Under the terms of separate, five-year contracts, about 34,000 workers in the state expect their wages to rise at least 12%, with lump sum payments added thereafter.
Two labor unions in California announced Monday that they have reached separate contract deals with major providers in the state.
Oakland-based Kaiser Permanente, which operates 21 medical centers and other facilities in central and northern California, agreed to a 12% across-the-board wage increase for the 19,000 registered nurses and nurse practitioners it employs, according to the California Nurses Association (CNA).
San Francisco-based Dignity Health, which operates throughout California, agreed to a 13% wage increase over five years for the 15,000 union members it employs as healthcare workers, according to SEIU-United Healthcare Workers (UHW) West.
The five-year deal with Kaiser Permanente is pending ratification by CNA members, while SEIU-UHW members already ratified their five-year deal with Dignity Health.
“Our new contract maintains employer-paid family healthcare and provides rising wages, and that security and peace of mind enables us to focus on caring for our patients,” Dennis Anderson, a laboratory assistant who works for Dignity at Mercy Hospital in Folsom, California, said in a statement.
The deal details: Kaiser Permanente
The tentative agreement with Kaiser Permanente will ultimately benefit patients, according to CNA Executive Director Bonnie Castillo.
"Protecting the economic security of our future RNs is essential to defending the health of everyone who will be a patient today and tomorrow," Castillo said in a statement. “This agreement gives us a strong foundation for health security for Kaiser nurses and patients for the next five years in a turbulent time of health care in our state and nation.”
Key provisions of the contract, according to CNA, include the following:
Additional staffing: Kaiser will add 150 RN full-time-equivalents to assist in its migration to a new computer system, with 106 of those positions to be posted within 90 days of the contract’s ratification.
One wage scale: Kaiser agreed to withdraw a proposed four-tier wage scale for RN/NP new hires—a proposal the union said would otherwise “promote workplace divisions between current nurses and new RN graduates.”
Wage increases: The agreement calls for 12% wage increases for all RNs and NPs, with a 3% lump sum over five years.
The agreement also calls for 600 formerly non-union RN patient care coordinators to be included in the contract with the other RNs and NPs employed by Kaiser Permanente.
Debora Catsavas, senior vice president of human resources for Kaiser Permanente Northern California confirmed Tuesday that the organization had reached a tentative five-year contract with the union.
"This agreement reflects our respect for Kaiser Permanente nurses and the excellent care they provide to our patients and members. It is aligned with our commitment to high quality care, affordability and being the best place to work in health care," Catsavas said in a statement released via email to HealthLeaders Media.
The deal details: Dignity Health
The ratified agreement between SEIU-UHW and Dignity Health—which lasts through April 30, 2023—includes the following key provisions, according to the union:
Benefits: Union members employed by Dignity will keep their fully paid, employer-provided family healthcare.
Wage increases: Workers secured 13% raises over five years, with a 1% bonus in the second year.
Funding for training: Dignity also agreed to contribute another $500,000 annually to a joint labor-management training program designed to keep workers on top of the latest changes in healthcare, the union said.
This deal comes as Dignity Health prepares to merge with Catholic Health Initiatives, based in Chicago, which would form one of the largest nonprofits in the country.
Darryl Robinson, executive vice president and chief human resources officer for Dignity Health, said Tuesday that the system is pleased with the SEIU-UHW contract.
"In addition to annual wage increases ranging from two- to three- percent over five years, there will not be any changes to cost sharing of dependent health care coverage for these employees," Robinson said in a statement released via email to HealthLeaders Media.
"This agreement honors our commitment to our employees," he added, "while acknowledging the significant challenges Dignity Health and employers everywhere in the U.S. face with the increasing cost of health care."
This story has been updated to include comments from Kaiser Permanente and Dignity Health.
The median employee pay was less than $55,400 last year, counting exclusions permitted by the SEC’s rule.
The top executive for Nashville-based HCA Healthcare Inc. earned 312-times as much in 2017 as did the for-profit healthcare facility operator’s median employee.
Chairman and CEO R. Milton Johnson’s total annual compensation was nearly $17.3 million last year, while the median total annual compensation of all HCA employees was less than $55,400, according to documents the company filed Friday with the Securities and Exchange Commission (SEC).
Companies are beginning this year to make the pay ratio disclosures as required by the Dodd-Frank Act’s financial reforms, after the SEC adopted a rule in 2015 to implement the requirement.
Rather than wringing their hands over the prospect of unflattering news stories stemming from their pay ratio disclosures, most employers are concerned with how their own employees will take the information, David Wise, a senior client partner at Korn Ferry, told The Washington Post.
“I think they’re worried about how their own people will react,” Wise said. “How do you communicate to an employee who now knows they’re paid in the bottom halfof the company?”
In calculating its pay ratio, HCA excluded 6,783 of its employees in the United Kingdom and 4,981 of its employees added as a result of 2017 acquisitions—which excluded about 4.7% of the company’s workforce.
“The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices,” the company noted in its filing.
“As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.”
In assembling HCA’s executive compensation package last year, the company reviewed data from a number of other companies, including several providers, such as Community Health Systems, LifePoint Hospitals, Tenet Healthcare Corp., and Universal Health Services.
His predecessor, who’s retiring after more than three decades with Inova, has a long list of awards, including Washington Business Journal’s CEO of the Year.
J. Stephen Jones, MD, MBA, FACS, who currently serves as president of Cleveland Clinic Regional Hospitals and Health Centers, is set to leave his job for another post next month—one where he’ll find big shoes to fill.
Jones was selected as the next CEO of the five-hospital nonprofitInova Health System, based in Falls Church, Virginia, the organization announced this week. Jones will also serve on the Board of Trustees.
“He is a dynamic leader, a practicing physician and a strategistwho is deeply committed to patients and the community,” Inova Board of Trustees Chair Tony Nader said of Jones in a statement. “He has shown vision that leads to results.”
Jones carries an impressive list of accomplishments, as does his predecessor, current Inova CEO Knox Singleton, who announced last fall that he will retire July 1 after 35 years with the organization. Jones will step into the position effective April 9.
Singleton has won a number of recognitions for his leadership. He was named Washington Business Journal’s CEO of the Year in 2015. He received the Virginia governor’s award in 2004 and the American College of Healthcare Executives (ACHE) Regent’s Award in 2000, according to Inova.
Singleton was named Fairfax County Citizen of the Year in 1990 by The Washington Post and the county’s Federation of Citizens Associations for his contributions to a variety for causes, including the fights against AIDS and Alzheimer’s disease.
In a statement, Jones credited Singleton furthermore as having “transformed Inova from a collection of small, stand-alone hospitals into a nationally recognized healthcare system that is leading in the integration of genomics into personalized medicine.”
“I want to carry that work forward and build an academic hub for discovery, prevention and longevity,” Jones added.
Citing his successor’s track record in clinical leadership, operations, research, and education, Singleton said Jones is well-suited for the job.
“By every measure, Stephen is a great choice for Inova,” Singleton said.
The agency offered insights to lawmakers on what we do and don’t know about emerging technologies that may improve beneficiaries’ access to healthcare.
In a report to Congress released Thursday, the Medicaid and CHIP Payment and Access Commission (MACPAC) made the case that telehealth has the potential to dramatically improve healthcare access but that many questions about the technologies remain unanswered.
As a nonpartisan legislative branch agency, MACPAC regularly offers its analysis and recommendations to lawmakers and policymakers. In its latest report—one of the two MACPAC is required by statute to deliver to Congress each year—the agency included a thorough discussion of telehealth and its potential applications for Medicaid beneficiaries.
“Although advances in technology offer great hopes for our ability to improve access to services in rural areas as well as to highly specialized services where the supply of providers is limited, evidence on the effectiveness and outcomes of telehealth is mixed,” MACPAC chair Penny Thompson, MPA, wrote in an opening letter.
Almost every state and the District of Columbia offered some telehealth coverage in fee-for-service Medicaid last year, but the ways telehealth is currently used vary from state to state, according to MACPAC’s report.
Regardless, the agency identified five common themes that appear to apply nationwide:
1. Change is in the air.
The ways states cover telehealth in their Medicaid programs are shifting, MACPAC noted in its report.
“Over time, states have expanded coverage for telehealth and further expansions of coverage to new modalities, services, or specialties are likely,” the report states.
“In addition, ongoing advances in technology could lead to new opportunities for telehealth. As states consider how to improve access to care, they may consider a greater role for telehealth particularly in areas such as behavioral health or chronic disease management where the evidence of its effectiveness is relatively strong.”
2. More info about stakeholder experience is needed.
Policymakers and providers still have a lot to learn about the impact telehealth has on their own experiences and those of the Medicaid beneficiaries they serve, MACPAC said.
“For example, there is little information about outcomes and effectiveness, cost, or program integrity issues related to Medicaid coverage of telehealth-provided services,” the report states.
“Existing research and data on the use of some telehealth modalities for different health or clinical conditions or populations has not focused on Medicaid populations or programs. Moreover, findings have been inconclusive concerning telehealth’s effectiveness.”
3. It’s a bit like the Wild West.
The federal government has set few barriers to impede the use of telehealth in Medicaid programs; that being said, there are other obstacles that policymakers and payers should consider, MACPAC said.
“For example, access to technology and the broadband services required for telehealth can pose a challenge to some of the communities for which telehealth might be most beneficial,” the report states. "Examples of other commonly cited barriers to telehealth include licensure and ensuring privacy and security of personal information.”
4. Telehealth can’t solve everything.
Even if telehealth technologies solve some of Medicaid’s access-to-care problems, they won’t solve them all, MACPAC said.
“For example, telehealth can address geographic access barriers and make it easier or more convenient for beneficiaries to see a provider who already cares for Medicaid enrollees,” the report states, “but it will not guarantee a change in overall provider willingness to participate in Medicaid or issues such as the lack of convenient office hours and available appointment times.”
5. We need more research.
If a state wants to introduce or expand telehealth coverage in its Medicaid program, then it would likely find value in new research and reviewing the experiences of its peers in other states, MACPAC said.
“Shared state insights can also help other states, providers, health plans, and the research community gain a more robust understanding of the effects of telehealth on access to care, quality, and cost of care for the Medicaid population.”
The full report—which includes a discussion of disproportionate share hospital (DSH) allotments and recommendations to streamline the process by which state programs are authorized—is available on the MACPAC website.
The hospital operator hired financial advisers this week and saw stock prices slump as investors assess the impact of its $2 billion loss in 2017’s fourth quarter.
S&P Global Ratings lowered its corporate credit rating Wednesday for Community Health Systems (CHS), citing concerns over the Franklin, Tennessee–based company’s liquidity.
The hospital operator last month reported a $2 billion loss for the fourth quarter of 2017, or nearly $18 per share. Although the company’s revenue results were within expectations, its cash flow was “much weaker” than S&P had anticipated.
“The downgrade reflects weaker-than-expected free cash flow guidance for 2018 and the company's high debt burden, which we believe could make it difficult for the company to refinance its upcoming 2019 debt maturities,” S&P said in a statement.
“The cash flow shortfall relative to our expectations was partly due to higher-than-expected labor costs and recent underperformance of hospitals being divested.”
S&P made several changes to its CHS ratings:
Corporate credit rating downgraded from “B-” to “CCC+” with a negative outlook;
Secured debt downgraded from “B+” to “B-” with recovery rating revised from “1” to “2” (as a result of significant downsizing); and
Unsecured debt downgraded from “CCC” to “CCC-” with recovery rating remaining at “6” (indicating that lenders should expect to recover next-to-nothing if CHS defaults)
Share prices for CHS—which had already fallen dramatically from their peak above $52 in 2015—drooped even further this week. They closed Wednesday at $4.43 per share, after slipping more than 28% from their close at $6.18 on February 27, when CHS announced its fourth-quarter earnings.
But share prices were up more than 5% in mid-morning trading Thursday.
For the foreseeable future, CHS will experience elevated financial risk due to a number of converging factors, according to the ratings firm.
“Our negative outlook reflects the company's high leverage, history of operating underperformance, uncertainty surrounding the company's ability to succeed in its turnaround plan, and elevated refinancing risk in advance of sizable 2019 debt maturities because we believe cash flow will remain under pressure over the next year,” S&P said.
Company explores refinancing
In documents furnished Thursday to the Securities and Exchange Commission, CHS said it told lenders it had hired four firms—Citigroup Global Markets, Credit Suisse Securities, JPMorgan Chase Bank, and Lazard Freres & Co.—as financial advisors to assist the company “in exploring refinancing options for its capital structure.”
The documents included a slide presentation that outlined four steps of the company’s refinancing strategy, the first of which was completed on February 26.
The strategy calls for a number of amendments to CHS credit arrangements, including a new $1 billion five-year asset-based lending revolving credit facility.
The annual list released this week includes health IT and opioids among other timely topics.
The nonprofit ECRI Institute released its annual list of Top 10 patient safety concerns for healthcare organizations.
Although the 2018 list includes a number of particularly timely topics, including opioid safety and the incorporation of health IT, the top slot went to a timeless topic: diagnostic errors.
Gail M. Horvath, MSN, RN, CNOR, CRCST, said miscommunication is a common problem, but it's often not the only factor contributing to diagnostic errors.
“It’s a multifactorial problem,” Horvath, an ECRI patient safety analyst and consultant said in the report. “Diagnostic errors are the result of cognitive, systemic, or a combination of cognitive and systemic factors.”
The new leader vows to carry on the organization's 'focus on solutions' that promote quality and affordability.
The national health insurance trade association America’s Health Insurance Plans (AHIP) promoted from within this week, naming COO Matt Eyles its next president and CEO.
Eyles, who was promoted to COO last year, will take over for current AHIP President and CEO Marilyn Tavenner, whose retirement is effective June 1.
“We will continue to focus on solutions that deliver more affordable choices and higher quality for every American," Eyles said in a statement. "It’s also an honor to have worked with and learned from Marilyn. For more than 40 years, she has driven important changes that have directly improved the lives of patients, consumers, and hardworking taxpayers.”
Tavenner called Eyles—who has worked for the Congressional Budget Office, Eli Lilly & Co., Coventry Health Care (which is now Aetna), and elsewhere—"one of the most experienced leaders in Washington."
The AHIP Board of Directors voted unanimously Tuesday in favor of Eyles' appointment, which resulted from both "a thorough search and thoughtful succession planning process," the organization said.
The Office of the National Coordinator for Health Information Technology announced two winners Tuesday for a prize competition designed to improve electronic health record technology.
The healthcare industry is awash in data these days, but it can sometimes be difficult to know exactly what the data mean.
Providers need to have confidence in both the integrity and authenticity of the health data they use. That means knowing who created the original, when and where it was created, what changes have been made over time, and why the changes were made—which is precisely the idea behind a prize competition titled "Oh, the Places Data Goes: Health Data Provenance Challenge."
The Health and Human Services (HHS) Office of the National Coordinator for Health Information Technology (ONC) announced two winners Tuesday for the second phase of the challenge: 1upHealth and RAIN Live Oak Technology.
The1upHealth team—which includes co-founder and CEO Ricky Sahu and co-founder Gajen Sunthara, director of innovation research and development at Boston Children's Hospital—used Health Level Seven’s (HL7®) Fast Healthcare Interoperability Resources (FHIR®) standard and other improvements based on blockchain technology to help providers pull aggregated data from a variety of sources and to push provenance information to the surface, according to the HHS ONC announcement.
Fellow winner RAIN Live Oak built a software toolkit that works with existing processes and requirements to bring provenence information into health information systems' data-flow, the announcement said.
The two second-phase winners were selected from among the prototypes built by four first-phase winners, who were selected based on their white paper proposals. The four finalists win up to $180,000 combined.
Don Rucker, MD, national coordinator for HHS ONC, said these projects are designed to meet a technological need that supports the government's goals.
“Ensuring provenance of data is an important step in achieving interoperability of health information,” Rucker said in the statement. “We look forward to seeing these winning submissions being implemented in electronic products that will allow for the secure, trustworthy, and reliable exchange of health information.”
Last week, HHS Secretary Alex Azar touted interoperability and accessibility of patient health data as among the Trump administration's four key healthcare goals, and Centers for Medicare and Medicaid Services Administrator Seema Verma followed suit, unveiling two initiatives to improve patient access and control over their personal electronic medical records.
As one healthcare organization faces a DOJ lawsuit for allegedly violating religious rights with its mandatory flu vaccine policy, another explains how it has aimed to keep its toes on the right side of the law.
Now that the worst of the current flu season appears to have passed, it’s time for healthcare organizations to take a step back and assess whether their current vaccination policies are appropriate and effective.
Although the Centers for Disease Control and Prevention (CDC) recommend that all healthcare workers receive an annual flu vaccine, individual hospitals and health systems have some latitude to devise and implement policies based on their own strategies within the bounds established by state laws.
Rajesh Prabhu, MD, an infectious disease specialist and chief patient quality and safety officer for Essentia Health, based in Duluth, Minnesota, says his organization made the decision to switch last fall from a voluntary to a mandatory flu vaccine policy after studying the experiences of other institutions across the nation.
“In previous years, we had ‘mandatory participation,’ meaning that everyone had to declare a ‘yes’ or ‘no’ were they going to get the influenza vaccine,” Prabhu tells HealthLeaders Media.
Under the old policy, almost all Essentia employees participated as directed, with about 82% answering “yes” and getting the flu vaccine. Under the new policy, Essentia boosted its flu vaccination rate to about 98% for the current season, including staff involved in direct patient care, vendors, and volunteers, Prahbu says.
Regardless, Prabhu says the policy change was necessary, carefully planned, and appropriately implemented.
Where’s the line?
If you’re going to implement a mandatory flu vaccine policy, you must be careful. Pushing too far or failing to include proper safeguards could violate worker rights.
That’s what the U.S. Department of Justice accused Lasata Care Center this week of doing. The county-owned skilled nursing facility in Port Washington, Wisconsin, required a certified nursing assistant to receive a flu vaccine or be fired.
The worker, Barnell Williams, sought an exemption from the mandate in 2016 on account of her belief that vaccines violate the Bible’s teachings on the sacredness of the human body, according to the DOJ.
Williams pleaded her case directly to the facility’s highest-ranking official, but her request was denied allegedly because she could not produce a letter from a religious leader attesting to her belief. Ultimately, she acquiesced.
“Williams suffered severe emotional distress from receiving the flu shot in violation of her religious beliefs, including withdrawing from work and her personal life, suffering from sleep problems, anxiety, and fear of ‘going to Hell’ because she had disobeyed the Bible by receiving the shot,” the DOJ alleged in a lawsuit filed this week against the facility on Williams’ behalf.
The suit accused the facility of engaging in unlawful religious discrimination and failing to reasonably accommodate Williams’ religious belief—allegations which county leadership denied.
Requiring employees to submit a letter from their clergy could prove problematic because some workers, like Williams, hold religious beliefs without being part of an organized religious group, as the Equal Employment Opportunity Commission (EEOC) Compliance Manual explains.
“Religion includes not only traditional, organized religions such as Christianity, Judaism, Islam, Hinduism, and Buddhism, but also religious beliefs that are new, uncommon, not part of a formal church or sect, only subscribed to by a small number of people, or that seem illogical or unreasonable to others,” the manual states.
The DOJ suit notes that the Lasata Care Center changed its policy after Williams filed a complaint with the EEOC in 2016 and that it no longer requires a clergy letter.
How to employ safeguards
Prabhu—who was unaware of the Lasata Care Center case this week—says Essentia did not require employees seeking a religious exemption to submit a letter from a religious leader. Instead, it asked them to explain how the vaccine would contradict their deeply held views.
One committee reviewed requests for religious exemptions in light of the EEOC’s guidance, while another committee reviewed medical exemption requests, Prabhu says.
“The medical exemption is pretty standard. If you’re allergic to the vaccine or any of their components or you have some documented really severe reaction to the flu vaccine in past years, you were granted a medical exemption.”
Each committee’s work was part of a blinded process, so committee members could not tell who made the request or the department in which the requester worked, Prabhu says. More than 70% of medical exemption requests and about half of religious exemption requests were granted.
“And we did have an appeals process for both medical and religious exemptions, that were also blinded,” he adds.
Although some organizations may require workers who were granted flu vaccine exemptions to wear masks during the flu season, Essentia decided against implementing such a policy.
“The reason we didn’t feel that was, I guess, justified is that … the flu vaccine isn’t 100% effective,” Prabhu says.
Interim estimates published last month suggest the flu vaccine was only about 36% effective against influenza A and influenza B for the 2017-2018 season, according to the CDC.
It’s always possible, of course, for a vaccinated healthcare worker to catch a strain of the flu that wasn’t covered by the annual vaccine (or for a worker to exit flu season unscathed despite having skipped the vaccine). So the estimated effectiveness in a given year should be seen as measuring the reduction in risk, among those vaccinated, of having a flu case severe enough to warrant medical care, Prabhu says.
With that in mind, Essentia instructed workers to wear masks or stay home if they experience a respiratory illness of any sort, and to always practice proper hand hygiene, regardless of their vaccination status, Prabhu says.
Before changing policies
If you’re looking for ways to boost vaccination rates among healthcare workers in your organization, it’s worth considering options that entail positive reinforcement, rather than punitive measures for noncompliance.
Kimberly J. O'Donnell, JD, a senior associate with Bingham Greenbaum Doll LLP’s labor and employment practice group in Lexington, Kentucky, wrote that healthcare institutions have used a wide range of non-mandatory tools, such as providing free and convenient access to vaccination, issuing small incentives, or actively promoting the merits of vaccination through education, regular reminders, and other tactics.
“Positive incentives would eliminate potential infringements of health care workers’ rights and would likely remain cost-effective for participating health care institutions,” O’Donnell wrote.
“Whatever the employer’s preference, both mandatory and voluntary vaccination programs should be considered with legal counsel, and measures can be taken to significantly reduce the risk of litigation.”
Furthermore, the legal factors affecting your decision could vary drastically depending on the state in which you operate. Although their specifications differ, 18 states have flu vaccination requirements for hospital healthcare workers, according to a report prepared by the CDC Office for State, Tribal, Local and Territorial Support.
Even if you settle on making the flu vaccine mandatory, you should still devote a considerable amount of time and energy to educating stakeholders on the importance of immunization, Prabhu says, citing his personal experience with Essentia’s policy change.
“It was more than just saying, ‘This is the new rule, and you have to follow it,’” he says. “I think we got a lot of buy-in from our staff, physicians, the public.”
The insurer’s $52 billion purchase of the pharmacy benefits manager is the latest in a series of deals that promise upheaval as stakeholders grapple with rising costs.
Stock prices for Express Scripts Holding Company, the pharmacy benefits manager (PBM) based in St. Louis, rose more than 15% when markets opened Thursday, after the company signed a deal with health insurance giant Cigna Corp., based in Bloomfield, Connecticut.
Cigna plans to buy Express Scripts for about $52 billion and take on $15 billion in the PBM’s debt. The deal is designed to give Cigna a competitive advantage—or at least a fighting chance—amid a series of big moves in the PBM market by heavy-hitters looking to rein in rising costs as the healthcare industry’s landscape keeps shifting.
Express Scripts, the biggest prescription drug benefits administrator in the country, is valued not only for its PBM capabilities but also for the number of consumers it serves and the wide range of ways it serves them, Cigna CEO David Cordani told The Wall Street Journal in an interview Thursday.
“Having the capabilities to serve an individual whether they are healthy, healthy at risk, chronic or acute is important.”
This deal comes after a similar vertical merger in which drugstore chain CVS Health Corp. agreed to buy insurer Aetna Inc. for $69 billion late last year, part of a widespread trend.
Some have reservations
“We should be skeptical of the wisdom of vertical integration,” said Craig Garthwaite, associate professor of strategy and director of the Health Enterprise Management Program at Northwestern University’s Kellogg School of Management, in a tweet Thursday.
Garthwaite and Fiona Scott Morton, a professor of economics at the Yale School of Management, wrote an article on the topic last fall, arguing that recent consolidation among PBMs and a lack of transparency drive prices higher.
“The answer to high prices isn’t broad price regulation, but restoring the intended level of competition to a market characterized by a dangerous combination of PBM consolidation and opaque pricing,” Garthwaite and Morton wrote.
“When only a few PBMs exist, it is all too easy for them to stop functioning as brokers that increase market efficiency, and start looking for win-win arrangements in which consumers are the ultimate losers,” they added.
Similarly, FDA Commissioner Scott Gottlieb argued during a speech Wednesday that the current structure of rebates and contracts, in the context of an uptick in consolidation, “has produced some misaligned incentives” for PBMs.
Cigna outlines strategy, rationale
During a call with investors Thursday morning, however, Cordani pushed back against the idea that Cigna’s Express Scripts acquisition would create value for shareholders at the expense of consumers.
Most of the cost-cutting efficiency improvements the two companies expect to find are “administrative synergies,” he said.
“Our working assumption and bias is that the medical- and pharmacy-related additional value creation here largely flow back to our customers and clients and, thus, further improving affordability,” Cordani said during the call.
“So we like the balance of value creation for customers, clients, high-performing healthcare professionals, and then, as a result, for our shareholders.”
The St. Louis Post-Dispatch reported that the companies anticipate those administrative efficiencies will save $600 million.
Express Scripts, which will continue to be headquartered in the St. Louis market after the merger, employed nearly 4,700 people in the area—and 26,600 globally—as of February, the Post-Dispatch reported, citing the company’s most recent annual filing.
Ana Gupte, an analyst with Leerink Partners, said Cigna’s Express Scripts deal could come as a surprise, since the insurer has said in the past that it’s satisfied with its PBM ties to United Health’s Optum.
"It is possible that the threat of an Amazon entry into the healthcare and possibly the drug supply chain landscape, with the latest news of the Amazon/Berkshire Hathaway/JPMorgan employer coalition has spurred Cigna and Express Scripts to tie the knot," Gupte told the Post-Dispatch.
Amid market upheaval
The deal also comes as Express Scripts prepares for the loss of its biggest client, insurer Anthem Inc., which moved to establish its own PBM unit after accusing Express Scripts of overcharging, as Bloomberg’s Peter Vercoe reported. Anthem had sought to take over Cigna, but it was blocked last year to preserve competition.
Express Scripts then agreed to buy benefits manager eviCore health care last year for $3.6 billion, which was widely regarded as an effort to compensate for the lost business from Anthem, as the Journal reported.
“Cigna has been trying to do a deal since their combination with Anthem was blocked last year," Brad Haller, a director who focuses on healthcare in West Monroe’s M&A practice in Chicago, said in a statement. This acquisition of Express Scripts is merely the latest manifestation of market players trying to build scale against one another under cost pressures from the Affordable Care Act.
"Ironically, in this deregulated environment, we are getting closer to a single payer system through M&A vs. through legislative action from the government," Haller added.
In a statement, Express Scripts President and CEO Tim Wentworth said combining his organization with Cigna will not only benefit consumers but reimagine the healthcare industry.
“Adding our company's leadership in pharmacy and medical benefit management, technology-powered clinical solutions, and specialized patient care model to Cigna’s track record of delivering value through innovation, we are positioned to transform healthcare,” Wentworth said. “We will continue to have a distinct focus at Express Scripts and eviCore on partnering with health plans, and together, build tailored solutions for health plans and their members.
“Importantly, this agreement is a testament to the work of our team and their resolute focus on providing the best care to patients, and the most value to clients.”
The deal, which has been approved by the boards of both Cigna and Express Scripts, is expected to close by the end of the year, pending approval from shareholders and regulators.
Editor's note: A previous version of this story misstated the value of Cigna's Express Scripts purchase. It's about $52 billion, excluding $15 billion in debt.