Health systems, insurers, retailers like CVS and tech companies like Amazon are all scrambling for a bigger piece of the medical pie. The lines are blurring as drugstore giants are trying to look more like providers — look at VillageMD clinics located at Walgreens pharmacy locations —and hospitals are borrowing a page out of retailers' consumer-centric playbook.
Kroger is transitioning some of its in-store clinics into value-based primary care centers as it looks to cash in on the booming sector of senior-focused medical care. Big-box retailer Costco also is expanding its healthcare footprint, teaming up with startup Sesame to offer special discount pricing on a broad range of outpatient medical care services.
Patients are looking for easier access to medical services and more convenience, and this is opening big opportunities for insurers, retailers, tech companies and nontraditional players to muscle their way into primary care. These nontraditional players are gaining traction and have the potential to grab as much as a third of the U.S. primary care market by 2030, according to a 2022 report from Bain and Company.
"I do think that primary care will continue to be a key focus into 2024. I say that keeping in mind the big tech players and also the retailers that have continued to invest heavily in that space, but then it's also very much top of mind for both health insurers and for health systems," Forrester Principal Analyst Arielle Trzcinski told Fierce Healthcare.
"Primary care is the tip of the spear for many folks in terms of how do they earn a relationship with a consumer; primary care is still the most frequent way. It's where we go to get our annual checkups and maintain our health, but it's also where we go when we're sick," she noted.
These retailers and tech companies see the potential to offer patients a different healthcare experience that is more affordable and eliminates long wait times. Just in 2023, there was a flurry of activity — Amazon finalized its $3.9 billion acquisition of One Medical, CVS sealed the deal on its $10 billion buy of Oak Street Health and Walmart opened up more health centers.
Against the backdrop of all this M&A activity, Optum Health, UnitedHealth Group's health services arm, continues to buy up doctor networks and medical sites. The insurance giant now has approximately 90,000 employed or affiliated physicians, a figure disclosed by Optum Health CEO Amar Desai, M.D. during the health insurance behemoth's 2023 investor conference back in November. It likely means UHG is the largest employer of doctors and it either acquired or hired 20,000 doctors in the last year.
Humana is another payer investing big in medical services for seniors. The company has major growth ambitions for its CenterWell senior-focused primary care business and plans to open 50 new centers by 2025. Cano Health also offloaded its senior-focused clinics to Humana's CenterWell in Texas and Nevada in a deal valued at $67 million.
"I think we'll continue to see players going after, 'How do I find a way to capture that patient?' I think we'll continue to see more of this convergence that's occurring, health systems, health insurers, retailers making acquisitions of various Medicare clinics or digital health offerings or even looking beyond that to things like mental health or home health services," Trzcinski said. "We're starting to see that blending and blurring of the lines."
Examples of this convergence can be found in every market. Hackensack Meridian Health and CommonSpirit Health's Virginia Mason Franciscan Health are partnering with Amazon's One Medical to provide the online retailer's primary care patients with access to specialty care.
Retail giant Walmart has been rapidly expanding its healthcare clinics but also recently inked its first partnership with a health system, Orlando Health, for care coordination. Retail pharmacy Walgreens also recently announced a collaboration with Hartford HealthCare to add health clinics to select drugstore locations in Connecticut. The "unique retail health model" is based on a "shared vision to improve access to care, reduce healthcare costs and offer convenient access to essential primary care and pharmacy services," the organizations said in a press release.
These partnerships are critical as nontraditional players move deeper into healthcare and will need to refer patients to other providers for specialty care.
As retail health gains traction, it removes consumers from the traditional primary care model and could potentially lead to greater fragmentation of care for patients, Trzcinski noted. "Your primary care doctor used to be your quarterback. Many patients now don't have a champion within the health system, helping them navigate it," she said.
Research shows about 30% of patients do not have a primary care doctor.
This also opens up opportunities for healthcare companies to "own" the patient journey in between those episodic visits and play that navigator role by offering self-triage tools and other services. Elevance Health, formerly Anthem, built out its Sydney app to function like a personal health assistant for members and has added services like a nutrition tracking tool.
"Providers have to figure out a way of not only delivering convenience to reduce friction and offer a great experience that ultimately also results in better outcomes, but it's also about finding ways of engaging with you outside of that medical episode," Trzcinski said. "That's something that we continue to hear from many health systems and health insurers as they try to figure out 'How can I make myself top of mind outside of when you are sick or when you go for your annual visit.' They are looking for ways to be able to provide coaching opportunities to support wellness and then be able to guide and nudge their patients and members to where they should go when they have that moment of need. And I think we'll continue to see a focus on that deeper orchestration of those guided journeys."
Retailers, insurers and VCs placing big bets on healthcare
Large companies aren't just targeting primary care but also have their sights set on home health.
In June, UnitedHealth Group announced plans to buy home health and hospice firm Amedisys for $3.3 billion, outbidding a competitor, Option Care Health. But, the Department of Justice (DOJ) is taking a closer look at the deal, which is not surprising given that federal regulators are stepping up scrutiny of M&A transactions.
Earlier this year, Optum also shelled out $5.4 billion for home health provider LHC Group, a deal that was finalized earlier this year.
According to William Blair analyst Matt Larew, there is not a dominant player in the home health market, and a combined LHC Group and Amedisys would make up less than 10% market share and a lower percentage of the hospice market. Most analysts and experts don't believe the DOJ's request for information will sink the Optum-Amedisys deal.
Walgreens spent $5.5 billion in 2021 to take majority stakes in healthcare providers VillageMD and CareCentrix, a post-acute and home care company. VillageMD later struck a $9 billion deal to buy urgent care provider Summit Health-CityMD in November 2022.
CVS also made its home health play, shelling out $8 billion for Signify Health in 2022.
During a recent investor conference, CVS executives said the company is focused on integrating all of its recently purchased assets and unveiled the Healthspire brand as the umbrella of the company’s healthcare delivery units.
"That rebrand is an attempt to bring together multiple pieces and start to pave the path to show how these pieces fit together in a puzzle to create more of a flywheel for CVS. I think you'll continue to see other retailers, if they have gaps within their services, continue to do acquisitions," Trzcinski said.
CVS anticipates its health services division will bring in $10 billion in revenue next year, up from $6 billion in 2023. That division also will grow at a double-digit rate through 2028, CEO Karen Lynch told investors.
A key driver of that growth is referring members of the company’s Aetna insurance arm and MinuteClinic visitors to its Oak Street Health value-based care clinics or its home health services from its Signify business, executives said.
Bu retails aren't the only ones making big moves. In a surprising announcement at the HLTH conference in October, venture capital firm General Catalyst unveiled that it was launching a new company designed to provide advisory services to health systems while also eyeing a big acquisition by next year.
The new company, called Health Assurance Transformation Corporation (HATCo), aims to buy a health system in 2024, Hemant Taneja, General Catalyst CEO, told the HLTH 2023 audience.
Trzcinski said she did not want to speculate on the health system that General Catalyst was looking to buy. "I'm very curious to see how it plays out and what it looks like," she said.
Hospitals across the country are facing financial strain. It's estimated that 600 rural hospitals are at risk of closing, or about 30% nationwide, according to a recent report. There are growing medical deserts, and patients are losing access to critical services like maternity care. Considering all these factors, there is room for nontraditional players, even insurers, to step in and close these gap, Trzcinski said.
"There is an opportunity for health insurers to come in and say, 'We need to come in and think about the end-to-end care and how we control costs and start owning more on that provider sector," she said. "I think we'll continue to see more health insurers testing out, 'What does ownership of care delivery look like?' and becoming more deeply entrenched in that provider definition."
Will the competitive market fuel more M&A?
Industry executives are bullish that the global healthcare industry will see a rise in merger and acquisition activity in the next year, led by healthcare companies rather than private equity.
A report from investment bank Jefferies, based on a survey 600 senior leaders in healthcare, found 68% of respondents expected the volume of deals in healthcare to rise in 2024, with 60% believing companies within the sector will dominate the transactions, Reuters reported.
Health services deal volumes through November 15, 2023 declined by 13% from 2022 levels as the sector continued to be impacted by headwinds driving a slowdown in the broader deals market, PwC reported. Contributing factors include higher-for-longer interest rates, valuation gaps, increased federal and state regulatory concerns and general macroeconomic risks.
PwC analysts are "cautiously optimistic" for a rebound in healthcare M&A, as corporate and private equity players hold large levels of capital along with the recent emergence of nontraditional deal structures.
"I think a number of strategic announcements will continue at least through Q1, if not the first half of the year, maybe trying to use an election year as a way to accelerate. I think that there are good reasons why a lot of strategic deals can get done here in the short term as both potentially interest rates come down and some strategics have been holding on to some cash reserves," said Nathan Ray, a partner at West Monroe who leads the consultancy's healthcare mergers and acquisition practice. "There's been a bit of hesitation with larger strategic roll-ups outside of pharma and life sciences in the last few years, but I think there will be a return to trend."
While large payers have made big M&A moves based on vertical integration strategies, there is also room for strategic plays from providers and health tech companies, he noted.
"Areas bridging both healthcare, life sciences and retail spaces will continue to be places for enhanced growth. I think you're seeing more and more that the strategy of healthcare is also retail in most cases. All of the largest retailers now have put their big foot forward and laid out strategic plans to connect all aspects of your life through convenient access points or through digital engagement," Ray said. "Many of these biggest platforms will continue to acquire those things that can fill out that engagement path with digital solutions and add more services and revenue streams to existing businesses."
He added, "And those biggest businesses are either going to be major retail, major healthcare or collaborations between them."
The deals that made headlines in the past few years mark the "first round of cards," Ray noted. Those acquirers will now work on internal transformation to build a "completely integrated, more thoughtful and digitally-enabled ecosystem," he said
"I think there will continue to be acquisitions to complete or to augment aspects of that value prop, I think you'll also hear about investments to do new and interesting expansions around the edges of both primary care and that retail experience," he noted. Ray anticipates unique partnerships and investments "worked out on the sidelines" to let the "overall strategic intent of some these acquisitions play out on on the larger scale of these organizations.
M&A activity in digital health experienced a 44% decline in the third quarter of 2023, hitting a three-year low. But some experts expect to see an uptick in digital health M&A activity in 2024 as providers, insurers, retailers and other healthcare operators look to build out more digital engagement.
There's the potential for more consolidation and smaller M&A deals among digital mental health companies, Trzcinski noted. "There are so many large players in the mental health space that offer that end-to-end approach, but then you also have a lot of point solutions that have gone after very niche focuses or specific conditions within a population like teens or children. Those larger players may not have those capabilities, or they are not as robust," she said.
However, federal regulators recently finalized merger guidelines that could have a chilling effect on healthcare M&A going forward.
With many of the big primary care plays seen in the past year — Amazon buying One Medical, CVS picking up Oak Street Health, Walgreens' VillageMD acquiring Summit Health-CityMD and Walmart expanding its clinics — time will tell if these companies can put the different puzzle pieces together in a way to both build a better primary care business and move the needle to improve patient care.
"A lot of these are not acquisitions that can be evaluated on a 24- or even maybe a 48-month time frame," Ray said. "There's been mixed efforts as to how they're bringing these things together and to what degree they've known their strategy before buying something or forming their strategy with the help of some of those leaders and visionaries that that they brought on from those organizations."
The retail race in healthcare is a marathon, not a sprint, Trzcinski points out.
Retailers who have made recent deals now face an uphill climb on a technical, operational and strategic level and face ongoing challenges with data interoperability and a nationwide provider shortage, she noted.