Healthcare dealmaking involves more players with different goals and new business models than ever. It is a disservice to refer to healthcare M&A with the same vocabulary as in decades past. Tried and true language still serves a purpose, but doesn't express the aims and diversity of mergers and acquisitions in healthcare today.
Here are four archetypes of new healthcare deals, as outlined by PwC. The firm's full report, "The New Health Economy in the Age of Disruption," can be found here.
1. Vertical integrators. This category represents deals such as CVS Health and Aetna, Optum and DaVita Medical Group, and Cigna and Express Scripts. These couples are trying to lower costs of the supply chain by owning more of it and extending those savings to consumers. The challenge? Only half of executives involved in M&A report financially successful integrations. That is a concerning statistic for healthcare executives "about to spend tens of billions to make acquisitions," according to the PwC team.
2. Employer activists. Here you have JPMorgan, Berkshire Hathaway and Amazon. Combinations such as this are setting out to limit the growth of their own healthcare costs. The challenge? Their negotiating power is relatively modest. Although JPMorgan, Berkshire and Amazon are inarguably well capitalized and substantial in size, their employees are spread throughout the U.S. and not highly concentrated in any one place. Even their headquarters are spread out, in New York, Omaha and Seattle, respectively. This dilution makes it tough for employer activists to hold much leverage in negotiations with local providers and payers.
3. Technology invaders. Google, Apple, Amazon, Lyft and Uber live in this class. The deals these companies strike are made to command more space in the healthcare industry, and they have an advantage in their understanding of modern consumer expectations and needs. The challenge? Technology invaders still need legacy or existing companies as partners for healthcare industry expertise. As one executive put it in the PwC report: "Any tech company can build a diabetes product. Few tech companies can build a diabetes product knowing the history of what's worked, what hasn't worked."
4. Health retailers. Retailers like Walmart, CVS Health, Amazon and Rite Aid want to gain market share by functioning as healthcare providers. These businesses have an advantage in that they understand patients first as customers and consumers, with insight into nonclinical needs that affect their health, such as access to food. The challenge here is online versus brick-and-mortar strategy. As virtual retailers meet key consumer needs without the overhead costs and restrictions of retail storefronts, businesses and deals in this category face strategic questions in a changing environment.