Cencora and Cardinal Health expand their reach into specialty medicine with new acquisitions

Both Cencora (formerly AmerisourceBergen) and Cardinal Health have recently entered into multi-billion-dollar agreements to expand their footprints in the area of specialty medicine.?

In the largest transaction, Conshohocken, Pa.-based Cencora entered into a definitive agreement to acquire Retina Consultants of America (RCA) — a management services organization (MSO) based in Southlake, Texas, that operates a network of retina specialists — from Webster Equity Partners for $4.6 billion in cash.?

Cencora’s CEO, Bob Mauch, said in a?news release?the acquisition would allow the company to broaden its relationships with community providers in a high-growth segment and build on its leadership in specialty services.?

“Following our recent investment in OneOncology, the addition of RCA will allow us to expand our MSO solutions and drive differentiated value across the health care system for manufacturers, providers, and patients,” Mauch said.

(Cencora acquired a minority interest in OneOncology last year in a transaction valued at $2.1 billion; TPG acquired the majority ownership stake.)?

RCA has nearly 300 retina specialists across 23 states. It also operates a clinical research network with 40 clinical trial sites and has 400 full-time research employees.?

If the transaction is finalized, Cencora will have approximately 85% ownership in RCA, with RCA’s affiliated practices, physicians, and management retaining the remaining 15% stake.?

Under the agreement, Cencora will also pay up to an additional $500 million if certain predefined business objectives are met in the next few years.?

Cencora did not provide a timeframe for closing the transaction.

Separately, Dublin, Ohio-based Cardinal Health agreed to pay a total of $3.9 billion to acquire a majority stake in Dallas-based GI Alliance — which is the largest physician-led gastroenterology MSO in the U.S. — and full ownership of Advanced Diabetes Supply Group (ADSG), a company based in Carlsbad, Calif., that provides diabetes supplies directly to patients.?

GI Alliance supports practice management for more than 900 independent gastroenterologists, with 345 locations across 20 states. Physicians affiliated with GI Alliance treat patients in 135 ambulatory surgical centers and 165 hospital networks, supported by 95 infusion centers.?

Under a definitive agreement, Cardinal Health will pay approximately $2.8 billion in cash for a 71% ownership stake in GI Alliance. Starting on the three-year anniversary of the closing date, Cardinal Health can exercise a call right to purchase any or all of the remaining outstanding equity.

Currently, GI Alliance is owned by physicians within the organization and funds managed by affiliates of Apollo Global Management.?

Cardinal Health said in a?press release?that GI Alliance’s multi-specialty platform will be part of the company’s Pharmaceutical and Specialty Solutions segment.?

“Growing our Specialty business is our top priority,” said Jason Hollar, Cardinal Health’s CEO. “By partnering the [GI Alliance] MSO platform and leadership in gastroenterology with our own national presence and specialty experience, GI Alliance and Cardinal Health together create a meaningful platform that will deliver great results for patients and providers.”

Cardinal Health will pay approximately $1.1 billion in cash to acquire ADSG, which serves an estimated 500,000 patients per year and is currently owned by private equity firm Court Square Capital Partners. Cardinal Health plans to merge ADSG with its at-Home Solutions business.?

“Over the past two years, we have improved operating performance and financial flexibility by executing on our focused growth strategy,” Hollar said. “These transactions enhance Cardinal Health's ability to deliver a greater value proposition for providers and patients, while representing the next step in our ongoing focus to drive sustainable shareholder value creation.”

Both of Cardinal Health’s acquisitions are subject to customary closing conditions, including regulatory approval. They are expected to close in early 2025.?

Our Take:? All of the Big Three drug distributors, McKesson, Cencora, and Cardinal Health, have continued their expansion into other delivery channels, with a focus on specialty medicine and services — particularly in oncology. Among the Big Three, there have been more than half a dozen billion-dollar-plus specialty medicine deals in just the last couple of years.

In addition to these latest three acquisitions and Cencora’s 2023 joint purchase of OneOncology with TPG noted above:?

Cardinal Health acquired Specialty Networks in March for $1.2 billion, gaining in the process PPS Analytics, a multi-specialty group purchasing and practice enhance organization that uses artificial intelligence to analyze data extracted from electronic medical records and other practice management systems.?

In August, McKesson agreed to pay approximately $2.5 billion for an estimated 70% stake in Community Oncology Revitalization Enterprise Ventures, a business and administrative services organization launched earlier in 2024 by Florida Cancer Specialists & Research Institute (FSC), one of the nation’s largest independent community oncology providers. McKesson intends to make FCS part of its US Oncology Network, which the company acquired in 2010 for $2.2 billion.?

In September, Cardinal Health announced its plans to buy Integrated Oncology Network (ION), a physician-led independent community oncology network, for $1.15 billion. The network consists of more than 100 providers in 50 practice sites across 10 states. Along with medical oncology and radiation oncology, ION provides urology, diagnostic testing, and other ancillary services. When the acquisition is completed, the ION practices will become part of Navista, Cardinal Health’s oncology practice alliance.

It’s no secret that specialty drugs tend to have considerably higher price points as compared with more traditional drugs and account for a significant proportion of overall drug spend. With control over not only the distribution of specialty drugs but also related provider networks and ancillary services, the Big Three have ample opportunities to increase profits and keep investors satisfied.

Clearly there are advantages for the providers in these deals. Having the support of a company like McKesson can go a long way toward alleviating whatever financial concerns they may have, and it may be easier for their patients to access the drugs they need.?

Is there a loss of autonomy for providers? Possibly. But probably not as much as if they were owned by a private insurer. Likely a bigger risk is the effect of ever-increasing consolidation within the U.S. health care system.?

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What else you need to know

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The Department of Justice?filed?a lawsuit Tuesday to block UnitedHealth?Group’s acquisition of Baton Rouge, La.-based home health provider Amedisys on the grounds the merger would have anticompetitive effects. UnitedHealth Group’s Optum acquired Amedisys rival LHC Group last year for $5.4 billion. Acquiring Amedisys would eliminate competition between the two home health providers, which would harm patients who receive their services, the DOJ contends, as well as insurers who contract for the services and nurses who provide the services.

“American health care is unwell,” said Assistant Attorney General Jonathan Kanter of the DOJ’s antitrust division. “Unless this $3.3 billion transaction is stopped, UnitedHealth Group will further extend its grip to home health and hospice care, threatening seniors, their families, and nurses.” The DOJ said UnitedHealth’s proposed plan to address overlaps in home health markets by divesting certain facilities to Dallas, Texas-based VitalCaring is insufficient to alleviate harm. Attorneys general in Illinois, Maryland, New Jersey, and New York have joined the lawsuit.?

Johnson & Johnson is suing the federal government?over the company’s plans to switch to a rebate model for two of its drugs in the 340B drug discount program (Stelara [ustekinumab] and Xarelto [rivaroxaban]). J&J notified hospitals in August that, starting Oct. 15, instead of providing the discounted price at the time of purchase, the company would make the discount available through a rebate after they purchase the drugs through wholesalers. To receive the rebates, hospitals would need to submit medical claims data and purchase data. J&J said the rebate model would improve the 340B program’s integrity.

In September, the Health Resources and Services Administration (HRSA) advised J&J that its rebate model would violate the 340B statute, potentially resulting in substantial fines and termination of the company’s drug pricing agreement. Although J&J paused implementation of the rebate model, the drugmaker is now?asking?a district court to decide in its favor, saying the 340B program “has been overtaken by for-profit entities … who have exploited the program for profit.”?

On Nov. 14, Eli Lilly filed a separate but similar?lawsuit?in the same district court. In a posted?statement, Lilly said it seeks to implement a cash replenishment model (using Kalderos’ Truzo platform) instead of using the 340B program’s current “product replenishment model.” Lilly added that HRSA “does not have the authority to arbitrarily reject” the company’s model, which would make weekly cash payments directly to 340B covered entities.

(Disclosure: Johnson & Johnson is a Darwin Research Group client.)

Mass General Brigham is?launching?the Healthcare AI Challenge?Collaborative in partnership with others such as Emory Healthcare, the radiology departments at the University of Wisconsin and the University of Washington’s medical schools, and the American College of Radiology. Mass General Brigham will host the Healthcare AI Challenge, a series of virtual and interactive events in which health care professionals can explore and evaluate new AI health care technologies in real-world settings. Participants will have the opportunity to assess the latest AI models for their effectiveness on specific medical tasks in a simulated environment.

“We need health care delivery communities to provide real-world experience of the application of AI at the point of care. That is what the Healthcare AI Challenge is designed to do,” said Dr. Alistair Erskine, chief information and digital officer at Emory Healthcare and Emory University.

23andMe is undertaking a restructuring initiative?to streamline its operations and reduce costs. As part of that effort, the company is discontinuing its therapeutics programs and evaluating alternatives for its clinical and preclinical assets, including licensing agreements, asset sales, and “other transactions,” according to a?press release. The company also plans to end its clinical trials “as quickly as practical” and is trimming its workforce by approximately 40%, or more than 200 employees.?

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Executive Moves

Centene’s president,?Ken Fasola, will retire in July, according to a?filing?with the Securities and Exchange Commission. The filing states that he will transition his duties by the end of this year and will serve as a strategic adviser to the company until he retires. Fasola was CEO of Magellan Health, which Centene acquired for $2.2 billion in 2022. He became president of Centene in December 2022.?

Dr. Michael Genord?is no longer president and CEO of Health Alliance Plan, Henry Ford Health’s integrated health plan. The organization did not provide a reason for his departure but?announced?that Margaret Anderson, who has served as Health Alliance Plan’s executive vice president and chief sales and marketing officer, has assumed the role of interim president.?

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What we’re reading

Lessons from England’s National Health Service . NEJM, 11.13.24

Building The Primary Care Workforce With Pharmacist Clinical Services . Health Affairs, 11.13.24

The growing disconnect between virtual health availability and consumer demand . Deloitte, 10.16.24