Most of the health care industry is vertically integrating to some degree, whether it's health plans, Big Retail, or health systems. Digital technology is a crucial component of this integration process from the digital infrastructure needed to tie together newfound assets to the virtual care services themselves.
Organizations looking to vertically integrate will increasingly rely on digital health to strengthen their assets, engage consumers, and create differentiated offerings—making vertical integration inseparable from digital health. Amazon, UnitedHealth Group* (UHG), and CVS serve as examples of this trend. However, these companies are at different stages of the integration process. Some have the experience in digital consumerism like Amazon, others have the assets like UHG, and a few need to aggressively expand into digital like CVS.
By understanding these companies approaches to vertical integration and where they might go next, we can make better predictions about the digital health market.
What we are thinking: Vertically integrating in health care isn't Amazon's end game but likely the beginning of another entry point into Amazon's consumer ecosystem both for patients and provider organizations. The pending acquisition of One Medical, growth of Amazon Pharmacy, and rumored interest in other players signals that Amazon is focused on diversifying its health care assets and monetizing its expertise in digital consumer experience to capture more touchpoints (and revenue) from the health care journey. This might translate into the creation of new platforms that combine and deliver Amazon's health services or new acquisitions to bolster their service offering.
That said, Amazon isn't likely acquiring only for capabilities but for data that can help them iterate and expand on their existing health care portfolio which includes Amazon Pharmacy, Health Lake, and Amazon Halo. With One Medical and Iora, they have access to diverse patient demographic information and can use their experience with consumer data to better understand patients today, predict where patients' consumer preferences are going, and better position Amazon as a partner to patients and clients going forward.
Potential impact on digital health:
*Due to UHG's activeness in the acquisition, investment, and partnership space, we have provided only a few examples across the past few years.
What we are thinking: From building new technologies to engaging in digital health acquisition sprees, UHG has become one of the largest providers of health care IT services. It has leveraged digital technology and vertical integration as a tool to force almost all industry stakeholders to work through some part of their business. This market dominance has led UHG to become both a partner and competitor within the industry.
However, UHG might be falling victim to its own size or "bloat, making it difficult for them to integrate. Consequently, UHG's strategy appears to be "bet everywhere with the hope of winning somewhere." By building or buying for any potential need or gap in the market (e.g., analytics capability, technology service), UHG has positioned itself to compete or dominate whenever or wherever the industry shifts. As part of this shift, UHG may pivot to meet the rising demand of consumerism and search for synergies between its digital assets and care ecosystem to deliver on a more coordinated experience for members.
Potential impact on digital health:
What we are thinking: CVS was the first major health care company to combine drugstores, insurance, and pharmacy-benefits management (PBM). Unlike other health retailers, CVS has an insurance product and unlike other health plans, CVS has a retail footprint and business which isn't anchored by its PBM. However, the missing piece of the puzzle is a digitally robust infrastructure for CVS to deliver on the promise of an omnichannel retail health experience and generate more value from its assets (e.g., CVS Pharmacy, Aetna, pending acquisition of Signify Health).
CVS will be challenged to capture the advantages of virtual interactions to retain patients in a world of "everywhere care." This will require investments in digital tools that can convert the one-time customer coming in for a flu shot or to buy a candy bar into an ongoing patient relationship. As CVS attempts to connect digital health to their physical footprint, they will need to capitalize on their existing customer relationships and health care portfolio to increase patient stickiness across the care journey.
Potential impact on digital health:
Amazon, UHG, and CVS are not the only players looking to vertically assemble in health care. Payers like Humana or other Big Retail entities like Walgreens have similarly positioned themselves to diversify in health care. Across these big names, those who can successfully leverage digital health as a tool to strengthen and integrate their new assets will be better positioned to dominate in a future health care landscape.
*Advisory Board is a subsidiary of Optum, a division of UnitedHealth Group. All Advisory Board research, expert perspectives, and recommendations remain independent.
Health care has long wanted to adopt the digital consumer experiences of banking, retail, and entertainment. However, health care has fallen short of that goal—often citing the unique difficulties of the industry.
Health care leaders should adopt a leapfrog strategy and take advantage of the lessons learned from its out-of-industry counterparts. Read on for the five components of a digital experience health care can adopt from other industries.
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