Optum and LHC Group’s integration shows the power of vertical integration in healthcare

The demand for home healthcare services is increasing in the US due to an aging population, the rising prevalence of chronic diseases, and the need to reduce healthcare costs. United Health’s $5.4 billion acquisition of LHC Group positions the company well to address these challenges and meet the growing demand for at-home care services. United Health plans to integrate LHC with Optum in support of realizing its vertical integration strategy. This move aims to expand Optum’s value-based care capabilities, particularly in at-home care services and hospices.

Healthcare providers and payers can leverage Optum’s expanded at-home capabilities to offer better value-based care services to their patients. Patients, particularly those with chronic diseases, can benefit from the convenience and personalized care at-home care services provide.

Optum is building an at-home care powerhouse

Optum’s integration of LHC Group adds LHC’s high-quality in-home care solutions, an experienced leadership team, 30,000 employees, and 964 locations to significantly increase Optum’s reach and presence in the industry. LHC brings 400 leading hospitals and the ability to reach more than 60% of the US population aged 65 and older. LHC’s previously recorded market share of more than 4% (see Exhibit 1) reveals it as a top-three player in home health care with the scale to support Optum’s ambitions. Given 74% of the market remains fragmented, the opportunity for further consolidation remains significant.

Exhibit 1: The latest available data shows LHC is a top-three provider and suggests a significant opportunity for further consolidation

Data source: LexisNexis Risk Solutions, 2019
Image source: HFS Research, 2023

The LHC integration has several potential benefits and challenges, as Exhibit 2 shows.

Exhibit 2: Upsides and hurdles: Exploring potential benefits and challenges

Source: HFS Research, 2023

The Bottom Line: The trend toward vertical integration in healthcare continues, focusing on providing convenient, high-quality care at a lower cost in the home setting.

Optum’s acquisition of LHC is more evidence of a growing trend for vertical integration in healthcare. Insurers, private equity firms, and hospitals have acquired home health companies and developed at-home care programs. Amazon and CVS Health have expanded their care services through acquisitions and new initiatives.
To make vertical integration work, providers, payers, and patients must adapt to reimbursement and care delivery model changes, staying informed and adjusting as needed. Our recent study, for example, identified that the trend to vertical integration now drives demand for tech-enabled services. Identifying and responding to such changes will make the difference between the winners and losers.