Merger failure post-mortem: What's next for Fairview and Sanford? Drugmakers restricting 340B pharmacy sales threaten PBMs profits.

Ben H.

Hatched by Ben H.

Sep 30, 2023

3 min read


Merger failure post-mortem: What's next for Fairview and Sanford? Drugmakers restricting 340B pharmacy sales threaten PBMs profits.

In the ever-evolving landscape of healthcare, mergers and acquisitions have become a common occurrence. Organizations seek to join forces to improve efficiency, expand their reach, and ultimately, enhance patient care. However, not all mergers are successful, as evidenced by the failed attempt between Fairview Health Services and Sanford Health. This begs the question: What's next for these healthcare giants?

Fairview Health Services, boasting 1.8K beds and a net income of 100M, and Sanford Health, with 1.1K beds and a net income of 500M, had high hopes for their merger. Unfortunately, concerns from various stakeholders, including Fairview's University of Minnesota Medical Center, Minnesota lawmakers, and Minnesota Attorney General Keith Ellison, derailed their plans. These concerns revolved around the potential control of the university's healthcare facilities by an out-of-state entity, a worry that was only amplified by the exclusion of University of Minnesota executives from merger talks. As a result, Fairview is now left searching for a new partner to stabilize its financial situation.

Enter the 340B drug discount program, designed to provide hospitals that cater to low-income and uninsured patients with significant drug discounts. This program, established by Congress in 1992, aims to encourage participating hospitals to reinvest their savings into charity care. However, recent restrictions imposed by drugmakers on discounted prescription sales to certain pharmacies participating in the program have raised concerns about the profitability of pharmacy benefit managers (PBMs).

PBMs, the middlemen between drug manufacturers, insurers, and pharmacies, profit from the 340B program by steering patients to pharmacies owned by the same parent company as them. Additionally, they charge providers referral and dispensing fees for filling their patients' prescriptions. These practices have allowed PBMs to generate substantial profits. However, with drugmakers now limiting discounted prescription sales, PBMs may face a decline in their profitability.

The ramifications of these two separate events may seem unrelated at first glance, but a closer look reveals a common thread: the quest for stability and financial viability in the healthcare industry. Fairview Health Services, grappling with operating losses, is driven to find another partner to regain its footing. On the other hand, PBMs, faced with potential profit loss due to restrictions on 340B pharmacy sales, must adapt their strategies to mitigate the impact.

So, what can organizations like Fairview and PBMs do in the face of these challenges? Here are three actionable pieces of advice:

  • 1. Seek strategic partnerships: In the case of Fairview, finding another merger partner or acquirer may be the key to stabilizing its financial situation. Organizations should actively search for partners that align with their goals and values, ensuring a smoother integration process and a stronger foundation for the future.
  • 2. Diversify revenue streams: For PBMs, the limitations on 340B pharmacy sales highlight the need to diversify their revenue streams. Exploring alternative avenues for profit generation, such as value-based contracts or specialty pharmacy services, can help mitigate the potential impact of these restrictions.
  • 3. Advocate for policy changes: Both Fairview and PBMs can benefit from advocating for policy changes that promote a more stable and supportive healthcare environment. Fairview could push for legislation that addresses concerns about out-of-state control of healthcare facilities, while PBMs could work towards policies that ensure fair access to discounted prescriptions for safety-net providers.

In conclusion, the failed merger between Fairview Health Services and Sanford Health and the restrictions on 340B pharmacy sales pose significant challenges to the healthcare industry. However, by seeking strategic partnerships, diversifying revenue streams, and advocating for policy changes, organizations can navigate these obstacles and pave the way for a more stable and prosperous future. The healthcare landscape is constantly evolving, and it is crucial for organizations to adapt and innovate to ensure the best possible outcomes for patients and stakeholders alike.

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