New-School Market Deals are Poised to Disrupt Old-School Healthcare

By Kate Brown

Leader, Center for Health Innovation, Mercer

Mergers and acquisitions in the healthcare space have accelerated dramatically since 2020, and most of the headline-grabbing deals reveal a similar motivation: The desire to capture more steps in the healthcare user’s journey. Vertical integration, which allows one company to offer a broader range of services, has become the name of game.

Why should employers care? These M&A activities are reshaping the landscape of healthcare offerings, and will bring about new choices for employer plan sponsors. When done right, vertically integrated systems, whether built on a digital health chassis or the footprint of a major retailer, provide a more seamless experience for the healthcare user, can improve health outcomes and reduce cost – three things employers care deeply about.

Here then, is a quick overview of some of the most significant recent instances of vertical integration – and why employers should care:

Digital health companies making moves

Just a few years ago, many of these companies were considered “disruptors” and the jury was out on whether they would make inroads into the world of employer-sponsored benefits. But massive amounts of funding --combined with a few years of evidence to support their claims--has given them significant influence with employer plan sponsors. Today, many of the disruptors have grown up and are cannibalizing each other in search of a stronger value proposition and an expanded digital (and sometimes physical) footprint:

In 2015, Grand Rounds, a health advocacy service, had total funding of $106 million, and their influence in the employer health and benefits space was minimal. Today, the company is valued at $1.34 billion after acquiring telehealth provider Doctor on Demand, a move which allows them to seamlessly offer virtual care as part of their care navigation services.
Accolade, which also started out as a health advocacy vendor, has made a series of acquisitions of other digital health companies, including the second-opinion vendor 2nd.MD – allowing them to offer additional services to healthcare consumers experiencing a serious diagnosis.
In a highly visible example of vertical integration, Teladoc, a leading provider of acute telephonic care, recently acquired Livongo, which provides longer-term chronic condition management service – again seeking to create a more comprehensive, “stickier” consumer experience.

Walmart sets the bar for retail companies seeking vertical opportunities in healthcare

They say the hallmark of a great strategy is that it holds up over time, and the same could be said of marketing taglines. Take Walmart’s “Save money. Live better.” Did whoever coined this know about the company’s plans to expand into the healthcare space, or is it a perfect coincidence?

For the uninitiated, Walmart has announced several health-related initiatives over the past two years or so, all adding to Walmart’s growing influence in the space. They are opening clinics in various retail locations. They have launched the only private brand of analog insulin, to improve access and affordability of this medication for people with diabetics.

But they are also making acquisitions that point to that goal of owning more of the heath care consumer journey -- perhaps most significantly MeMD, a telehealth provider that was founded in 2010. Now Walmart can service consumers virtually, referring to in-person Walmart clinics and pharmacies where needed, thereby increasing opportunity for the consumption of non-healthcare products and services.

All of this action in the market creates challenges and opportunities for employers. At a minimum, employers should vet their potential partners and understand their product roadmaps. How are vendors looking to expand their services, and how might an employer take advantage of those new offerings? Employers should also consider what new services are emerging from non-traditional entities, and how those services might augment or replace existing programs.

We here at Mercer’s Center for Health Innovation are keeping tabs on the continued market moves, and are ready to help employers sort through what it means for their organizations.