Five Megamergers that Could Change the Healthcare Industry

May 7, 2018

Merger mania has the healthcare industry on watch. Here’s five to explore.

Efforts to improve collaboration is a common driver of the recent healthcare mergers, say experts.

The industry will be changed less by mergers that try to combine different core competencies that are borne out of different cultures, than by partnerships that allow the different businesses to become even more focused on what they individually do best, says Sheila Talton, president and CEO of Gray Matter Analytics, a healthcare technology company.

“The wildcard in healthcare is the fact that all of this change leads to new disruptions, innovations, and risks that are not yet foreseen,” says Nick Vennaro, cofounder of Capto Consulting, a firm that consults companies on how to improve operations, economics, and efficacy.

Here are five megamergers that could change healthcare:

The industry is buzzing about a possible Walmart-Humana merger (but there’s been no official announcement).

A Walmart-Humana deal would likely result in Walmart adding clinics to their massive retail footprint, says Mark Nathan, CEO and founder of Zipari, a health insurance consumer experience company.

“They have dipped their toe in the water on this one, but I expect that to expand dramatically,” he says. “It would allow Walmart to rapidly build out clinics that directly compete against CVS. At the same time, as foot traffic in traditional physical retail spaces declines, due to online sales and competition with Amazon, this move takes advantage of their existing real estate and physical space in a way that will drive more foot traffic.”

In December, CVS announced it would buy Aetna for about $69 billion.

“CVS and other retailers that are entering partnerships/deals with health insurers have a unique opportunity to build a primary care plus model, the clinics take on a greater role in stores,” says Ash Shehata, principal at KPMG and member of the firm’s Global Healthcare Center of Excellence. “Retailers are looking to bolster revenue per square foot and an active urgent care clinic can address that. The partnership with a health plan can help encourage patients to obtain care at a place with extended hours and at a low-cost clinic with a convenient pharmacy. Acquisitions between health plans, pharmacies, retail and healthcare providers can accelerate this focus, but a partnership option shouldn’t be ruled out.”

Cigna’s proposed acquisition of PBM giant Express Scripts is now being reviewed by the Department of Justice.

“Express Scripts and Cigna will help make the healthiest choices the easiest choices, putting health and pharmacy services within reach of everyone we serve,” says Tim Wentworth, President and CEO, Express Scripts. “Adding Express Scripts’ leadership in pharmacy and medical benefit management, technology-powered clinical solutions, and specialized patient care model to Cigna’s track record of delivering value through innovation, we are positioned to transform healthcare. We will continue to have a distinct focus at Express Scripts and eviCore on partnering with health plans, and together, build tailored solutions for health plans and their members. Importantly, this combination is a testament to the work of our team and their resolute focus on providing the best care to patients, and the most value to plan sponsors.”

In January, Amazon, Berkshire Hathaway and JPMorgan Chase announced a partnership to reduce healthcare costs for its U.S. employees-and the industry stood at attention.

“It's an important turning point in our industry when three of the largest employers in the country partner to essentially force payers to adopt technology and transparency in service of improving the consumer experience and lowering costs,”says Stephanie Tilenius, former senior executive of PayPal, eBay, and Google, and current CEO of Vida, which provides digital therapeutics for patients with chronic ailments.

These players know that as large buyers of healthcare, they have significant bargaining power and an opportunity to change the game, Tilenius says.

Several not-for-profit hospital groups are trying their own solution to drug shortages and high prices by creating a not-for-profit generic drug company. The new company intends to be an FDA-approved manufacturer and will either directly manufacture generic drugs or subcontract manufacturing to reputable contract manufacturing organizations, providing patients an affordable alternative to products from generic drug companies whose capricious and unfair pricing practices are damaging the generic drug market and hurting consumers, according to an Ascension press release.

The five groups include more than 450 hospitals around the U.S. Other health systems will soon be joining this initiative.