The recent megadeals involving popular consumer brands and health care giants haven’t touched skilled nursing yet, but the moves are sending ripple effects through the industry as a whole — and SNF providers would be wise to listen up.
When CVS acquired insurance giant Aetna and Amazon teamed up to form a health care company with JPMorgan Chase and Warren Buffett’s Berkshire Hathway, the signal to the health care space was loud and clear: the future of delivery is closer to America’s dynamic retail reality, and farther away from its institutional past.
“The experience of being a consumer at Walmart or CVS is better than the experience of being a consumer at a hospital,” Adam Blumenthal, managing partner at Blue Wolf Capital Partners, said at the Post Acute 360 conference in National Harbor, Md. last week. “They don’t put you in a waiting room at Walmart. If they did, people would walk out.”
Blumenthal, speaking on a panel of executives from a variety of investment firms, said that industry-watchers tend to pay attention to the ways that major companies can shake up the health care industry with their sheer volume — for instance, Amazon capitalizing on its already robust network of fulfillment centers and embedded delivery infrastructure to provide an advantage over pharmacy and medical supply distributors.
That’s a part of the equation, but Blumenthal identified the convenient human touch as another major threat that the entrance of CVS and Amazon pose to traditional health providers.
“When people who know how to cause people to want to do business with them — rather than do business with them because they’ve been assigned by a panel or assigned by a care coordinator — that’s pretty disruptive for 20% of the U.S. economy,” he said.
The panelists — moderated by David Ellis, president and founder of conference host Lincoln Healthcare Leadership — generally warned against drawing any immediate conclusions from the shake-ups rocking the health care world, emphasizing that any kind of change will be gradual. And just because the big-name newcomers have consumer appeal doesn’t mean they know what they’re doing on the ground floor of a health care company.
“These are financial companies. They do billing and collecting,” Jim Pieri, portfolio manager at BlueMountain Capital Management, said of payers and other non-health firms entering the space. “They’re not great at taking care of people.”
BlueMountain entered the skilled nursing game last year, when a joint venture backed by the alternative asset management firm bought out Kindred Healthcare’s (NYSE: KND) skilled nursing assets for $700 million. BM Eagle, the joint venture, has already flipped some of the properties it acquired from Kindred, including 13 that went to real estate investment trust CareTrust REIT (Nasdaq: CTRE).
Despite the splashy entrance of Aetna into the world of retail prescriptions and the MinuteClinic brand of walk-in physicians’ offices — as well as, on the skilled nursing side, the rise of providers launching their own Medicare Advantage plans — payers still could face an uphill battle when working to vertically integrate.
Devin O’Reilly, managing director for private equity at Bain Capital, said the journey from the current model to full vertical integration is a 15- to 25-year plan. And even then, according to Stoneridge Partners president and CEO Rich Tinsley, the future may not be as monolithic as some of these deals seem to predict.
“Not everyone is going to be owned by a payer — it’s a different business than providing a service, understanding that risk, and making a bet on health management,” Tinsley said.
Written by Alex Spanko