Amazon Is Already Reshaping Health Care

May 29, 2024 | Uncategorized

Amazon In The Healthcare Space

The mere threat of Inc. entering the health care market has already started transforming U.S. health care, and not necessarily for the better. This looming presence has accelerated consolidation, leading to potential consumer disadvantages.

The speculation about Amazon’s involvement prompted two of the largest pharmacy benefit managers, CVS Health Corp. and Express Scripts Holding Co., to merge with major insurers, Aetna Inc. and Cigna Corp. These mergers consolidate more of the U.S. health care system under fewer companies. While the merging companies claim this will reduce costs for consumers and the nation, the reality is likely to be more complex and less favorable.

About The Mergers

These mergers were made possible partly due to the Federal Trade Commission and the Department of Justice blocking the mergers of Anthem Inc. with Cigna and Aetna with Humana Inc. These mega-insurers would have been too preoccupied with their own integrations to pursue such vertical deals and would have been too large to be acquired by other insurers.

UnitedHealth Group Inc. has also played a significant role in motivating these mergers. It pioneered aggressive diversification by acquiring a large PBM in 2015 and through its Optum health-services unit. Its success in patient enrollment, revenue growth, and market valuation has set a benchmark, inspiring similar strategies among its peers. Additionally, profit pressures on PBMs likely made them more open to merging with insurers.

However, Amazon’s potential entry into the health care market is a significant factor driving these deals. Amazon’s technological capabilities, long-term investment approach, vast appetite for new ventures, and tolerance for thin margins have unsettled investors, especially those involved in the industry’s middleman roles. If these mergers are finalized, the result will be unprecedented market concentration, with the three largest U.S. PBMs tied to three of the largest insurers.

Effects On Prescriptions

CVS, Express Scripts, and UnitedHealth currently process over 70% of all U.S. prescriptions. Post-merger, three companies will manage the insurance of over 90 million people, process more than 3.5 billion prescription claims, and generate over $500 billion in revenue. While not every American will have both their medical and drug benefits managed by the same company, many more will in the future.

These integrated companies will have more comprehensive information about their customers and a greater ability and incentive to manage total health spending. UnitedHealth is already deeply integrated, with investments in ambulatory surgery centers and physician groups. The merger of CVS and Aetna, which adds retail pharmacies and primary care clinics to the mix, could significantly impact patient lives.

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