Earlier this week, CVS announced it would make an acquisition bid for Aetna, to the tune of almost $70B. This is just the latest (and, since United’s announcement on Wednesday, not even the latest) mega-acquisition in an ecosystem that, over the past few years, seems to feed on consolidation. Whenever we see something like this in the market, we can’t help but ask, “what does this mean for me as a consumer?” and, “what does this mean for the industry as a whole?” While it’s difficult to do more than speculate about the former, considering the latter can shed some light on the underlying healthcare ecosystem. The current trend of consolidation has many possible causes, but there is at least one significant takeaway: healthcare is changing.
Apple entered the consumer market a few years ago with their CareKit and ResearchKit offerings, and Google was close behind with their ResearchStack. Major tech players like IBM, Microsoft, and Google are acquiring health tech companies left and right, seemingly in an effort to expand their offerings while feeling out the healthcare market. Amazon, the 500-pound Gorilla in the IaaS (Infrastructure as a Service) room, announced a partnership with Cerner earlier this year, focused on improving the EHR’s analytics and population health offerings. All signs point to continued healthcare initiatives funded or sponsored by these and other tech giants.
The Role of Digital Disruptors
Smaller organizations, usually referred to as digital disruptors, are increasing in number and scope every year as funding for health-tech startups balloons. They are challenging traditional players by making existing offerings simpler, cheaper, or faster - or coming up with new offerings altogether. Digital disruptors are moving the needle in healthcare, and accelerating the shift toward user experience and value-based (rather than volume-based) care.
In the face of these changes, existing companies in the healthcare ecosystem find themselves considering ways in which they can expand their presence and improve their offerings to solidify their positions in the market. As consolidation becomes more and more prevalent in the ecosystem, the means by which companies can reach new markets continually shrink: many acquisition attempts over the past two years have been faced with FTC hurdles and claims of monopoly or oligopoly power. This is increasingly leading large organizations to look toward other verticals to expand revenue potential, and to create vertically integrated healthcare offerings.
One of the best examples we can see of this is the behemoth currently being built by United Healthcare, whose most recent acquisition, announced Wednesday morning of this week, is to be DaVita clinics (at a price tag of just under $5 billion). DaVita will be added to the growing umbrella division, Optum, that accounts for all of United’s non-insurance endeavors; this currently includes not only clinical solutions like DaVita, but also data analytics, pharmacy benefits, surgical centers, and a number of other solutions. While the benefits to the consumer of these vertically integrated organizations is hard to quantify, they are consolidating regardless.
What to expect from CVS & Aetna
So what can we take away from the CVS acquisition bid (let’s not forget, it’s still just a bid for the time being), and the larger consolidation trend in the entire $5 trillion health ecosystem? When considering longer term meaning, it’s good to remember the context we’re dealing with, the increasing focus on user experience and value-based care, expanding governmental scrutiny of consolidation, and a decentralization movement tending toward consumer healthcare. All three of these are factors, not only in the CVS-Aetna move, but in acquisition bids across healthcare generally.
Seemingly, the CVS move will do much to improve consumer experience. It’s not surprising that most of the press releases focus on this fact - without it, prospects for regulatory approval are bleak. CVS and Aetna, ideally, will improve user experience by offering a more seamless care continuum and simplifying the process of patients getting the help they need - the whole process exists from start to finish within the walls of a CVS retail location. Similarly, it will increase decentralization and access in the healthcare ecosystem, as MinuteClinics continue to grow in number and in quality of care offered. Finally, it could potentially lower costs for consumers by lowering the amount of waste kicked back to middlemen in the process of care delivery. If we look at things optimistically, this will give more people access to better, less expensive healthcare across the nation.
At the end of the day, however, every move like this is motivated by one thing: value. As much as we would like to think otherwise, CEOs don’t decide to acquire companies out of the goodness of their heart, or in this case, strictly to improve healthcare access and quality. The motivations here may boil down to trying to increase revenue in different verticals - regulatory hurdles have recently been associated with healthcare deals that have even a whiff of oligopoly to them, so anything within the pharmacy vertical is out of the question. Making an acquisition deal in the insurance vertical, however, could create a great deal of value, and avoid disapproval from the FTC, by increasing top-line revenue through expanded offerings, and decreasing joint costs through organizational efficiencies and optimizations.
Motivation for this acquisition could be an early move toward self-preservation in light of a shifting ecosystem. Apple and Google are already bought in and expanding their footprint in consumer health, and Amazon looks poised for acceleration after circling the industry for some time (the wholesale pharmacy licenses they’ve recently acquired in 12 states definitely send a message). Healthcare disruptors are threatening each part of the entire ecosystem, and current leaders are doing everything they can to expand and solidify. In this sense, the acquisition bid can be viewed as a longer-term strategic move to keep CVS competitive with possible tech invaders who aren’t bound by traditional healthcare rules.
How far will consolidation go?
Regardless of the motivation for the acquisition bid, the underlying theme remains: healthcare companies are consolidating, and are continuing to look outside of their traditional verticals. How far this consolidation will go, and what it will mean to the consumer, remains to be seen. One thing, however, is certain: healthcare as an entire ecosystem that is changing faster, every day.
Patients are demanding more, and digital disruptors and tech giants are more than happy to fill in the gaps when entrenched enterprise leaders can’t. Tell us what you think in the comments below or stay up to date with all of the latest connected health news by subscribing to our monthly newsletter here.