Vertical integration is a natural reaction from healthcare companies that face market uncertainty. A side effect of this integration is that these arrangements provide a unique opportunity to drastically improve the member experience. Historically, each link in the healthcare chain had built-in profit margins: The prescriber fee for service included a profit for the provider, the pharmacy captured its margin on any filled prescription, health plans attained their expected value in accordance with their medical loss ratio, etc. This easily managed system where each link generated a defined profit is changing due to market and public opinion, and regulatory forces. These forces, while numerous, originate from the reality that healthcare expenditure growth is unsustainable, growing from 12.5% of GDP to almost 17% of GDP in 15 years.
We are still in the early stages of the inevitable evolution of the healthcare system, and it’s not yet clear what the final state will look like. Some possible end states could include:
- A single governmental payer system
- Exclusive capitation models where providers assume the risk (and the upside)
- Outside control of pharmaceutical prices
- Alternate care sites (such as the CVS MinuteClinic or onsite clinics) dominating primary care
With this uncertainty, large firms at every level are looking to insulate themselves against the risk posed by these forces. Vertical integration appears to be an appealing option as it provides diversification within a sector where companies can capture synergies and have expertise. Additionally, this vertical integration is not subject to the same regulatory scrutiny as horizontal integration. Some recognizable examples of vertical integration in healthcare include:
- CVS and Aetna: Aetna gains the ability to capture the value generated at the pharmacy and access to alternate care sites through the MinuteClinics
- Intermountain, Ascension, SSM Health, Trinity Health, and the VA launching Civica Rx: In reducing the value capture from pharmaceutical manufacturers, this insulates the provider's margins in a capitated or value-based payment model
- Cigna and Express Scripts: Cigna is able to capture the value generated by the PBM and empowers Cigna with more influence over pharmaceutical manufacturers
Despite the rather mundane underlying motivation for integration and evidence to suggest that it has not readily occurred to date, these newly emerging firms have an opportunity to leverage their newfound position to develop a differentiated offering to improve the member experience. Imagine:
- A payer-provider integration enabling care managers to share definitive pricing with patients in real time as treatment decisions are being made
- A provider-pharmacy integration enabling alerts for providers when patients miss a refill, enabling early intervention to improve adherence and, subsequently, outcomes
- A fully integrated system enabling a patient portal that provides insight on all aspects of a patient’s health, including pricing and reimbursement, labs, vitals, wearable integration, appointment management, referrals, telemedicine resources, etc.
This member experience is crucial and has been found to increase profitability in many sectors. Vertically integrated firms need to invest in three key areas in order to realize any improvement in member experience:
1. Member experience vision: Often, the component parts of the new unified organization will bring with them their own objectives and perspective on the member experience. A unified and audacious vision that resonates with all parts of the organization and that can serve as a “North Star” for the combined entity helps ensure that an improved member experience can be realized.
2. Operating model optimization and governance: Take, for example, Aetna’s decision to move into the specialty pharmacy realm. On one hand, Aetna as a payer has a motivation to limit the use of specialty therapies to only those patients who have exhausted lower-cost options, whereas a traditional specialty pharmacy excels in ensuring payer approval of therapies. In order to ensure that parts of the business are not tripping over one another, the organization needs an operating framework that, at its core, focuses on the overall member experience and patient outcomes. Once the model is established, ongoing governance is needed to ensure that execution at all levels is aligned with the operating model.
3. Data integration and insights: A vision and operating model are imperative, but if data is siloed, any attempt to create a unified member experience will be futile. In an ideal world, the data would flow seamlessly. For example:
A member’s wearable device detects a change in activity patterns, which is indicative of an acute condition. This alert shows up on the provider’s offices portal, and the office reaches out to schedule an appointment with the member.
- During the member’s visit, a prescription is written, and the pharmacy begins preparing the order.
- When the patient does not pick up the medication, an alert is sent back to the provider, and a care manager reaches out to the patient to ascertain why the prescription wasn’t filled and what can be done to remedy this.
- A week after the prescription was filled, the plan’s telehealth division conducts a short follow-up check to ensure that the medication was effective and that no further treatment is needed.
- Later, when the patient is reviewing her medical history through the online portal, she is able to see the end-to-end history of the condition and associated spend.
In addition, a reporting layer and (more importantly) an insights layer is needed so that these programs have an effect on outcomes, and the member experience can be measured and optimized by the health plan and providers.
Vertical integration, perhaps unintentionally, provides a foundation that can be used for enhancing the member experience, but this experience will only be enhanced if companies take the necessary steps outlined above. And while the member experience was likely not the economic driver of vertical integration, this opportunity to improve should be aspirational for any firm that’s undergoing integration. The long-term impact of a unified and positive member experience will outweigh the investment required to make this possible.