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  • Healthcare companies are striking deals that are changing the way they look. 
  • Pharmacies are becoming insurers, hospitals are becoming drugmakers, and insurers are starting to become healthcare providers.
  • Now Cigna is acquiring Express Scripts, in a deal that ends the days of a standalone pharmacy benefit manager, a company that negotiates drug costs. 
  • The changes are part of an effort to lower healthcare costs by having companies assume more responsibility over patients. 
  • Two companies to keep watching in this space are Hospital Corp. of America, and UnitedHealth Group.

Pharmacies are acquiring insurers. Hospitals are getting into the drug business. Insurers are starting to own doctors offices. And now an insurer is buying one of the largest standalone pharma middlemen.

The boundaries of the healthcare business are changing. Instead of growing by acquiring other companies in the same business, companies have started to move into new lines of business, with no two combinations looking exactly the same. 

It’s part of a push on the part of healthcare companies to do two things: cut costs, and gain more control over the patients in need of healthcare. It’s coming at the same time large tech companies are eyeing ways to disrupt the healthcare industry and the industry faces entirely new medications that challenge the existing way we pay for treatments.

Unexpected combinations

CVS’s acquisition of Aetna, sent a big shockwave through the healthcare industry. The move combined the largest pharmacy in the US with the third-largest insurer in what was the biggest deal of 2017. 

Together, CVS and Aetna have a health insurance business, retail pharmacies, and a company that negotiates prescription drug prices with drugmakers called a pharmacy benefit manager. This gives CVS a lot more control over how people access and pay for healthcare, with the aim of making pharmacies the “new front doors of healthcare.

It’s been followed up a few months later by Cigna’s $67 billion acquisition of Express Scripts, the largest standalone PBM, a deal that was a little more anticipated.

The move brings a PBM under the same roof as a health insurer, something that’s become increasingly common for healthcare companies. UnitedHealthcare, for example, owns the PBM OptumRx, while Anthem, which owns a variety of Blue Cross Blue Shield health-insurance firms, will be launching its own PBM called IngenioRx. And with the CVS HealthAetna deal, CVS Caremark and Aetna will be under the same roof as well.

Future combinations will be based around the patients a particular organization serves, UBS senior healthcare analyst Jerome Brimeyer told Business Insider back in January.

Humana, for example, purchased home health care operator Kindred Health with the help of private-equity firms. The move helps provide Humana customers with home health options, which is a lower cost way to care for patients than staying in a hospital, something that’s more relevant to Medicare populations. 

Similarly, in a move in part to lower their costs, in January, a group of hospitals, including Salt Lake City-based Intermountain Healthcare, Ascension, SSM Health, and Trinity Health, along with the Department of Veterans Affairs health administration (a group that in total represents 450 hospitals) announced their plans to create a nonprofit generic drug company

Their rationale? For years, health systems have been on the hook for skyrocketing drug prices for injections or drugs delivered through IV solutions, medications that have also been at the heart of drug shortages. The two challenges have made it harder to treat patients the way doctors want. 

Dr. Marc Harrison, CEO of Intermountain told Business Insider at the time that the plan to form a generic drugmaker has been an idea for a couple of years, but hospitals were hopeful that the shortages and price increases would work themselves out. When they didn’t, they took the next step to form a nonprofit company. 

Harrison said he hopes the generic drug company will be temporary but it remains to be seen. He emphasized that the point of the company was not because the health systems are against pharmaceutical companies or even generic drug companies, they’re just interested in seeing some change. 

Where this is headed

As more companies look to cut costs and remove some of the pressure they’re feeling from the current health system, we may start to see more surprising combinations that challenge our definitions of healthcare companies.

For one thing, tech companies like Apple or Amazon could change things in ways we don’t yet expect. For example, Apple’s going to start putting medical records onto iPhones, and there’s been speculation about how Amazon could deliver prescriptions — a move that would impact retail pharmacies that might see less foot traffic — or potentially just help coordinate healthcare through its voice assistant Alexa. Should major tech companies start shaking up the way consumers interact with their healthcare, it could force existing healthcare companies to adapt in new ways. 

Brimeyer, the UBS analyst, said there are two companies to keep paying attention to as healthcare starts to get a lot more vertical: Hospital Corporation of America, the largest hospital operator in the US, and UnitedHealth Group, the largest insurer in the US.

“Both have similar programs underway trying to do much more vertical integration along the continuum of care,” Brimeyer said. 

UnitedHealth, in the past few years, has started amassing a group of businesses that go beyond insuring people. It owns surgery centers, urgent care centers, primary care practices, and a PBM to manage prescription benefits. The addition of a PBM to an insurer, in particular, has garnered a lot of attention, especially after the CVS-Aetna merger, which included two similar businesses. The Cigna-Express Script deal follows UnitedHealth’s lead. 

But the company’s structure goes beyond trying to have more control over the way prescription drugs are paid for. It’s about making sure that UnitedHealth’s members have access to lower cost healthcare, which in turn saves UnitedHealth money on an unexpected, costly trip to the emergency room.

Similarly, HCA, which operates 177 hospitals and 119 surgery centers in the US and the UK and other facility-based companies, might look to pick up more urgent care centers or behavioral health practices to find ways to treat patients that doesn’t involve the hospital. 

“By covering more of the healthcare pie, it benefits them, because they can have more opportunities to treat these patients at lower cost centers,” Brimeyer said. 

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