Another day, another healthcare intermediary is absorbed by a player intent on building scale to deliver value, control data and power up a patient-centered business model. Cigna’s announcement of its intent to buy Express Scripts is just the latest development in the ongoing compression of the healthcare value chain.

We’ve been predicting these types of healthcare value chain changes for some time. The healthcare industry has no long-term immunity protecting it from the technological and cultural trends that have disrupted other industries: mobile technologies, on-demand everything, platform-based and market-priced offerings, etc. Together, these forces are democratizing healthcare, enabling consumers to take charge and giving rise to one or more consumer-to-business (C2B) on-demand healthcare platforms. (We think Amazon could be the first in that space.) A key component of healthcare-on-demand will be tighter, smarter healthcare value chains, in which layers and players that add no value will be driven out – or will morph into new entities.

By acquiring Express Scripts, Cigna would initially gain scale, a pipeline of Blues plans and self-insured employers, and a strong foothold in the mail-order and growing specialty pharmacy businesses. It would also capture end-to-end control over and visibility into the pharmacy benefit  component of healthcare. These factors could create several key business benefits, including:

  • Reduced drug costs through increased purchasing power and efficiencies gained by consolidating redundant systems within the two companies.
  • Comprehensive management of member and patient care through easier integration of pharma therapies and behavioral health into disease and care management and wellness initiatives.
  • Potential transfer of expertise in the specialty pharma field to precision, individualized medicine and orphan/small population therapies. These areas are expected to grow as genome sequencing costs plummet. Specialty pharma alone is projected to grow to $300 billion in annual spend by 2021, up from $180 billion in 2016. 
  • More efficient management of pharma spend and a clearer picture of the therapeutic impact on health outcomes, vital data to gather as the industry pushes toward outcome-based reimbursements.
  • Comprehensive and improved data about a large universe of member-patients, assets that would be valuable to the merged entity for managing population and member health. The data would also be attractive to third parties, such as pharmaceutical companies seeking continued evidence for the efficacy of therapies.

This deal, and others, such as CVS’s planned acquisition of Aetna and Anthem’s intent to create its own PBM, are proof of the collapse of the healthcare value chain as we’ve known it. Too many entities have owned too many pieces of that chain and have not added sufficient value to it, whether defined as improving patient care or reducing costs.

Healthcare players must respond to continuing industry consolidation by understanding where they fit in the new tighter, smarter supply chain. We’ve envisioned a range of new business models in the industry; companies need to investigate, plan and prepare for their futures with urgency.

 

Jodie Thellin Skyberg

Jodie Thellin Skyberg

Jodie Thellin Skyberg is the PBM and Pharmacy Practice Leader for Cognizant Consulting Healthcare Practice.  She has over 20 years of experience... Read more