For companies in the health care industry, 2014 was an exceptionally busy year, as companies adapted to new Affordable Care Act regulations and sought new partners in a pharmaceutical and biotech mergers-and-acquisition spree.
Some companies in the sector have taken advantage of the changes and rocketed up the Fortune 500 list, including AmerisourceBergen, which moved to No. 16 from No. 28, and Aetna, which went to No. 49 from No. 57. Others, like UnitedHealth Group and Anthem, have held steady. But for the most part, the health-care behemoths rode the wave of change, finding ways to maintain or improve sales amid a fast-changing landscape. The fact that all 10 of these firms are in Fortune’s top 50 speaks volumes about the dominant role health care plays in the U.S. economy. (You can explore the full list here, in its new, sortable online version.)
Here are the 10 biggest health-care companies from this year’s Fortune 500 list, as measured by revenue.
1. CVS Health
Fortune 500 rank: 10
2014 revenue: $139.4 billion
Year-over-year revenue change: 9.9%
CVS Health (CVS) is already the nation’s biggest retailer of prescription drugs and second-largest pharmacy benefits manager–and is expanding its reach to become a fully integrated provider of health services. Most recently, it agreed to sweep up all of Target’s 1,600-plus pharmacies across 47 states, a deal worth about $1.9 billion. That follows on the heels of its agreement to purchase Omnicare for $12.7 billion. Omnicare is a drug delivery company that also helps senior-living centers manage residents’ medications. The purchase, CVS’s largest since 2007 when it bought pharmacy-benefits manager Caremark Rx, gives the retailer greater strategic reach as it looks to serve an aging population with greater care needs.
The Target pharmacies and Omnicare deals build on a grander shift managed by CEO Larry Merlo, who has been transforming the drug-store chain into a full-service health management company. Within the last year, the company swept cigarettes off its shelves, changed its name to CVS Health from CVS Caremark, and made plans to expand its in-store health clinics by about 600 locations by 2017. The moves position CVS Health, which currently operates about 7,700 retail pharmacies and 900 walk-in clinics, as a more fully equipped provider for patients, helping to ensure customers “are getting the right level of care at the right time,” Merlo told Fortune.
Fortune 500 rank: 11
2014 revenue: $138 billion
Year-over-year revenue change: 12.7%
McKesson, the largest U.S. pharmaceutical distributor, has been on a roll thanks to rising sales in its wholesale drug distribution segment and its increased stake in Celesio. McKesson first acquired 50.1% of that German company in October 2013, giving the distributor a bigger presence in the global generic-drug market. San Francisco-based McKesson finally acquired the full company at the beginning of last year and has been busy integrating the new purchase.
In addition to its health care distribution business, McKesson (MCK) also develops, implements and supports software within the medical community, a business that’s often underappreciated relative to the company’s larger distribution unit. Its technology solutions segment is on pace to bring in more than $3 billion in 2015, making it the industry’s No. 2 leader, behind Cerner. McKesson offers IT services such as electronic health-records systems, health-plan payment management and revenue cycle management.
3. UnitedHealth Group
Fortune 500 rank: 14
2014 revenue: $130.5 billion
Year-over-year revenue change: 6.5%
UnitedHealth Group serves more than 85 million patients worldwide with its health benefits and services. It’s the largest U.S. health insurer, surpassing the likes of Kaiser Foundation Group and Anthem. Their businesses don’t stop there: CEO Stephen Hemsley has been investing heavily in Optum, its health services arm, which includes a pharmacy benefits manager (PBM) and health data analytics.
While Optum represents only a third of the Minnesota-based company’s total revenues, the unit is growing fast. Optum’s sales increased 15% during the first quarter this year. To bolster Optum’s pharmacy business, UnitedHealth acquired Catamaran for $12.8 billion in March, which more than doubled its PBM members, to 65 million. The additional scale gives UnitedHealth (UNH) more sway when it comes to negotiating drug prices with manufacturers.
Fortune 500 rank: 16
2014 revenue: $119.6 billion
Year-over-year revenue change: 34.1%
AmerisourceBergen, one of the largest global pharmaceutical distribution and sourcing services companies, has been flying high since initiating a partnership with Walgreens Boots Alliance in 2013. The deal was fully implemented in the first quarter of 2015 and provided a healthy profit and revenue boost, with even more gains expected for the distributor. Full year earnings are expected to be up 16% for fiscal 2015 and up 14% in 2016.
As a result of the deal, AmerisourceBergen (ABC) and Walgreens are able to pool their generic-drug buying to get even better discounts from manufacturers–a big boost to their bottom line. AmerisourceBergen is also venturing into the fast-growing animal health industry following its January purchase of MWI Veterinary Supply. MWI sells everything from pharmaceuticals for pets to pet food and equipment. U.S. veterinary spending on pets has grown at about 6% per year over the past seven years — and it’s an industry that isn’t subject to government pricing pressure.
5. Express Scripts Holdings
Fortune 500 rank: 22
2014 revenue: $100.9 billion
Year-over-year revenue change: -3.6%
Express Scripts, a full-service pharmacy benefits manager, has been rewarded by industry consolidation that has cut costs and boosted its bargaining strength against pharmaceutical companies. Express Scripts led the wave of consolidation in this sector when it bought Medco Health Solutions for almost $30 billion in 2012. The deal doubled its revenues and positioned the company as the No. 1 pharmacy benefits manager.
The St. Louis-based company has also benefitted from a growth in the number of insured patients, a result of the Affordable Care Act. Express Scripts (ESRX) has used its industry-leading position to wring out savings on high-cost specialty drugs for its users, which will become more important as more innovative treatments come on the market. Specialty drug spending is expected to grow by about 20% annually for the next several years, according to the company, and insurers and employers will rely on PBMs to help them better manage this expense.
6. Cardinal Health
Fortune 500 rank: 26
2014 revenue: $91.1 billion
Year-over-year revenue change: -9.9%
Cardinal Health, a drug wholesaler that also makes gloves and surgical apparel, has been on a buying spree lately in a bid to shore up future earnings. In March, Cardinal shelled out $1.94 billion to acquire Johnson & Johnson’s Cordis heart-product business, which allows Cardinal to add stents and catheters to the list of products it offers its clients.
The deal follows on the heels of Cardinal Health’s long-term strategic agreement with Henry Schein in November 2014 and a contract manufacturing agreement with Bayer Healthcare during the second fiscal quarter this year. The partnerships and purchases are a way for Cardinal Health (CAH) to expand the portfolio of medical products that it sells to hospitals, physicians and ambulatory centers. It’s also further expanding into services and support for customers that are moving from the traditional hospital model to larger integrated systems across various sites of care.
7. Walgreens Boots Alliance
Fortune 500 rank: 35
2014 revenue: $76.4 billion
Year-over-year revenue change: 5.8%
Walgreens Boots Alliance has a presence in more than 25 countries worldwide and employs some 370,000 people. Its breadth makes it the largest retail pharmacy company in the U.S. and Europe. This past year was a pivotal time period for the company. Walgreens and UK-based Alliance Boots completed their merger to forge a new company–the world’s first global, pharmacy-led health and wellbeing enterprise.
As part of the deal, Walgreens CEO Greg Wasson stepped down, handing over the reins to current acting CEO Stefano Pessina. There was considerable turnover elsewhere in the senior ranks, which left many investors waiting for more details on how the updated leadership would direct the new, larger company. Pessina hasn’t been shy about his plans to grow Walgreen Boots Alliance (WAG). He’s made moves to close 200 U.S. stores to cut costs and said he’s on the hunt for more companies to buy.
8. Johnson & Johnson
Fortune 500 rank: 37
2014 revenue: $74.3 billion
Year-over-year revenue change: 4.2%
Johnson & Johnson boasts a stable of 24 brands and platforms that each generate over $1 billion in sales. That helped boost the company’s overall sales to $74.3 billion last year, up 4.2% year-over-year. Much of that was a credit to Johnson & Johnson’s pharmaceutical segment, which is the fastest-growing of the top 10 pharmaceutical businesses in the U.S., Europe and Japan.
Johnson & Johnson CEO Alex Gorsky has plans to continue that growth into 2015 and beyond. The company has 20 key consumer product launches planned for this year and expects to submit 10 new pharmaceutical filings for approval through 2017. Johnson & Johnson (JNJ) also opted to shed its Cordis heart-product business as part of its plan to focus on growth opportunities, selling it to Cardinal Health for $2 billion.
Fortune 500 rank: 38
2014 revenue: $73.9 billion
Year-over-year revenue change: 3.4%
Anthem, known as Wellpoint before last year, has faced a rough patch over the last six months. In early February, it was revealed that the Indianapolis-based company’s database had been penetrated by a hacker attack, affecting 78.8 million people. The attack exposed names, birthdays, Social Security numbers and other personal data, though there’s still no evidence that any medical data or financial information was breached. Anthem, the second-biggest health insurer in the U.S., has been working to contain the breach and inform affected patients while facing an onslaught of lawsuits related to the incursion.
Despite the security breach, Anthem’s (WLP) enrollment growth has continued. In the first three months of this year, the group added 1 million more patients to reach a total of 38.5 million. The growing member base combined with a lower medical-cost trend has boosted earnings in recent months, which CEO Joseph Swedish expects to continue through the rest of the year.
Fortune 500 rank: 49
2014 revenue: $58 billion
Year-over-year revenue change: 22.6%
Aetna became an unexpected industry leader when CEO Mark Bertolini announced in January that the company would boost its minimum wage to $16 an hour. The pay raise, which preceded similar moves by Wal-Mart and McDonald’s, will affect 5,700 of Aetna’s lowest-paid workers. Even as the health insurance industry has been altered by the Affordable Care Act–in both good and bad ways–Bertolini believes the move is good business, largely paying for itself by making workers more productive.
Like its rival insurers, Aetna (AET) has benefited from higher enrollments driven by the ACA, but has also faced new fees imposed by the act. The Hartford, Conn.-based company’s membership stood at 23.7 million as of the end of the first quarter in 2015, a 1 million member boost year-over-year.