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Vertical Integration Spurs Growth in Data Analytics Market

To say the healthcare industry has been on a bit of a vertical integration kick recently is putting it mildly.

Drugstore chain CVS announced in December that it was acquiring health insurance giant Aetna. Barely two days later, health insurer UnitedHealth announced that it was acquiring managed care provider DaVita Medical Group from kidney dialysis specialist DaVita. UnitedHealth plans to place DaVita Medical Group in its Optum division, home for all of UnitedHealth’s non-insurance business.

A deal between insurer Cigna and prescription management company Express Scripts is on hold pending review by the U.S. Department of Justice.

Management consulting firm McKinsey & Company believe these sorts of mergers will continue, asserting that they create greater potential for satisfying a “more comprehensive set of customers’ needs.”

McKinsey also predicts that data analytics and information services in healthcare will grow at an impressive rate. In fact, the consultant forecasts growth of 16%-18% between now and 2023, “driven by increasing business demand for analytics services,” according to the report.

The aim of vertical integration is to bring related services under one roof, both for the purposes of streamlining care and increasing profits. With online retailer Amazon’s move into healthcare rumored to be imminent, the move by CVS is thought by some to be “a calculated strike at consumer-driven healthcare before Amazon can find something to purchase in one of the most lucrative industries still waiting for its makeover moment,” according to an article on the Health IT Analytics website.

The article, “How the CVS, Aetna Deal Will Overhaul Healthcare Big Data Analytics,” predicts, though, that the big shakeup coming from healthcare’s vertical integration will be less concerned with major corporations and more with big data and its analysis.

Any organization doing battle with Amazon will have to up its data analysis game, since data is one of the most lethal weapons in Amazon’s arsenal.

“Part of the reason why Amazon is so successful,” the article said, “is its ability to collect huge volumes of disparate consumer data and generate highly-targeted suggestions for individuals based on previous purchase patterns and the profiles of similar individuals.”

CVS, though, is no slouch. Consider the data it has access to already, through its pharmacies and walk-in clinics, but also through its retail activity: CVS already can track a customer’s prescriptions as well as what over-the-counter medications are purchased – and if a candy bar or sugary soda is part of the purchase as well. Adding insurance claims data to that will give CVS an extremely deep view into patient behaviors.

Meanwhile, DaVita Medical Group will benefit from its association with Optum which, since its inception in 2011, has been focused on data analytics, value-based care and consumerism.

It’s only logical then that many competing healthcare organizations are gung-ho for vertical integration. A study by Cigna found that integrated medical and pharmacy benefits can help lower costs, increase patient engagement and improve outcomes.

Vertical integration has been linked to reduced numbers of patient readmissions and The Economist has speculated that mergers such as Aetna-CVS would help slow soaring health costs in the U.S.

Those are lofty aims and it will take time to see if vertical integration fulfills the promise touted by its proponents. Big data and data analytics, though, will be the fuel that drives integration and innovation.

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