Vertical integration and consolidation

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Note from the editor

Healthcare companies merging with subsectors of the industry is a growing trend, although certainly not a new one.

Vertical integration can be a double-edged sword, depending on how it's being used. As the industry seeks to move further into value-based care models, alignments between payers, providers and health tech companies are crucial.

If a patient's touchpoints in care delivery are less siloed, all parties can save resources, bring down costs, and ultimately improve a patient's health.

And companies vertically integrated from the start — like nonprofits Kaiser Permanente, Intermountain Health and Geisinger — can have strong performance records. They also found themselves somewhat shielded from the financial tumult of the COVID-19 pandemic, as profits from payer arms offset strapped provider services.

There can be antitrust concerns, however. When retail giant CVS Health bought Aetna in 2018, it sparked concerns that CVS would use the payer to steer patients to its pharmacy, which also provides some primary care services.

The companies defended their plan before Congress after the U.S. Department of Justice asked for more information on the deal, saying it would "enhance competition." It was eventually approved by shareholders after no federal intervention.

More recently, DOJ announced it was investigating UnitedHealthcare's plan to acquire Change Healthcare, which sells consulting, software, claims processing and data analytics. It was responding to hospital lobby concerns that the deal would result in less competition for health IT and revenue cycle management services and give UnitedHealth an edge in contract negotiations with hospitals.

UnitedHealthcare has long been in the vertical integration game, particularly through its health services arm Optum. In March, Optum said it was buying up nonprofit physician practice Atrium Health, adding 30 offices in Massachusetts to its growing portfolio.

UnitedHealth executives said at the beginning of this year they wanted to add 10,000 more providers in 2021.

Healthcare M&A of all sorts is facing tougher scrutiny from the Biden administration, however. It announced in July it was instructing the Federal Trade Commission to strictly review proposed and past mergers, citing the potential for price increases without improvement in care quality.

Shannon Muchmore Senior Editor

UnitedHealth's Optum to buy Change Healthcare in $13B deal

• Published Jan. 6, 2021

DOJ to investigate UnitedHealth's $13B Change buy

• Published March 29, 2021

Humana snaps up remaining stake in home health giant Kindred for $5.7B

• Published April 28, 2021

Humana acquires Onehome to pursue value-based home health strategy

• Published June 14, 2021

Optum expands Massachusetts footprint with latest physician buy-up

• Published March 3, 2021

For-profits, church-run health systems dominated M&A growth from 2016 to 2018: Health Affairs

• Published Aug. 4, 2020

CVS Health's Aetna unveils nationwide primary care telehealth service

• Published Aug. 11, 2021

Vertical integration and consolidation in healthcare

Healthcare companies merging with subsectors of the industry is a growing trend, although certainly not a new one. As the industry seeks to move further into value-based care models, alignments between payers, providers and health tech companies are crucial.

included in this trendline
  • CVS Health's Aetna unveils nationwide primary care telehealth service
  • Humana acquires Onehome to pursue value-based home health strategy
  • Optum expands Massachusetts footprint with physician buy-up
Our Trendlines go deep on the biggest trends. These special reports, produced by our team of award-winning journalists, help business leaders understand how their industries are changing.
Davide Savenije Editor-in-Chief at Industry Dive.