Oscar analysis. $66B acquisition. Amazon licenses.
The Oscar goes to…
The leaves are changing, all foods are pumpkin spice, and Oscar ads are everywhere in New York. That means it’s fall, and open enrollment starts today!
One thing I noticed while in a rush-hour induced haze was that Oscar’s ads were different this year. They were much more focused on the employer market.
This is actually part of a larger strategy shift of Oscar hedging against individual exchanges. The company is exploring the small business market in Tennessee through its partnership with Humana and is also exploring the Medicare Advantage market.
CVS getting into insurance is a great way to prove it can ACTUALLY manage the health of their customers by bearing financial risk. Oscar is doing the same thing from the other direction – as a carrier betting heavily on primary care and telemedicine.
This is also one way for CVS to “Amazon-proof” itself and become more involved in services (minute-clinics are one example of this) rather than just distribution of goods. Amazon is inching towards the pharmacy industry, including getting wholesale pharmacy licenses.
Baked into the CVS deal is that Aetna now has access to CVS’ PBM — CareMark. Pharmaceutical benefit managers (PBMs) are supposed to negotiate drug prices down for pharmacies, but the amount they actually save has been a black box.
By having a PBM and an insurer together, incentives are more aligned, since the insurer wants to maximize cost savings wherever it can. This isn’t exactly a novel idea — most insurers are going down this route: UnitedHealth has OptumRx, and Anthem is starting its own called IngenioRx after breaking it off with ExpressScripts.
All of this recent activity suggests that standalone PBMs like ExpressScripts no longer make much sense. We talked about the bind ExpressScripts was going to be in months ago, but it’s very clear now.
ExpressScripts seems to be aware of this, becoming suddenly active in investing/acquiring companies to prove they can save insurers’ money in other ways (snapshot below from their CB Insights profile). Most recently the company spent $3.6B to acquire eviCore — a company designed to help reduce costs by making sure patients don’t get unnecessary care, tests, and services.
Question is: will this be enough? ExpressScripts has seen a slow decline in its valuation, and first reactions to the eviCore deal did not seem optimistic. But maybe ExpressScripts’ foray into other services will be valuable enough for insurers.