Consolidation: Reshaping Pharmacy and Beyond

United States national health care expenditures have increased from 12.5% of gross domestic product (GDP) in 1990 to almost 18% of GDP today.1 This drastic increase is causing health care organizations of all types to work to reduce spending and bend the cost curve. 

In order to achieve this spending reduction, health care companies are working to improve efficiencies and create economies of scale. Therefore, consolidation of all kinds is increasing within the health care sector. This includes mergers and acquisitions, joint ventures, and company affiliations—leading to a more organized way to deliver care among coordinated health care entities.

However, the question still remains: will consolidation lead to higher quality of care and reduced costs? There is a concern that mergers and acquisitions will lead to decreased competition and loose agreements between companies that will not drive significant outcomes.1

Related Coverage: Top Trends for 2018 in Specialty

Pharmacy is also no stranger to this trend as consolidation has occurred in the specialty space as well as in the retail space. Although specialty pharmacy represents a smaller volume of distribution compared with retail, specialty profit margins remain much greater in an environment of shrinking margins. Therefore, specialty pharmacy mergers and acquisitions are growing.2

The merits of consolidation
There has been much talk today about a shift from volume-based health care to value-based health care. One of the pioneers of this approach is the Centers for Medicare and Medicaid Services (CMS), however, many other payers are also recognizing the importance of value-based care. 

These value-based programs are intended to boost quality in 3 key areas: better care for individuals, better health for populations, and lower cost. In order to meet these demands, companies are investing into technology that will reduce waste and improve patient care.3

The ability to access and manage patient health throughout many levels of health care is a key component for managing the health of a patient population. Therefore, health systems and health care companies are examining their offerings and looking to expand capabilities.

In a 2017 survey conducted by HealthLeaders Media, 159 health care executives from health systems, hospitals, and physician practices were asked about upcoming mergers, acquisitions, or partnerships. 

Of the 159 professionals, 87% responded that their organizations will explore or complete deals of that nature within 12 to 18 months—while 13% stated that there was no plan for this.4

Providers, clinicians, and payers are recognizing the benefit of jointly managing a wider patient population base. And with a uniform continuum of care, patients can also provide more effective feedback to help improve care.

One set of providers identifying this benefit is the pharmacy industry. Consolidation within pharmacy is continually placing more power into the hands of fewer organizations. The top 4 pharmacy companies in 2015 earned two-thirds of all pharmacy-dispensed specialty drug revenue,2 and these mergers and partnerships continue today.

As previously stated, this consolidation provides a benefit to organizational operations and systems. Fewer organizations may lead to easier business-to-business transactions and business-to-consumer relationships, as well as enterprise system optimization and streamlining. These benefits can produce lower costs, more organizational stability, and better patient care.

Nevertheless, there is a drawback to consolidations. Smaller, independent specialty pharmacies who are left out of the consolidation action may find it more difficult to compete in the space. 

Smaller independent pharmacies may lack the power to be included in certain payer or distribution networks, lack the buying power to purchase drugs for a fair price, lack the ability to meet value-based care requirements, or simply lack the relationships and resources to stay competitive.2 This, in turn, forces further consolidation.



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