Payers have historically been the financial support for patients receiving
medical care. Through scale, predictive analytics and actuarial insights, large
insurers have been able to smoothly calibrate pricing and earnings so that
members have health coverage no matter the economic environment. Over time different insurance
products such as Medicare Advantage, managed Medicaid, Commercial insurance, and self-funded
benefits were created to provide optionality for consumers. The demand for more services under one
umbrella has resulted in six large public insurers, known collectively as the “Nationals.” As for-profit
public entities, these organizations have utilized M&A to drive growth by acquiring smaller health
plans. This horizontal consolidation has grown membership and diversified their membership
geographically, as well as by line of business. The diversification enables these Nationals to reduce
volatility in earnings, which eases concerns of public investors, while sustaining top line growth each
year. However, with the changing tide in healthcare business models, payers have begun to look
elsewhere for new growth opportunities.

The emergence of value-based care has garnered significant interest within the healthcare
ecosystem. Consumers of healthcare value their personalized interactions with their providers /
doctors and are typically somewhat agnostic about their payer. The payers have come to the
realization that to further drive profits, they must create stickiness with their members by aligning with
the providers that are delivering the care. Collaboration between the payers and providers will help
increase the efficiencies in care management and drive unnecessary costs out the care delivery
process, when fully integrated. By being “closer” to the patients, payers can use the data from
providers to create valuable insights that proactively address a patient’s needs before catastrophic,
high-cost treatments are required. This trend of vertical integration, turning payers to pay-(pro)viders,
has started to play out and should be beneficial to patients, payers, providers, investors, and U.S.
healthcare as a whole.

UnitedHealthcare recently closed its $5.4 billion acquisition of LHC Group in February 2023. LHC
Group provides home health solutions and community-based care to over 12 million patients
annually in their homes. This acquisition is UnitedHealthcare’s opportunity to increase patient
engagement for the high acuity populations that LHC Group traditionally services. UnitedHealthcare
also announced the acquisition of Amedisys, another home health and hospice provider, for $3.3
billion in 2023. UnitedHealthcare will be able to leverage the expertise from these two organizations,
while utilizing its data analytical capabilities to synchronize care efficiently and effectively. As the
U.S. population continues to age, optimizing care for seniors will be a key focal point for the
healthcare services industry.

CVS Health acquired Oak Street Health, a primary care provider that specializes in value-based
care, for $10.6 billion in 2023. This acquisition will help CVS Health address costs and patient health
in underserved communities that Oak Street Health currently services. CVS Health also acquired
Signify Health, a technology and services company that focuses on care at home, in 2023 for $8 billion. The acquisitions of Oak Street Health and Signify Health will expand CVS Health’s healthcare delivery arm as it looks to become a one-stop shop for all patient’s needs.

As other payers see the value, both in better health outcomes and economics, created through the vertical integration of services by their competitors, they too will follow the trend. The definition of the payer will continue to evolve, and healthcare consumers will increasingly receive lower cost of care, greater accessibility to care and preferential outcomes into the future. It will be exciting to see
which pay-vider acts next and capitalizes on this opportunity.