WATER STREET PARTNERS periodically convenes joint venture dealmakers from an array of industries and geographies to speak to the latest JV trends, challenges, and best practices from their vantage points. Most recently, we spoke with Scott Musch, the Vice President of Corporate Development at Cambia Health Solutions, for perspectives on joint ventures and other partnership transactions in U.S. healthcare. Cambia is a total health solutions company headquartered in Portland, Oregon; its family of companies includes Blue Cross Blue Shield plans operating in Oregon, Washington, Idaho, and Utah, as well as interests in other companies seeking to improve the consumer experience in healthcare.
The healthcare industry – particularly in the United States – remains subject to sustained disruption, with companies grappling with regulatory uncertainty, new types of competitors, and an evolving consumer and technological landscape. This flux has generated a substantial volume and diversity of deals, some of which have taken the form of joint ventures. Despite a track record of mixed performance (Exhibit 1), joint ventures remain top-of-mind for healthcare dealmakers, and in recent years have been deployed as a means to both cultivate innovation and consolidate scale in core competencies. Cambia, in particular, has emerged as a leader in healthcare innovation with substantial experience in partnerships, and we asked Scott for his thoughts on high-level deal trends as well as the particulars of certain transaction structures and terms.
An edited transcript of his remarks follow.
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Sources: Water Street interviews and experience; JV press releases
HIGH-LEVEL DEAL TRENDSBy way of opening, Scott shared high-level comments on the continued pace of healthcare dealmaking, articulating some of the objectives for partnerships in the healthcare services sector and commenting on high-profile deals that have emerged in the last 24 months:
In terms of interesting payer-provider deals, one company to continue to keep an eye on is Aetna. They’re one of the largest drivers of joint ventures and have a stated goal to have 75% of their contracts in value-based arrangements by 2020. They’ve formed joint ventures with many health systems as a model to reward physicians within their networks and provider space remains increasingly active as well, with insurers and providers looking to these partnerships as the industry moves to when they share the bottom line for risk and
There is also a general trend in healthcare deals of moving away from horizontal plays – given regulatory challenges – and moving into more vertical plays, including disruptive models that combine different sectors of the healthcare value chain. A general perception is that antitrust enforcement simply does not have at its disposal a highly evolved theoretical or practical framework for analyzing and potentially blocking these types of mergers in the way that they have blocked some horizontal mergers.
Additionally, we’re always on the watch for disruptive deals, especially by non-traditional healthcare players, and the Amazon-Berkshire Hathaway-JPMorgan joint venture wasn’t necessarily a surprise to us. We were obviously very interested when we read the announcement and thought that it had the potential to be very disruptive through combined resources, largely because of the amount of spend those companies control with their combined employee base alone. We are waiting to learn more details about what they’re planning to see how disruptive the partnership might be, beyond a consolidation of purchasing power from their collective employee base. Obviously, depending on where they point that leverage, it could have a big disruptive impact on the industry, but we haven’t yet heard clearly where they plan to aim it.
When asked about the impact of the regulations and politics on healthcare dealmaking, Scott described the significant risks that changing regulations can have on deals, and pointed to sectors like pharmacy where political focus has generated a burst of recent dealmaking:
Additionally, there continues to be a lot of talk in Washington, DC about pharmacy pricing and high drug costs. What will come out of that discussion is unpredictable – whether it’s through executive orders or legislation – but we are seeing a lot of movement in the pharmacy space, as companies are maneuvering, sometimes by consolidating with PBMs and specialty pharmacy, and trying to get access to cost levers and consumers earlier in the care life cycle. That’s why you’re seeing deals like CVS-Aetna, Cigna-Express Scripts, and Amazon-PillPack – they’re trying to solidify leadership in that space and reduce the cost of drugs to consumers... Click Below to Continue Reading...