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| SPECIAL EDITION | Date: APRIL 4, 2014
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Sometimes you have to be thankful that important news is not released on April 1st! I am reminded of the day that Walgreens announced the acquisition of CHD Meridian and WholeHealth. I thought at the time that it was a game-changer, and in some respects, it was at the time. In retrospect, it was a little underwhelming.
Now, Water Street Healthcare Partners is buying a major stake in the Take Care Employer Health Solutions and in CHS on-site clinic programs. This is the real game changer.
For anyone who is not seeking opinion, take yourself to the links at the left and you can get the news directly from the sources themselves.
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| If 1+1=3, what does 1+1+$=? | |
Mergers are interesting and acquisitions are interesting, but this is neither. Water Street will own a major share in both the Take Care Employer operations and in the CHS on-site clinic programming. There will be a new company formed with DNA and clients from each of the companies involved - but the important DNA from Water Street is capital. They will be putting in cash and taking over substantial control, but the CHS organization and Walgreens will both have skin in the game. This makes for a more meaningful partnership than the CHD/WholeHealth arrangement where the principals all faded away and left Walgreens with a book of business.
A note here of importance - Walgreens' community-based clinics in their drug stores will not be part of the deal. This is where you received your last flu shot. Also, CHS has a division that does international and governmental health services, and this is not part of the arrangement either. In fairness to Water Street, they do not just bring capital, they have a book of business in a number of other health care enterprises, and a management team that knows how to broker the potential synergy of its holdings.
As a matter of full disclosure, I know the executives in each of these companies, and I have talked with them over the past year about a number of issues facing the health care industry and employer-based health care programming. Each company, individually, is focused on approaching the problems of health care using new tools and new technologies to address old problems. What is more interesting is that they are all looking at the problems from the perspective of true population management, albeit at the employer self-funded level.
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| Industry Impact? Winners and Losers? | | |
This new team effort (merger, takeover, whatever?) will have a significant impact on the industry. Yes, some may look at it as a win/lose arrangement, but there are far more winners in every category. Up until this point, there have been several market stand-outs, but none that had a national reach and none that had a potential for market capitalization. This company (as of yet unnamed) will cover 44 states and some 500 sites of service. National reach and national coverage that rivals that of most insurance coverage and which beats any single consolidated health care delivery system. If they learn how to use this coverage as a tool, the threat is to the insurance industry and to health care systems, and the benefit is to employers with many sites in many states.
This is not necessarily a threat to other regional players and on-site providers that are emerging as capable of national coverage. I don't want to bias anyone, but the list of the upwardly ambitious would have to include QuadMed, HealthStat, CareHere, Cerner, CareATC, and a handful or others. I think that they now are "Avis" to the Walgreens\CHS (and Water Street) "Hertz." There is now a major company that is number one in size, but it has a challenge ahead of it in the consolidation phase which may slow it down (or not?). In any case, the RFPs are all being done at the local and regional level, and the competition now has a benchmark company against which they can roll out new and innovative pricing and programs.
Good for the industry, and good for the employers. Challenging and good for Stuart Clark (the CEO of the Water Street consolidation of on-site services).
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| Jack Spratt? |
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In a well-known nursery rhyme, the marriage of Mr. and Mrs. Spratt was successful because they each brought separate and distinct eating habits to the table. This new marriage/merger has a great chance of success because the partners are each bringing a unique set of skills and tools to the contest. CHS has demonstrated organic growth, and it is developing (and has developed) some of its own technology. Take Care has the pharmacy and retail experience that few other firms can match. Water Street adds cash and linkages to many high tech and disease state management arenas. Can they be combines in a form that can become a system of some kind or will their offering be the traditional menu of multiple choices? Will there be integration or individual program offerings? Whichever the case, they will have an impact, and the questions will be how much and how soon.
Some questions become obvious. What will be the impact on present clients? Answer: Minimal
Will they centralize all operations? Answer: Yes
What will happen to some of the vendors under contract with each firm? Answer: Read Darwin's "The Origin of the Species"
If I am a local or regional firm, how can I compete? Answer: The ways are too numerous to list. Hint: If you are a traditional firm that is simply doing a staffing level program, get out of the way.
How long will it take for the systems and the operations of these firms to merge in a manner that will have true impact on health care for the client companies? Answer: That is THE question and the challenge. |
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For assistance with your on-site clinic questions and support, we list a variety of resources on that site, and we welcome your suggestions.
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In closing, the industry is facing new challenges and opportunities. (No, this consolidation is not one of the new challenges.)
With employers managing the health benefits and the innovation that we expect from this new round of industry transformation, the innovation that will be emerging will be significant. There was always the desire and the intent to take programs to the nest step, but now there's the reality of the PPACA (OK, Obamacare!) and new partnerships forming all over the country. This deal is simply the one with the most critical mass and national scope.
One opportunity is described by the old adage, "Money follows money." Now that Water Street has entered the picture as a venture capital partner, others who have been sitting and watching from the sidelines will make their move. This will also be a wake-up call (or should be) to the insurance companies and some of the health care systems that have been dabbling in on-site programming. The industry is moving to a point where it will have exposure to the capital markets (through what I would think would be a future IPO). When that happens, the challenge will be to keep the service levels high and to address, once and for all, the question of program return on investment. Once the market is engaged and involved, there is no place to hide.
Sincerely,
Mike La Penna
The La Penna Group, Inc.
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