The health care sector has become increasingly vertically integrated in recent years. The initial waves of integration largely involved mergers and acquisitions between hospitals and physician practices. More recently, the parent companies of large health insurers have been acquiring pharmacy benefit managers (PBMs), specialty pharmacies, physician practices, and other related health care businesses.

 

In 2015, the three largest PBMs in the country (Express Scripts, CVS Caremark, and OptumRx) managed the drug benefits of 78% of the population. Following the Cigna acquisition of Express Scripts and the CVS/Aetna merger in late 2018, each of these PBMs is now part of a large health insurance parent company. (OptumRx is a UnitedHealthcare subsidiary.) Humana also owns and operates a large national PBM known as Humana Pharmacy Solutions.

 

In the provider market, UnitedHealthcare was estimated to employ about 50,000 physicians in the U.S. at the start of 2021 through its subsidiary OptumHealth. Cigna, CVS/Aetna, and Elevance Health (formerly Anthem), among others, are following suit. Specific examples include Cigna purchasing MDLive, Elevance Health purchasing the CareMore Health Group, and Humana purchasing the Metropolitan Health Networks physician group. Insurers are also acquiring home health agencies, ambulance providers, and data management firms. This is exemplified by Aetna purchasing the Healthagen health data company and Humana’s acquisition of home health company One Homecare Solutions.

 

Medicare Advantage (MA) plans are no exception to the broader trend toward greater vertical integration. Table 1 reports spending directed to related businesses by health plans owned by parent companies that together accounted for about 65% of MA enrollment in 2022. Note that for several companies (e.g., UnitedHealthcare, CVS/Aetna), there has been marked growth in the share of spending accounted for by related businesses overall. The reported share of spending on related businesses for UnitedHealthcare grew nearly 250% from 2016 to 2019. Likewise, the related business share rose over 5-fold for CVS/Aetna during the same time period, likely due to their merger that was closed in November 2018. In addition, for Kaiser the related business share of spending has been over 60% for some time.

 

Data for future years will likely show substantial additional increases in the role of related businesses. The data examined in Table 1 do not appear to reflect the effect of Cigna’s acquisition of Express Scripts in late 2018, nor Elevance Health’s launch of its own PBM, IngenioRx, in 2019. Moreover, there has been significant merger and acquisition activity taking place in this sector since 2019.