Conflicts of interest abound in the takeover of Aetna (NYSE:AET) by CVS (NYSE:CVS), on several levels, but the major long-term problem with this deal is that it is a consolidation based on weakness. Playing defense is never an attractive investment, for this ends up with fighting a rearguard action. Based on informal polls among healthcare providers I know, none of them see this as a benefit to the patient, but only a threat. Meanwhile, all the analyses on SA by the time I am submitting this, are dubious about the short-term value, and none of them very ebullient about the future outlook, in descending order, from the oldest to the most recent one, they were:
- CVS Health's Aetna Deal: Long-Term Healthy, Short-Term Uncertainty
- CVS Healthcare Is No Longer A Dividend Growth Company
- The Healthcare Deal Heard 'Round The World
- CVS: Undervalued, But $67 Billion Aetna Deal Is A Hard Pill To Swallow
- CVS: Great For All - Apart From Shareholders
All the obvious considerations have been mentioned by, among others, former Aetna CEO John Rowe: Amazon, UnitedHealth/Optum (NYSE:UNH), the failed attempts at horizontal merger opportunities. In this article, I will suggest some deeper issues that indicate that this is a merger based on weakness, not strength, and is the preface to a long-term slow decline. It does not create opportunity or innovation, as it aims at mere survival in a dead-end sector of the economy.
In general terms, the reason this is a dead-end situation is that the outlook for healthcare (read: sick-care) is one of wrenching change, and defending a failing model will not work. The failing model is what we have today: we spend twice as much on healthcare per capita as the next highest country, and we're outspending many other countries in per capita consumption of prescription drugs, and in terms of health outcomes, we are in 37th place in the world, according to some statistics. The Trump solution won't work: kicking people off of healthcare will not make them healthier, let alone more productive, only less so. The Bernie Sanders solution won't work either, as I argued in an earlier article: reducing administrative cost a bit and making the system universal, without fundamental change, will merely ensure that the US as a country becomes even more economically uncompetitive than it already is.
Anyone who is familiar with optimization would understand that sub-optimizing a system for a secondary variable produces wildly suboptimal results. Or, to put it more plainly, if the problem is that the ship is sinking, making it sink more efficiently hardly helps the situation, yet, that is what this merger is all about, very similar to the idea of a single payer system. It is tinkering in the margins, and leaving a failing system intact.
In the most general sense, our healthcare system, so called, is really a sick care system, for the economic incentive is to maximize medical treatment, bounded only by the patient's ability to pay, so we have to keep them working. Predictably, the results are as indicated above: bad health outcomes and absurd healthcare costs. The innate assumption is that the patient is incapable of managing their own health, and the "healthcare" system is their only option, but (perhaps) it could be more efficient.
Conflicts of interest on several levels
The first, most obvious conflict of interest is simply about a monopoly that trades off some marginal efficiencies with limiting consumer choice - the press is already speculating about anti-trust issues. Various commentators are scrutinizing this issue, as in this piece on Reuters. The fundamental assumption is that the new entity is large enough to be able to satisfy all and keep the consumer captive, and behind that issue comes keeping the employers captive who provide that health insurance to their employees. That assumption is not necessarily valid, as medical needs can become awful specific, and employers value being able to shop for solutions, and be more innovative if they so choose, sometimes with partial or even complete self-insurance as I reported recently.
The deeper issue is that this approach makes healthcare the enemy of the patient to an even larger degree than was already the case. Our whole system is geared to maximize on pharmaceuticals and other medical services, bounded only by the patient's (and/ or their insurance's) ability to pay for them. In that regard, this combined is the enemy of the only real economic change that can actually make a material dent in healthcare costs. The supposed "healthcare" system has long since become like the commissary on the plantation: we pay twice what the next guy pays, but the outcomes place us at the bottom of the pile in OECD countries, by whatever statistics you care to believe and we increasingly have no choice. The simple reality is that the federal government subsidizes the foods that make people sick and is now in the process of trying to skimp on health care, when instead we could choose to solve the problem.
Heading off Amazon and UNH/Optum at the pass
Again, all the analyses of the defensive motives in regard of these two factors are pointing in one direction: this merger is about playing defense not about innovation or creation of a new solution. Presumed efficiencies are likely to go up in smoke before long. To the extent that it makes a failing system "more efficient," it is a disaster in the making and a sure recipe for long-term capital destruction.
The single payer threat
The single payer system makes enormous sense as far as administrative costs are concerned. However, when implemented as suggested by Senator Bernie Sanders, it would be a total blunder for it would accelerate the deterioration of American health, by making it more affordable to stay sick longer. Nevertheless, the groundswell of political support means that it may resurface in the not-too-distant future, and to the extent that companies can make themselves more efficient before that time, that may at least partially undermine the eventual argument.
Economizing on accountability
Again, what is being created here is a monopolistic entity, in which CVS would become the pharmacy of choice for Aetna and its clinics likewise the walk-in doctors office for Aetna members. This would only be fine if the medical model were working, but the point is that it is not. Eventually, we will get past the simplistic solution of the Sanders's single payer proposal. As argued here and in a previous article, the seeds for an alternative model are already being sown.
A pill for every ill
The expectations are that in 2018, we will see 715,000 premature deaths from CVD (Cardio Vascular Disease), 95% of which is preventable or reversible by diet, as is being loudly advocated by the famous cardiologist Dr. Caldwell Esselstyn, Jr. who calls heart disease "a toothless paper tiger that need never exist." Animal fat and protein are the big culprits, yet Washington continues to subsidize dairy farming and sends the bills to consumers. Practitioners of the lifestyle medicine model agree that the improvements from the diet change to a #WFPB diet far exceed anything that can be accomplished with medication. Stents likewise are slowly being recognized as essentially worthless.
The expected number of 715,000 CVD deaths for 2018, divided by 365 (days) equals 1,958 preventable deaths per day. Compare that to 175 opioid deaths per day in 2016, which somehow is a national emergency. What we are obscuring is the fact that the opioid crisis is not a special problem, when it is merely yet another iatrogenic cause of death and a logical outflow of a medical system in which doctors see their job as prescribers of medicines and medical procedures. Symptom suppression is a central feature of the model throughout. Healing and health is never a goal; the financial incentives are all for more and more treatment which is ineffectively being rationed by bureaucrats at HMOs.
The list goes on and on, and again, depending on what statistics you believe, somewhere between 75% and 86% of our healthcare spending is spent on treatments for chronic, degenerative illnesses that can be prevented and/or reversed with a proper #WFPB diet (Whole Foods, Plant-Based). In such a diet, besides using whole, plant-based nutrition, one eliminates SOS ( added Sugar, Oil, or Salt); one gets 10% of calories from naturally occurring oils and fats, 10% from plant-based proteins, and 80% from carbohydrates (all plant based, as animal-based nutrition offers none).
Similar logic pertains to the majority of the leading causes of death, for example, about 70% of diabetes can be prevented or even cured with a proper plant-based diet. Stories abound of diabetics kicking all their meds, and in ca 70% of cases, they can get off of insulin entirely as well and within the first two months. The upcoming documentary Code Blue: redefining the practice of medicine is about a doctor who was an MS patient and ended up getting off a dozen or so medications with a plant-based diet, and getting her life back. She is no longer an MS patient, here is a trailer. Today, she has opened up her own practice in lifestyle medicine, for she is the living proof that it saves lives. Not to mention it saves people from pharmageddon and the crippling struggles with drug interactions and side-effects.
From sick-care to healthcare
Fully seven of the top ten leading causes of death are strongly related to nutrition and susceptible to prevention and even reversal with diet and lifestyle changes. They are Heart Disease, Cancer, Lower Respiratory Disease, Stroke, Alzheimer's Disease, Diabetes, and Kidney Disease, and the list goes on well past the top 10. In total, some 86% (per Code Blue) of our healthcare expenditure is on treatments for these diseases of affluence, that are largely unnecessary, given the right diet.
The pharmaceutical industry has long since promoted a model of a pill for every ill, and they are corrupting the doctor-patient dialog by advertising their wares on TV, to make sure that the patients ensure that their doctors are effective prescribers of pharmaceuticals.
For all the people who say the idea of lifestyle change can't be done, I have previously pointed to some companies moving in this direction, including Whole Foods Market, now part of Amazon (AMZN), and GEICO insurance, part of Berkshire Hathaway (BRK.A), but there is also the example of an entire town, Midland Texas, as documented here and here and significant initiatives in various states, including CA, NY, and TX, mostly at the city or county levels. The gist of the whole thing is that based on the concepts underlying what is now called lifestyle medicine, the patient is primarily responsible for their own health, and the lifestyle medicine model calls for a new sense of partnership between the patient and their primary care physician in which the first choice for almost any systemic illness is first food, not pills. Pharmaceuticals are relegated to a much more supportive role, on an exception basis. The following is just a partial list of medicines that could become largely superfluous:
- Blood pressure medication, as lifestyle modifications, primarily diet are about twice as effective as medications in managing blood pressure.
- Statins etc. become superfluous as cholesterol levels typically become normal in very short order on a plant-based diet.
- Effectively nearly all ant-acids become superfluous immediately.
- Viagra and other ED-treatments become superfluous, as ED is just the canary in the coalmine for CVD.
- Baby aspirin for heart health becomes superfluous.
- Insulin would see a 70% reduction, and most other diabetes-related medications would be similarly reduced.
- Colonoscopies and other cancer screening methods become mostly superfluous because a plant-based diet removes the primary carcinogen from our diet: casein, the main protein in dairy while it adds the primary preventative for colon cancer in particular: fiber. For many patients on a plant-based diet, the risk of having a colonoscopy is far greater (punctured colon and so on) than the risk of getting colorectal cancer. My old doctor could not understand that, so I changed to a doctor who practices lifestyle medicine and who is at least up on the literature.
- The need for nursing homes would be vastly reduced as people would simply be healthier longer and die of old age, or accidents, but would otherwise be functional much longer than is now the case. We would reverse the decline in life expectancy which is now going on and accelerating.
The above is just the beginning - the general concept is that diet is the first line of defense, and pharmaceuticals or supplements a poor second, to be taken on an exception basis, mostly in acute care situations (e.g. infections, accidents, etc.).
The math of the new medical model would be that we reduce the 85% of healthcare by about 75%, and the 15% that is not diet-related is intractable, so the new numbers are 15% plus 21.25% i.e. healthcare costs would end up at 36.25% of the current levels with much improved longevity to boot, and the healthcare crisis would be solved, and so would our environmental crisis, for animal husbandry is responsible for more environmental degradation than the entire transportation sector (18% vs. 13%) on a world-wide basis. Not only that, we'd solve world hunger in one fell swoop, for people would no longer be competing with cattle for nutrition. From an economic standpoint, we would move down the list in terms of healthcare costs and up the list in terms of life expectancy, so we might actually rejoin the developed world.
Even if we assume that change takes a generation (or two), this seems economically worthwhile, for instead of making the US completely non-competitive with disastrous plans like Bernie Sanders's single-payer universal healthcare, we suddenly would be able to afford universal healthcare, and we'd also be able to simplify the control of healthcare costs in future. The US would be economically competitive once more.
We are nowhere near a new model, but there is nothing to prevent us from trying. Geographically coherent groups could attempt to form a completely new insurance model that reflects these new realities, and the examples I have already mentioned, Midland, TX, GEICO and WFM point the way in that direction. In that respect, Amazon's acquisition of Whole Foods has more relevance to the future of healthcare than the CVS/Aetna deal on two levels. First, they now are a force to be reckoned with in the healthy food category which plant-based consumers would be interested in. Second, Amazon now can gain an insight in the merits of the Whole Foods healthcare model and may get interested in redesigning its own model corporate-wide on that basis. Amazon would be very smart to forget about pharmacy licenses, once it understands what the future of healthcare really is. All it would be is a catalyst for the demise of the pharmacy sector in the coming decades - it has done nothing else but take the profits out of retail, but it is not making any money itself, so what's the point?
An alternative healthcare model
The following is just a suggestion of how things might work in such a new model. The specific numbers are not as important, as this would require extensive economic modeling, and sufficient penalties and incentives should be part of the design.
- PCPs (Primary Care Physicians, family doctors, internists) would be strictly lifestyle medicine doctors, and they would be the patient's primary ally in maintaining health using the model of lifestyle modification with a focus on food as medicine. They would be their patients' principal advocate in dealing with any medical services beyond primary care.
- The above could conceivably be implemented with a model in which patients have a PCP on retainer for say $2,500/year, which pays for the first five visits, with an agreed rate per visit for the next five visits above that, and after that, they would be free of charge. The focus of your PCP is now your health, not your diseases.
- The PCPs in turn would now form a mutual society against severe income disruption which might result in cases such as an epidemic or natural disaster, where they are overwhelmed with demand, and suddenly, they have a large number of people who exceed their first 10 visits. That mutual society would also have the administrative staff to deal with the issues of managing the rest of your healthcare including professional assistance in malpractice cases against other providers.
- The economic incentive now becomes for the PCP to keep patients healthy and there could be incentives in the premiums of the mutual society, which could and should include patient ratings of their doctors who are after all their primary advocate in using the medical system.
- Additionally, this model also potentially solves another issue. It should become the patient's personal preference if their PCP should be an allopath, naturopath or homeopath, but they should all be board certified in lifestyle medicine, and they should all understand the strengths and weaknesses of their respective healing modalities well enough to make referrals when needed.
- Anything beyond the PCP now becomes an insurance issue, and that should include an appropriate model for deductibles and copays, etc.
It might be surmised that a lot of administrative hassles of the present medical system in the form of HMOs would be eliminated, once the patient has a qualified subject matter expert (their primary care physician) on their side, responsible for managing their use of other healthcare services beyond primary care. But in turn, these PCPs could delegate 80% of such admin duties to their mutual society under their supervision. We would be moving in the direction of the famous Chinese model where people paid their doctors when they were healthy and stopped paying them when they were sick. It makes compelling economic sense.
The issue of healthcare for the poor could be solved with a tax credit for the initial retainer, and a modified Medicaid-type model for the rest at a fraction of the current cost. Even more important are the various efforts to make SNAP healthier, instead of helping make people sicker faster, as is now the case.
The new medical model will have to be driven by lifestyle medicine. The evidence supporting it is overwhelming. Midland, TX, was just one example of where a new approach is evolving. The school systems in Austin, TX, and LA County, CA, as well as Brooklyn, NY, are other examples, and no doubt there are more companies besides the examples I gave.
The merger of CVS and Aetna focuses on minimizing the resource utilization in sinking the Titanic, which will not end well for the shareholders or the patients. There is absolutely NO sign that there is any attempt to truly innovate in a way that could lead us towards a new healthcare model. These long-term changes will be too slow in coming for this to be an easy short, but I would not hold CVS if I owned it. I would be looking to divest pharma and health insurance in almost all cases, unless I could see clear value, but for the most part, it is a losing battle, and the industry will be fighting a rearguard action.
A personal note:
Growing up in the fifties and sixties in an MD household where the dinner table was a frequent meeting place between my father and his colleagues, the corruption of the medical profession by the pharmaceutical industry, with its focus on symptom suppression, was a frequent topic of conversation. My father's explanation of the Western medical model was that when you are stuck at a red light, a doctor will sell you a ball peen hammer to knock out the light and charge you for patching you up after the accident. That is about the state of affairs in our sick care model, and since the causes are never being addressed, conditions deteriorate until people get old, and they are least able to deal with them.
When first confronted with a doctor prescribing me a medication, I would have to take for the rest of my life in the late eighties, I asked him what it did. Upon his explanation, I responded: "In short, it suppresses the symptoms. Don't even bother writing the prescription." I researched the issue, and inside three months, I found the (nutritional) solution to the issue. For the next few decades, I used some pretty harmless supplements, but since I went on a WFPB diet, I dropped the supplements altogether, and celebrated my 65th birthday free of all medications and supplements except a B12 every other day.
Presently, I am doing a certificate course at Cornell on plant-based nutrition and find myself among many doctors who report that the switch to a whole foods plant based diet has brought far greater improvements among their patients than they have ever seen any pharmaceutical do. I heard the same repeatedly when I recently attended the first annual Montefiore Preventive Cardiology Conference. Dr. Robert Ostfeld, the cardiologist in charge will tell anyone who will listen that frequently his patients come to his office in tears because of the rapid improvements they see, within weeks even. He will add that no one ever did that for a statin prescription.
The clinical experience with WFPB nutrition amounts to a complete shift from treatment of symptoms to addressing causes, and the early experience implies that we can have a top notch healthcare system for half the current cost. For now, stories of people getting off a dozen medications within months abound.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.