Massive mergers could transform the healthcare system. First they’ll have to transform themselves.

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Benjamin Isgur Health Research Institute Leader, PwC US October 10, 2018

The US health industry is undergoing seismic change generated by a collision of forces, including the shift from volume to value, rising consumerism and the decentralization of care. This shifting terrain is creating uneven opportunities in the New Health Economy and will likely drive players new and established to reconsider their business models.


Several companies have announced mergers or acquisitions to offer millions of consumers access to a broad array of cost-efficient, integrated, transparent services and products.

They are doing this, in part, by absorbing some of the industry’s middlemen and vertically integrating parts of the US health ecosystem. These integrated capabilities extend to data as well. Customer and cost data are dispersed throughout the US health ecosystem, making it difficult for companies to ascertain the bigger picture about consumers’ health.

Benefits of vertical integration

  • Companies also need a wider, data-driven view to develop new ways to cut waste and improve outcomes at lower costs. Vertical Integrators can, in theory, pull together many sources of key consumer data, allowing that broader vision to come into focus.
  • An integrated approach could help give companies a competitive edge in the New Health Economy, especially when it comes to managing pharmaceutical benefit spending, a key frustration for payers and patients alike.
  • Integration could help provide a more consistent consumer experience and resolve problems caused by a lack of communication, transparency and coordination. Nineteen percent of consumers surveyed by HRI in 2018 said they had little or no idea what their prescription would cost the last time they picked one up at a pharmacy. Just 24 percent of consumers surveyed by HRI thought their insurer was doing enough to keep drugs affordable. These integrations also may allow companies to pass on more savings to patients.

The data:

Some integrated companies would have capabilities in multiple healthcare areas
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Key customer experience data are spread across the ecosystem
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Deal impact analysis:

Health integrations are especially tricky. In the months and years following a deal, Vertical Integrators will be large, complex healthcare organizations consisting of teams with different missions, cultures, staffs, electronic health records (EHR) systems and other databases holding sensitive, protected data. Fifty-eight percent of executives involved in M&A transactions surveyed by PwC in 2017 said integrations were more difficult than expected; 42 percent said their staff and organizations were still not fully integrated.

Vertical Integrators should devote sufficient resources to assign accountability, communicate change, define new organizational roles and responsibilities, create incentives around integration milestones, change the organizational culture and develop a unified set of policies and procedures for the new organization. Compared with horizontal integrations, vertical integrations typically involve few synergies, requiring companies to find cost savings through new models of care or product delivery. Broadly, just 50 percent of executives involved in mergers or acquisitions and surveyed by PwC say the deals were financially successful, while 55 percent said they were strategic successes and 47 percent said they were operationally successful. Companies should also give thought to the long-term sustainability of their integrations. Previous waves of healthcare consolidation and integration have been pared back or disintegrated for various reasons, including consumer dissatisfaction at their lack of out-of-network care options in the case of Health Maintenance Organizations.

Gain insights from unparalleled access to critical data. Some Integrators will now insure patients, provide pharmacy benefits, provide primary care and simple acute care at retail clinics, sell them groceries and even provide them with transportation to their appointments. Vertical Integrators will collect a wealth of data and should invest in systems and staff to create customized customer experiences, reduce costs and improve outcomes. Integrators may not possess all of these capabilities and can partner, build or acquire to obtain them.

Focus on cost. Several Vertical Integrators have stated they will be able to bring down the costs of goods and services through increased negotiating power and scale. But in some cases, increased scale might not have the intended effect of decreasing costs. “Until these companies are able to affect physician workflow and are able to inspire and support value-based care, these enlarged companies are only addressing limited elements of the supply side,” economist Jane Sarasohn-Kahn told HRI. However, increased integration at scale may allow some companies to better compete in a value-based environment by having more exposure to—and control of—patient outcomes.

Contact us

Benjamin Isgur

Benjamin Isgur

Health Research Institute Leader, PwC US

Trine K. Tsouderos

Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

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