Hello, and welcome to this week’s edition of the Gist Weekly. We appreciate your continued readership and invite you to forward this email to friends and colleagues—please encourage them to subscribe as well! A quick programming note, we’ll be taking next week off to attend Kaufman Hall’s Healthcare Leadership Conference in Chicago, before resuming our regularly scheduled programming.
In the News
What happened in healthcare recently—and what we think about it.
- FTC finalizes increased premerger notification requirements. Last week, the Federal Trade Commission (FTC) issued a final rule updating the Hart-Scott-Rodino Act premerger notification form for the first time in nearly 50 years. The changes, which were scaled back from the proposed rule in June 2023, include requiring a variety of additional transaction documents from the merging parties, such as a description of all business lines, with an eye for how they may compete, and a disclosure of investors in the buying party. The FTC is also creating a new online portal where stakeholders can comment on proposed transactions potentially subject to review by the Commission. This final rule on premerger documentation pairs with a Dec. 2023 final rule issued by the FTC and Department of Justice governing the factors and frameworks the agencies use to review mergers and acquisitions.
- The Gist: The FTC under Chair Lina Khan has earned its reputation as one of the strictest enforcers of antitrust policy in recent history, with this final rule exemplifying its regulatory approach. Even for mergers that could ultimately be approved, the increased paperwork burden—now an estimated 105 hours per filing, up from 37 hours previously—serves as an effective “tax on mergers.” This echoes the FTC’s strategy of drawing out merger reviews and appealing legal decisions until the parties abandon the proposed transaction, such as its challenge of Novant’s planned acquisition of two Community Health System hospitals. Khan’s continued role as FTC Chair remains in question regardless of who wins the upcoming presidential election, as some of Vice President Harris’s key donors have urged Khan’s ousting, while former President Trump would presumably replace most of the executive branch’s appointed officials.
- Walgreens plans to close about 1,200 retail stores. In its 4th quarter financial results released on Tuesday, Walgreens Boots Alliance announced the planned closure of about 1,200 stores over the next three years, including 500 in FY2025. After writing down the value of VillageMD by $12.4B, Walgreens posted an operating loss of $14.1B in FY2024, up over 100% from FY2023. Although company sales rose 6.2% year-over-year, US retail sales fell 6% in the same period. CEO Tim Wentworth said that about one quarter of its 8,700 US-based stores were underperforming, and the company will target closures of owned-but-underperforming locations and those on expiring leases. Wentworth added that “fiscal 2025 will be an important rebasing year” as the company readjusts its long-term strategy.
- The Gist: After nearly a decade of ambitious expansion—purchasing over 2K stores from Rite Aid in 2017 and acquiring a controlling stake of VillageMD in 2021—Walgreens seems to have gotten out over its skis, leading to this retail footprint reduction of almost 15%. Walgreens is also not the only pharmacy retailer to be struggling with its vertical integration strategy, as CVS just announced cutbacks to its infusion services amid broader discussions around the company’s future. The theory of vertical integration in healthcare still holds, but Walgreens and CVS provide two prominent examples of how difficult it can be to put into practice.
- Blue Cross Blue Shield settles provider class action suit for $2.8B. On Monday, the Blue Cross Blue Shield Association (BCBSA) reached a class action settlement with a group of plaintiff providers on behalf of 33 of its member companies. The $2.8B settlement is purportedly the largest healthcare antitrust payout on record. This agreement closes a legal battle originating with a 2012 lawsuit alleging that independent Blues plans engaged in anticompetitive behavior by refusing to sell plans in each other’s service areas. Pending court approval, the plaintiff providers, along with an estimated 6M claimants, are set to receive about $2B of monetary relief for damages incurred from July 2008 to October 2024, as well as injunctive relief requiring changes to BCBSA’s business practices. In addition to ending exclusivity agreements between Blues plans’ service areas, which will allow affected providers to negotiate new contracts, BCBSA must also redesign its BlueCard program, which administered claims for Blues plans outside a provider’s contract but was plagued with inefficiencies. BCBSA admitted no wrongdoing with this settlement.
- The Gist: Providers can celebrate this as a satisfying victory amid their ongoing battles with payers over fair contracting practices. The alleged wrongdoings which BCBSA settled were tied to its unique structure as a conglomerate of affiliated plans, and therefore not directly applicable to most other payers. However, frustrations around the BlueCard program resemble common provider complaints of excessive utilization management and other administrative hassles. According to the American Medical Association, one insurer controls at least 50% of the market in almost half of all metropolitan statistical areas (MSAs), and a BCBS insurer holds the largest market share in 82% of MSAs.
Plus—what we’ve been reading.
- A difficult path to profitability for retail health clinics. Published last week in the Harvard Business Review, this piece explores the shortcomings of large retailers’ primary care strategies. After touting primary care clinics as a method for continued growth, CVS Health, Walmart and Walgreens have all announced pullbacks or exits from primary care delivery in recent months. However, the article shows that many of their health clinics are “primary care islands” and are not tailored to these retailers’ competitive advantages. The author argues that retail clinics have a role to play in the market, but without a strategic refresh, they’re unlikely to reach profitability.
- The Gist: Retailers have now officially learned what many traditional players have known all along—delivering profitable primary care is very challenging. Retailers’ lack of crucial investments in their healthcare delivery assets have made it nearly impossible for them to deliver on their stated goal of delivering convenient, quality care. Many health systems have long feared the potential disruption posed by these retail giants. However, if these retailers want to find success in primary care, partnering with traditional providers could be a beneficial opportunity for all parties. As an easily accessible, convenient “front door” remains a top desire for consumers, health systems could potentially work with retail disruptors to extend each other’s networks of care.
Graphic of the Week
A key insight illustrated in infographic form.
Disruption in the ESI market
This week’s graphic dives into how individual coverage health reimbursement arrangements (ICHRAs), a relatively new coverage option, are being received in the market. Launched in 2020, ICHRAs allow employers to offer tax-exempt funds to their employees, rather than sponsoring their insurance plans more directly. Employees can use this benefit to pay for their own marketplace coverage or out-of-pocket healthcare costs. Although still only a small segment of the market, ICHRA adoption grew 29% from 2023 to 2024. Amid ever-increasing employer-sponsored insurance (ESI) costs, small and large employers alike may see ICHRAs as a more sustainable solution, granting employees more say in their care at potentially lower costs. Employers who have adopted this model so far appear to be happy about their decision, with many reporting high rates of satisfaction from their employees as well as reductions in annual premium expenses. On top of bringing more young people into the exchanges, many ICHRA beneficiaries select high-quality plans. In 2023, one-third of ICHRA beneficiaries selected gold marketplace plans compared to just under 11% of all marketplace enrollees. While further ICHRA growth could threaten providers’ payer mix, given that ESI reimbursement rates are often higher than marketplace rates, they also present a unique opportunity. ICHRAs’ increasing popularity shows that employers want an alternative to traditional ESI models and presents a strong case for health systems to bolster their direct-to-employer model investments.
This Week at Kaufman Hall
What our experts are saying about key issues in healthcare.
Despite the current struggles of retailers in the healthcare space, traditional provider organizations should not assume that healthcare is too difficult to disrupt, or that retail disruptors will continue to fail in the future.
That’s the message in a recent Kaufman Hall “Strategy Spotlight” blog, authored by Scott Christensen. Although it may seem that the competition for consumers has lessened with recent closure announcements from the likes of Walmart and Walgreens, Christensen argues that it’s important for traditional healthcare providers to stay the course on their consumer-centric strategies. They can’t ignore the consumer demands that disruptors are trying to meet: easier, more convenient access, at more transparent, if not also lower, prices. This should be a goal shared by all in healthcare delivery.
On Our Podcast
The Gist Healthcare Podcast—all the headlines in healthcare policy, business, and more, in ten minutes or less every other weekday morning.
Last Monday, JC discussed with Dan Diamond, national health reporter for The Washington Post, the role healthcare policy has played in the 2024 election.
This Monday, JC speaks with Joyjit Saha Choudhury, Managing Director in the Strategy and Business Transformation Practice at Kaufman Hall, about what he sees as Medicare Advantage’s make or break moment. In the first part of their conversation, they talk about recent shakeups within the industry and a possible best-case scenario for the popular program.
To stay up to date, be sure to tune in every Monday, Wednesday, and Friday morning. Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.
Thanks for reading! As noted at the top, we’ll be taking off next Friday Oct. 25 for our Healthcare Leadership Conference, so you’ll have to wait until Friday Nov. 1 for our next edition. In the meantime, check out our Gist Weekly archive if you’d like to peruse past editions. We also have all of our recent “Graphics of the Week” available here.
Best regards,
The Gist Weekly team at Kaufman Hall
