Health Plans

Fast & Furious: Healthcare Consolidation

February 28, 2018
An integrated patient experience and digital transformation are the promise of consolidation.
Molly Gallaher Boddy

As an analyst closely watching daily market developments, there is little more exciting than when technology companies acquire peers. Whether these purchases represent vertical or horizontal expansion for the buyer, large merger and acquisition (M+A) activity can transform the landscape of an entire market in a short amount of time.

While technology has seen its fair share of noteworthy mergers---Dell’s headline-grabbing, $67 billion purchase of EMC brought together server and storage lines in an attempt to capture a combination of cloud and hybrid IT opportunities in 2016, for instance—the healthcare industry is in the midst of its own stunning disruption, with onlookers finding it difficult to keep track of the new, seemingly daily M+A announcements.

Hopeful buyers include all types of organizations, from healthcare IT vendors to large hospital systems. However, despite the various arrangements being announced, two types of mergers stand out as particularly meaningful for healthcare organizations (HCOs) and consumers alike:

In both of these cases, purchasers are making a strategic choice not to merge with direct competitors or close peers, but instead with players operating in adjacent spaces. This not only makes it more likely that such acquisitions will avoid pushback from the federal government—as did Cigna and Anthem’s as well as Humana and Aetna’s proposed mergers, which were cancelled in early 2017-- but that the patient experience will be better understood by vendors. The purchase of PBMs and outpatient clinics gives purchasers the chance to capture more key interactions along the healthcare delivery spectrum.

Image of a care coordinator with a Doctor. 

While a quick internet search or glance at Google News suggests these floodgates of consolidation opened in the second half of 2017, healthcare was long due for such disruption for a number of reasons:

  1. Cost is perhaps the most well-known driver behind this consolidation, with payers and employers saddled with soaring costs (that continue to be passed on to patients) looking for a solution.
  2. The siloed nature of the traditional healthcare landscape, with patients, providers and payers alike frustrated by issues of interoperability and incomplete clinical, financial, and administrative records spread between multiple locations, specialists and EHRs, is another reason for consolidation.
  3. Finally, healthcare has been in need of disruption because it had, until recently, remained largely untouched by what has been broadly referred to as digital transformation: the adoption of technologies, including various automation solutions, Internet of things (IoT), mobile and cloud, that shift how organizations operate.  In the case of healthcare, digital transformation holds the promise of not only allowing more data to be collected across the entire care continuum, but of creating a better connection between payers, providers and patients. 

Cost and interoperability may be thought of as practical problems that must be solved for traditional healthcare players to survive; merged organizations hope they will be in a better position to address these issues, thus allowing them to weather the entry of non-traditional players like Amazon into the space. After chipping away at cost and interoperability issues, consolidated entities will turn their attention to deepening their digital transformation strategy. 

Digital transformation is the final, most complete step in making healthcare look more like retail, where patients are consumers engaged in selecting in-network providers, scheduling appointments, viewing health records, tracking ongoing conditions on biometric devices, and paying bills, all through smartphones. Of course, payers and patients aren’t the only ones expecting to benefit from healthcare disruption: providers, too, are waiting for the promise of less time in front of an EHR to be fulfilled. 

By disrupting current systems and enabling greater patient control over the healthcare experience, from outpatient or walk-in clinic treatment to prescriptions and billing, payers and health plans purchasing adjacent players may put their peers in an unenviable position. To gain cost savings and best treat or outreach to patients, HCOs need data from every step of the care process.

Image of a man's hand on a phone and laptop. 

 As consolidation gives way to deepened digital transformation, patients will increasingly expect their care to look like every other part of their world: flexible and understandable, with an entire health history—not just a visit summary—a log-in away