There has been a constant flurry of announcements, press releases on mergers, acquisitions, investments, partnerships in healthcare over the last year. It is rather disorienting and difficult to keep up with. Is this the crazy consolidation that will result in a level setting in 2019 and 2020? We’ve seen the use of some very dramatic descriptions like ‘seismic shift’ to explain the phenomenon, but we don’t think it is seismic yet if the impact of said M&A is yet to be seen. But one thing is for sure, valuations are skyrocketing, and we’re getting priced out!‍

The Story So Far‍

You’ve probably already seen a lot of this. But we’ll give you the gist of it. Some of the biggest mergers and acquisitions of 2018 were:

The key themes we saw are:

Large Provider Mergers and Acquisitions

UnitedHealth’s aggressive purchase of physician practices and surgery centers, the Optum- Davita merger, the Dignity Health - Catholic Health Initiatives merger, CVS’ purchase of Aetna and Cigna’s of Express Scripts - you get the drift.

CVS will now have access to a large captive market for its PBM through its purchase of Aetna. That could help it compete on a more equal footing with UnitedHealth's OptumRx and Anthem's upcoming PBM, IngenioRx. On that note, Anthem is breaking up with Express Scripts following its partnership with Cigna to focus on building and launching its own PBM, IngenioRx. This wave mostly shows we are trying to move away from reactive inpatient care to more proactive home-based care.

The emerging health entities from the active M&A activity are some of the largest employers in the the USA - and therefore have significant captive populations on which to experiment new health innovation models. This also implies blurring of lines between insurance companies that have traditionally been responsible for ‘paying’ for care and providers for ‘delivering’ it.

Is this a fight to the finish for cheaper healthcare in the USA? Making primary care more accessible and affordable is of utmost importance. Patients can go to CVS’ 1,100 walk-in clinics instead of heading to an ER which is clearly more expensive. They also plan to convert CVS' 9,700 retail store locations to community-based healthcare hubs where patients, especially those with chronic diseases, can access some form of treatment as a complement to their normal primary-care physician visits.

Wait a minute. Sounds too good to be true. Some critics worry this may mean fewer options for the consumer, and higher expenses. Combined companies may control too much of the market and eliminate pricing wars, which we very much need. They may certainly lower spending, make higher revenues, but as the consumer, I may still have to pay the same premium for my health insurance. As a physician, I still need to be kept at work - these mega orgs need to prove they’re controlling health care costs and keeping people at work.

Pharma Mega Mergers and Acquisitions

We have seen pharmaceutical companies partnering with digital health solutions in a bid to enhance their offering and remain competitive, but Roche was one of the first companies to actually acquire after multiple investments in data analytics company Flatiron (we are not including older acquisitions older than 2018). This meant many things to them, including:

• Value of access to structured and unstructured data
• Fast tracking clinical trials with RWE
• Forward looking strategic investment in Oncology
  

Bristol Myers Squibb’s merger with Celgene in Jan 2019 for $74B, thus combining the offerings of these two pharmaceutical giants making them a particularly strong competitor in the oncology and immunology space. There is an opportunity for novel therapies and enhanced research and manufacturing capabilities resulting from a merger like this one. On the flipside, the argument healthcare providers may make about eliminating competition resulting in drug price hikes.

GSK bought Novartis’ Consumer Healthcare business in March 2018 for $13B. Consumer remedies sold over the counter have lower margins than prescription drugs, but, they are typically very well known and durable brands with loyal customers.

It is hard to pick a side - such M&A activity is inevitable, given the deep pockets that some of these companies have, and the need start-ups have for a strong partner to help build and grow their business as well as to bring their offering to a larger audience.

Startups Merging with and Acquiring Other Startups

It’s not just the big fish that are at it. We are increasingly seeing digital health startups flexing their M&A muscle and merging and acquiring other solutions with the aim of bulking out their own offering, gaining access to a larger customer base, achieving clinical and non-clinical milestones faster. or ensuring that the competition doesn’t steal their thunder further down the line. Such mergers may lack the oomph of the larger ones mentioned above, but should we care if impact is greater than price?

Doctolib is an example of the latter. In 2018 we saw the appointment booking company buy their fellow booking solution, MonDocteur. So, what was the push and what was the pull. For a start, the French digital health environment was being served up two very similar solutions. The acquisition allows the new body to hold a consolidated space in France and continue to focus their efforts on scaling beyond into other European geographies (Docolib achieved impressive uptake when they launched in Germany in 2017).

We are also seeing a rise in the startup cohort when it comes to acquiring AI capabilities. The likes of Headspace seem to be taking an approach where they establish themselves with a core health offering that seems a little more familiar to consumers, and then once they have gained confidence in the core offering and are ready to tackle increased scale hedge their bets on AI - as demonstrated by the Headspace acquisition of Alpine AI, allowing them to leverage voice enabled interactions.

Livongo acquired Retrofit and this will give Livongo customers access to Retrofit’s Diabetes Prevention Program. Livongo have also bought, as of 30th Jan, behavioral health app MyStrength for north of $10M. Logisticare acquired Circulation for $44 million to provide a larger reach in non-emergency medical transportation.

Technology Companies Moving into Healthcare

In the summer of 2018, a deal dropped that had a reverberations in many industries, one that you couldn't have missed - Amazon's acquisition of PillPack. We’ll keep this section short because you’ve probably read a lot about this.

PillPack has the basic infrastructure that Amazon needs - Mail-order pharmacy licenses in all 50 states, multiple pharmacy locations and a call center.

What this means for the industry:

• Brand Amazon: Amazon has an advantage in that they have been building their businesses with a focus on "human empathy’’
• Easier to manage multiple-meds (PillPack uses PharmacyOS)
• Opportunity to leverage Alexa to order meds
• Price wars + price transparency**
  
  

What Amazon may need to succeed:  

• Amazon either needs to build or buy the other functions PBMs currently do if it wants to actually own drug distribution. Pillpack already works with the major PBMs, but it's currently at their mercy.
• A retail pharmacy to handle patients with more immediate needs.
• Insurer that pays for the health benefits of the consumer have to partner with Amazon for them to truly penetrate the prescription drug industry.
  

The Rise of Consumerization: Patient as Payer  

Think of Best Buy, a consumer electronics enterprise’s acquisition of Great Call, a platform that builds products and technologies to help aging consumers live more independent lives. This was an unpredicted play, giving Best Buy a slice of the money in healthcare pie and locking in a huge segment of the population whom they could cater to.

We’d argue that the Amazon-Pill Pack deal fits really well under this bucket too. Consumerization (or the rise of the wellness market, if you will), demands good customer service, convenience and transparency, all of which a brand like Amazon offers.

The purchase of Withings back from Nokia, Fitbit’s acquisition of Twine Health, Medtronic’s acquisition of Nutrino, are all indicative of the desire of the consumer to invest in her own wellness, and also of the rise of patient as payer without the myriad barriers and complexities of the traditional pathways of consuming healthcare.

All said and done, with the current amalgamation of players and their strengths, it is obvious there will be massive shifts in the location and experience of healthcare towards retail and virtual spaces, new alliances will give rise to new businesses and business models, and the industry is bound to change significantly in even just a few years from now.

Image credit:T. Greg McKelvey Jr. MD, MPH-Chief Medical Officer at KenSci