HBI Deals+Insights / News

Consolidation conundrum – is it ok to own all a pathway?

Pharmacy chain CVS’ latest acquisition – home care provider Signify – has led to an outcry in certain quarters asking, given that it already owns the drugs price negotiator and a private insurance company, whether such wide reaching consolidation is good for shareholders or for patients.

There’s almost no doubt that this is a smart deal for CVS which will prove to be profitable. HBI understands that with the acquisition of Signify, CVS owns every part of the patient pathway with the exception of diagnostics and hospitals. The enormity of this cannot be understated. CVS owns the company which negotiates prices with drug manufacturers, they own the places where you can sell the drugs, they own clinics where the drugs can be prescribed, and they now have a business which may help people stay out of hospitals. Their insurance company benefits from Medicare Advantage, a programme where the US government pays private insurers a set tariff. The payors can keep the surplus, which should be higher given the ease with which CVS can now move funds.

There is a possibility these savings will then be passed on to consumers. After all, if healthcare companies are going to start consolidating in the same cost-reducing way, they may offer lower prices as they simply couldn’t afford not to. As such, there’s a possibility we see competition between giant multi-sector providers instead of between labs and other labs and hospitals and other hospitals. Or a possibility that local areas only have one real option, which makes healthcare like the hardware retail chain Home Depot as one source put it.

But this also hasn’t happened in the past when US hospitals have consolidated, and often savings come at the cost of lower quality.

And a supplemental question. If competition authorities did not challenge Amazon’s purchase of One Medical, where does it stand on CVS’ purchase of Signify? Deals + Insights members can read our full story here.

We would welcome your thoughts on this story. Email your views to Joe Quiruga or call 0207 183 3779.