Too Big to Fail

That headline is immediately identifiable by many as it has become synonymous with the financial crisis of 2008. The phrase was then made in reference to the banks some thought had grown too large to be allowed to follow Lehman Brothers’ lead and go under. A number of experts believed the cascading collapse of too many large financial institutions would send the U.S.—and more likely, the entire world—into a second Great Depression.

So, what does this have to do with us and medtech besides the concerns we had regarding our retirement plans that suffered greatly during that time? Well, if you read Chris Oleksy’s Supply Chain column in the September issue (Supply Chain 2020: What Can We Learn from a Wise Banker) or heard his session at this year’s MPO Summit in San Diego, you already know where I’m headed. Consolidation within healthcare could create a similar situation to what we saw in the financial industry in 2008. Really, Chris does a much better job of making this comparison than I could ever hope to do, so if you haven’t yet read his column, you can check the September issue or just read it on the MPO site (http://bit.ly/mpo171250).

The real reason I’ve brought this topic up so soon after his column appeared is news from The Wall Street Journal in late October that CVS is making a bid for insurance provider Aetna for a staggering $66 billion. The report had many media organizations asking numerous questions such as “Is CVS a buy or sell [stock] if it acquires Aetna?” “Could the merger mean higher rates through Aetna?” and “Would this merger mean lower drug prices through CVS?”

With his care chain philosophy at the top of mind, the question Chris might ask would be “Is this good for patients?” And that’s the question that must be asked as more companies align through acquisition, merger, and partnership. In the end, is the patient winning as a result or is the gain purely a financial windfall for shareholders and investors?

Let’s look at another instance of an unusual combination of players within the healthcare sector. Back in early April 2015, Medtronic announced it had acquired a diabetes care provider. It wasn’t the purchase of a startup for a breakthrough technology that would advance a current therapy product portfolio the company was focused on. Rather, the buy was for Diabeter, a Netherlands-based diabetes clinic and research center that focused on providing care for children and young adults with diabetes.

It was through this announcement I discovered this focus within Medtronic wasn’t as unique as I had first thought. Through the news release announcing the purchase, I came to understand the medtech giant was already involved in a care provider relationship within the cardiovascular space. According to that release, “Medtronic has been partnering on similar integrated care and hospital efficiency models in other parts of the world—specifically in heart failure and cardiology. Medtronic’s Cardiocom business manages patients with heart failure and diabetes, among other chronic conditions, in the United States, in a model similar to the one being envisioned with Diabeter. Medtronic is also partnering with a number of hospital systems in Europe whereby Medtronic manages the operational aspects of the hospitals’ cardiology catheterization labs.”

That last sentence regarding Medtronic managing the operational aspects of the hospitals’ catheterization labs leads me to thoughts of J&J’s CareAdvantage program. The company introduced this service offering in 2016 and was highlighted in MPO’s Top Company report on the firm (http://bit.ly/mpo17jnj). According to the report, “…the initiative gives healthcare institutions the opportunity to work with J&J as both a supplier and value-based care provider on ways to improve care in surgical, cardiovascular, and orthopedic applications. The CareAdvantage program is designed to mobilize the service capabilities of J&J’s businesses under a coordinated, branded framework and make it easier for hospital systems to engage with the company as a strategic partner.”

While not putting J&J at the helm of a care provider or hospital like the Medtronic-Diabeter arrangement, it does make the firm intimately intertwined with the supply chain of such a facility. So much so, in fact, that in a few years, it wouldn’t be unreasonable to think the healthcare facility couldn’t properly function without the J&J service. It’s really just an outsourcing arrangement to address certain aspects of the hospital’s needs, and would eventually involve layoffs of personnel previously in charge of such tasks.

Are these arrangements what’s ultimately best for patients? If something happens to J&J or its CareAdvantage program, will the hospital face dire straits? As Chris foretold, could healthcare consolidation result in a crisis similar to the financial industry as one possible outcome? Only time will tell, but hopefully, if more consider the care chain and the patients, we’ll be sure to maintain focus on the most critical priorities and avoid anything catastrophic.