofit hospital industry may also not be spared.
The industry underperformed the S&P 500 index last year, as evident by growth of just 2.8% compared with a rally of 20% by the former.
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