UnitedHealth and CVS, the unexpected battle Goliath against Goliath

Twenty years ago, Apple made computers and iPods and Google had a search engine and some extra services.

But Apple’s rapid success with the iPhone in 2007 made executives at both companies realize that mobile devices were the future of computing. Google bought a smartphone operating system, and the companies have been competing ever since, becoming the poles around which all other tech companies orbit.

Today, UnitedHealth Group, Minnesota’s largest company, and CVS Health are vying to become the iOS and Android of American health care.

The analogy isn’t perfect, of course. While steadily consolidating, it’s not certain that the healthcare industry will become as polarized as technology. UnitedHealth, headquartered in Minnetonka, still competes with hundreds of companies in the insurance, data and financial services, pharmaceutical benefits and clinics industries.

With nearly 10,000 retail stores, investors believe CVS is fighting the Walgreens Boots Alliance more closely. Although CVS and UnitedHealth have nearly equal revenues, investors attribute more than four times the market value of UnitedHealth to CVS.

But from startlingly different starting points — UnitedHealth in insurance and CVS in pharmacies — they’ve become more similar to each other in recent years, both racing towards where the puck is going in health care.

CVS bought UnitedHealth’s largest insurance rival, Aetna, in 2018. UnitedHealth has grown a small retail presence through its Optum clinics.

Both had about $320 billion in revenue in 2022. Only four US companies are bigger: Walmart, Amazon, Apple and ExxonMobil.

Companies tend to grow slowly when their annual revenue is in the hundreds of billions of dollars in the stratosphere. But making their way into so many segments of the healthcare system, UnitedHealth and CVS are still growing strongly.

UnitedHealth executives told analysts in November they expect revenue growth of 11% in 2023. “In most cases, despite our size, we are only scratching the surface of the opportunities ahead,” Andrew Witty, the company’s chief executive, said at the event.

He also told analysts that UnitedHealth must become a “preeminent consumer organization.”

His justification was clear, even if the details were few. “In any scenario, the American consumer, the American patient has more influence in the future than they do today. We have to build on and respond to that,” Witty said.

UnitedHealth says it now serves 149 million Americans in one way or another, about 50 million through its insurance plans. Its executives want to grab the remaining 200 million.

CVS, of course, has been consumer-focused from the beginning. Its logo is a heart, its cash register gets a long punchline of comedians.

Both are intensely focused on what is called value-based care. It is the idea that paid care will be supplanted by something more efficient and with outcome-focused incentives that, in part, show that there is equity across a large population. At-home and virtual offers are key to providing that.

Rivals and skeptics say the two companies, along with Amazon and others, aim to provide the simplest, most cost-effective care. Difficult long-term care that is financially demanding would be left to traditional health systems, they say.

Last summer, the two companies, along with Amazon and Option Care, reportedly explored all offers for Signify Health, a healthcare and technology services company that employs about 7,000 doctors.

News accounts varied as to what had transpired. A UnitedHealth spokesman said he has not made an offer. CVS came out on top, closing an $8 billion deal. One analyst, Barclays’ Steve Valiquette, called it a “nice strategic win” for CVS as it delves into the business of healthcare delivery.

Convergence began in 2011 when UnitedHealth rebranded its data systems business Optum and began providing services to other insurers. He later built a direct care business that now employs or aligns with approximately 70,000 physicians.

CVS initiated dozens of pharmacy acquisitions in the 1980s, including Minneapolis-based MinuteClinic in 2006 and Target Pharmacies in 2015. It only moved beyond retail for the first time in 2014.

Today, every new deal entered into by UnitedHealth and CVS receives government scrutiny for competitive implications. The Justice Department is still reviewing the CVS-Signify deal. It also recently appealed a ruling against its desire to halt UnitedHealth’s recent $13 billion purchase of Change Healthcare, a provider of data services to insurers.

Antitrust enforcers fear that companies are building so-called vertical monopolies, operating in so many parts of American health care that competitors and consumers have no choice but to confront them. But that’s a hard thing to prove.

One of the first questions CVS executives received from an analyst regarding the Signify deal was whether they were concerned Signify would lose some of its clients that compete with Aetna.

A CVS executive responded that they expected to lose some of Signify’s customers because of this. He added that they didn’t have “a high degree of concern or anything like that about it.”

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