The Evolving Healthcare Model

Vertically integrated healthcare is making a comeback—and HR leaders need to be ready.
By: | March 12, 2018 • 3 min read

In the past few months, we’ve seen a series of high-profile consolidations in the healthcare industry: CVS Health’s planned acquisition of Aetna, a deal between UnitedHealth Group’s Optum and DaVita Medical Group and, just last week, Cigna Corp.’s announcement that it would buy the nation’s largest pharmacy-benefits manager, Express Scripts Holding Co. What do these new deals mean for HR leaders?

First, that they need to keep up with a healthcare-delivery landscape that is rapidly changing—and will continue to do so.


All of the recently unveiled mergers follow the vertical-integration model—the combination of plans and providers with segmented focuses—as opposed to horizontal models that fuse providers of similar products. Backers of the latest deals contend the agreements will drive down prices as well as enable better health outcomes because of centralized services.

While the merger of insurance providers and PBMs may seem to be a new trend, the approach is a return to the past in a way, says David Dross, managed pharmacy practice leader at global consulting firm Mercer.

“Way back when, 15-plus years ago, pharmacy and medical were together,” he says, noting PBMs rose in prevalence as mail-order medications flourished, as did retail-driven pharmacy services.

The move back to vertical integration has been, in part, motivated by the costs associated with the current pharmaceutical landscape—in which 85 percent of scripts dispensed are for low-cost generics, but they only account for 25 percent of overall pharmaceutical costs, which are largely generated by those with chronic conditions, Dross says.

“The impetus here is around figuring out the best way to manage those patients,” he says.

According to architects of the mergers, such consolidations will mean cost savings for both plan sponsors and members. On the sponsor side, Dross notes, employers could see pharmacy costs rise slightly—in part as those chronic-condition patients become more adherent to their medications—but, as a result of better care, medical costs could lower, and at a higher rate than the pharmacy increases.

“On the member side though, I think it’s up in the air,” Dross adds about promises of lower pharmacy costs for patients. Vertically integrated healthcare entities should ideally be able to drive better deals with pharmaceutical companies but, whether such potential savings will actually be passed to consumers is another thing.

“That’s hard to tell, and we’re just going to have to see how it develops,” Dross says.