newsfilter.io
Interview, Fireside Chat

a16z Podcast | On Recent Consolidation in the Healthcare Industry

a16zJorge Conde, Vijay Pande, Jeffrey Low
Watch on YouTube →

Industry Consolidation and Vertical Integration

  • Major M&A Activity and Alliances: Recent industry headlines feature Walmart potentially acquiring Humana, the merger of Aetna and CVS, and the consortium of Amazon, JP Morgan, and Berkshire Hathaway exploring healthcare initiatives.
  • Shift Toward Monolithic Structures: These moves signal a trend toward vertical integration, potentially collapsing the entire value chain—from drug manufacturers and wholesalers to pharmacies, Pharmacy Benefit Managers (PBMs), and insurers—into single entities.
  • Distinction in Strategy: The speakers distinguish between two classes of consolidation:
    • Local Retail/Insurer Integration (Walmart/Humana, CVS/Aetna): These entities possess physical touchpoints in small towns, allowing them to own patient data and leverage local market dominance more effectively.
    • Dispersed Employer Consortia (Berkshire/Amazon/JP Morgan): While geographically dispersed, these large employers face limitations in driving local pricing power compared to vertically integrated retailers.

Market Dynamics and Opacity

  • PBM Margins as Disruption Vector: Pharmacy Benefit Managers (PBMs) remain highly consolidated with opaque margins; Amazon's philosophy ("my margin, their margin is my opportunity") suggests a strategic interest in disrupting this specific segment.
  • Amazon's Entry Strategy: Unlike previous acquisitions like Whole Foods, the speakers predict Amazon will likely build its own PBM capabilities through hiring and learning rather than acquiring an existing "marquee property," due to the lack of undervalued targets in the current market.
  • Cost Reduction Claims: While proponents argue consolidation will lower costs through aligned incentives, the speakers note it is too early to confirm if these efficiencies will translate to reduced system-wide costs.

Entrepreneurial Opportunities and Future Trends

  • Digital Therapeutic Distribution: Startups face significant barriers in distribution and reimbursement; a "digital therapeutic PBM" is identified as a viable opportunity to bypass the need for entrepreneurs to build their own distribution networks like Bayer.
  • Logistics for Advanced Therapies: The industry is shifting from complex injectables/biologics to cell and gene therapies, which introduce new logistical and handling complexities.
    • A "digital PBM logistics chain" specifically for gene and cell therapies is predicted to emerge sooner than digital therapeutics due to the immediate high cost of these treatments.
  • Technology Application: Vertical integration creates friction-free environments where new technologies can be applied to increase internal efficiencies and reduce costs across the value chain.
  • Forward-Looking Prediction: The emergence of specialized genomic PBMs serves as a historical parallel, suggesting that the current high cost and difficulty in managing cell therapy supply chains make the timing ripe for similar specialized infrastructure.