Insurers’ big profits stem from care delivery, not core business

Driving the news: Last week, Cigna reported its second quarter revenue jumped 25% year over year, "primarily driven by significant growth in Evernorth Health Services," which includes Cigna's care delivery, pharmacy and benefits management businesses.

• Similarly, UnitedHealth Group reported its second quarter revenues grew nearly $6 billion year over year to $98.9 billion, fueled by its massive health services business, Optum.

At the same time, CVS Health on Wednesday cut its financial forecast for the full year and announced $2 billion in cost-cutting as higher medical costs continue to squeeze its Aetna unit.

• Still, it reported revenues were up 2.6%, primarily driven by "strong performance" in the health services, pharmacy and consumer wellness segments.

The big picture: There's been a race among health insurers to merge, acquire or otherwise align with other parts of the health care ecosystem to boost profits and take advantage of their sheer number of connections within the system to drive down costs.

• It's the equivalent of not only developing a cellphone but owning all the apps on it too, said Rob Andrews, CEO of the Health Transformation Alliance.
• For example, an insurer can coordinate a patient's cancer care to make sure they see their providers, get drugs negotiated via a deal with their pharmacy benefit manager and ultimately dispense those drugs through their own pharmacy.
• "It'll be a great thing because you'll have better outcomes. It'll be a terrible thing if this competition increases power and control in a few hands over health care consumers," Andrews said.

Between the lines: Insurers' and retailers efforts to expand their health care delivery footprints are two sides of the same coin, experts tell Axios.

• "We used to joke and say that retail was figuring out health care faster than health care was figuring out retail," Peter Bonis, chief medical officer at Wolters Kluwer Health, told Axios. "The reality is the insurers have figured out health care better than hospitals."
• Carriers have a significant advantage to retailers, Andrews said.
• "They have connective financial tissue, the data tissue to just about every provider, every hospital system, every point solution, every medical practice, every lab," he said. "They've got the whole provider world already."

Yes, but: It's raising increasing questions about conflicts of interest and potential fraud.

• UnitedHealth Group, the nation's largest health insurer, is also the largest owner of physicians' practices and has one of the Big Three pharmacy benefit managers.
• The amount of control the company wields over U.S. health care has raised the ire of Congress in recent months and put it in the Federal Trade Commission's crosshairs.
• Recent investigations from Stat and the Wall Street Journal have put a harsh spotlight on how the company uses clinicians to drive up federal payments.

The other side: "The $5 trillion U.S. health system remains deeply fragmented and rooted in fee-for-service models that result in less-than-optimal patient outcomes, higher mortality rates, poor patient experience, redundant care, and waste," UnitedHealth Group said in an emailed statement to Axios.

• "We're accelerating the transition from volume to value as it's essential that we move beyond a transaction-based health system to a model that is proactive, outcomes-driven and enables people [to] stay healthy over the course of a lifetime."
• Insurers are facing headwinds with Medicare Advantage and increasing health care utilization among seniors.

The bottom line: Insurers' expansion into health care delivery is not a new phenomenon but it is increasingly having a profound impact on how people in America receive care.