Today's post is the third in an ongoing series we're publishing on key players in healthcare vertical integration. Nearly everyone in healthcare comes into contact with these players. Often, in fact. They are your customers, your acquirers, your competitors. But in many people's minds, they often occupy that same paradoxical space as the U.S. government: simultaneously omnipotent and incompetent, against whom resistance is futile, and yet also lumbering and inflexible. But does that paradox reflect reality? This series aims to show these giants for what they are—where they are true juggernauts and where they are paper tigers. This post will cover Cencora's approach to vertical integration.
This case profile, as with all others in the series, is broken down into five parts—and you can use the links below to advance directly to any section(s) of interest:
Topline summary: Summary of each organization’s current approach to vertical consolidation
Org structure: Major business units and revenue lines, including notable (non-exhaustive) brands within each
Recent news: Major organizational developments (related to vertical consolidation) as of the time of publication
Union's analysis: Our read on the type of strategies most at work within each org (portfolio, flywheel, platform). For background on this, read our previous blog post on vertical consolidation.
Open questions: What to watch for in the coming months and years; developments that could shift our take
Topline summary: Cencora's approach to vertical integration
The distributor is an often-overlooked backbone of the entire drug value chain, with decades of experience expanding in a market as concentrated as it is opaque; efforts to move out of support roles and into endpoint positions (as producer or purchaser) have proved more challenging, but its more recent forays into the physician space offer the potential for an effective flywheel strategy based off of the potentially lucrative—but tricky-to-navigate—economics of "buy and bill" drugs.
Org structure: Cencora
Cencora is probably the most under-the-radar organization we will cover as part of this series, despite the fact that it is ranked 11th on the Fortune 500. There are only three healthcare companies in the US that are larger than Cencora—UnitedHealth Group (profiled here), CVS (profiled here), and Cencora’s own biggest rival, McKesson. Some may be more familiar with Cencora by its previous name, AmeriSourceBergen—they rebranded in August of 2023.
Cencora is primarily known as a drug wholesaler. Put simply: it buys drugs from manufacturers and then sells and distributes those drugs to providers and pharmacies.
Cencora is largely a U.S.-based company, although it does have a small international healthcare solutions division, which is also mostly focused on drug distribution. On the U.S. side, it also has a small animal health division which supplies veterinary and food products.
By far, the bulk of its revenue lies within its U.S. “human health” division. This includes not only its U.S.-based drug wholesaling services, but also consulting services, technology and analytics, and most notably (when it comes to vertical integration , at least), OneOncology, a large cancer provider network.
Recent news: Developments in Cencora's approach to vertical integration
In April of 2023, it was announced that Cencora (then AmerisourceBergen) and private equity firm TPG intended to jointly acquire OneOncology, a network of 15 independent oncology practices and nearly a thousand cancer providers. Although the purchase granted Cencora only 35% ownership of the network, the contract outlines a clear path for complete acquisition of OneOncology in three to five years (the typical timeframe for a private equity exit). Groups like OneOncology offer support services to independent providers, such as capital, practice management tools, drug and inventory sourcing, hiring, and more.
Commenting on the purchase, Cencora noted that the deal would allow it to “deepen our relationships with community oncologists and expand on our solutions in specialty.” On the surface, beyond the simple addition of a new revenue stream, alignment with OneOncology offers Cencora a captured customer base to test out products or services, with deeper insight into the end-user experience.
There a few other reasons a drug distributor might want to get into the provider space. The most obvious is that it protects their position as the primary or sole vendor for the practices within these networks. It also minimizes the possibility of a manufacturer trying to go around the distributor and sell directly to the practices. Cencora's considerable size also means that it has the capital to invest into the network and to help it grow.
One less obvious reason is that this consolidation may also enhance the network providers’ ability to use buy-and-bill as a source of revenue generation. 'Buy-and-bill' refers to providers purchasing provider-administered drugs from distributors, treating a patient with the drug, then billing the patient’s insurance for both the administration and the drug itself. Oncology drugs and related products make up the largest share of buy-and-bill spending for both public and private payers.
Buy-and-bill can be an important revenue source for oncology practices, generating a profit on the difference between what they paid to the distributor and what they charged the health plan. But it’s also a complicated business that’s not without risk. Because practices have to buy the drugs before knowing what the reimbursement will ultimately be, and often before even knowing what drugs they’ll need and in what quantities, there’s a danger of getting saddled with unused product or uncompensated care. To avoid these challenges altogether, many providers opt for (or in some cases are required by payers to use) alternatives known as “white-bagging” or “brown-bagging.” Both involve a specialty pharmacy buying the drug instead of the provider and sending it to the care site for administration. This system reduces provider exposure and complexity, but also closes the door on a lucrative revenue stream.
For drug distributors like Cencora, decades of experience in inventory management and revenue cycle analytics can take some of the uncertainty out of the buying process, and the underlying business provides a financial buffer should a few high-cost purchases not work out. It’s a win-win: network practices get support for a profitable but complex service, while distributors get a second bite at the apple by owning a piece of the business getting reimbursed for the drugs by the end-payer.
Just after the new year (i.e. in early 2025), Cencora added another physician network to its portfolio with its acquisition of Retina Consultants of America—a network of nearly 300 retina specialists across 23 states. Like oncology, ophthalmology also relies heavily on the use of "buy and bill" injectable drugs, further suggesting that this indeed may be a cornerstone of the distributor's provider acquisition strategy.
Cencora is not the only drug distributor to build out its own physician network. Cencora's largest competitor, McKesson, acquired U.S. Oncology Services in 2010—and in August of 2024 announced its intent to acquire a 70% stake in Community Oncology Revitalization Enterprise Ventures, the administrative arm of Florida Cancer Specialists & Research Institute, a 250-physician group practice. In December of last year, another major drug distributor, Cardinal Health, completed a $1.1B acquisition of Integrated Oncology Network, a network of over 50 community oncology centers.
For all the strength of Cencora's core business, it certainly itsn't immune from the scrutiny on the entirety of the pharma value chain right now. For Cencora, and other drug distributors, there’s particular scrutiny over the role they may have played in opioid epidemic. And like UHG, Cencora was also subject to a major data breach last year, although not nearly at the size or scale of the Change hack.
Union's analysis: Our read on Cencora's approach to vertical consolidation
Portfolio strategy: Moderate emphasis
Cencora does have a large portfolio when it comes the sheer number of different business and brands that exist under its corporate umbrella—but these brands aren’t particularly diverse; they are almost exclusively concentrated in the pharma space.
Flywheel strategy: Somewhat significant emphasis
Having a diversity of assets within the pharmacy space can lend itself well to a flywheel strategy. The prospects of a buy-and-bill approach within OneOncology and RCA are prime examples of this, and appear to be an increasingly important growth strategy among all three of the big drug distributors.
Platform strategy: Limited emphasis
Cencora is attempting to paint the purchase of OneOncoloy and RCA as a platform play, asserting that the physician networks will allow it to align and improve its specialty pharmacy offerings. But the flywheel approach is likely easier—and ultimately more profitable—for them to pull off. It doesn't necessarily need to go down the platform route.
Open questions about Cencora's approach to vertical integration
Managing shocks: GLP-1 sales have been a boon to distributors, in part insulating them from the anticipated impact of Medicare drug price negotiations. Will those protective effects last as negotiated prices take effect in 2026 and purchasers start to grapple with GLP-1 spending?
Legal outcomes: Will the outcome of federal government’s opioid case against Cencora—which is more expansive than those already settled with McKesson and Cardinal—challenge the distributor's position in relation to its competitors?
Integration potential: Will Cencora leverage its new provider assets, OneOncology and RCA, to update and improve its own provider/specialty services offerings–creating a more integrated and efficient delivery system across business lines—or focus purely on the buy-and-bill profit model?
Parting thoughts: Cencora's approach to vertical integration
In many ways, Cencora is emblematic of the approach of all of the major drug distributors. Although highly acquisitive, these organizations tend to focus their acquisitions within the pharmacy value chain, rarely venturing outside of it.
This approach has enabled the distributors to build out a moderate degree of "focused" diversification.
Recent forays into the specialty physician space offers the potential for pursuit of a flywheel and/or platform approach. While distributors have publicly stated their desire to embrace a platform approach, the opportunity to create a flywheel around "buy and bill" medications likely represents an easier path to profit maximization for these acquisitions.
Want more on vertical integration?
Read our blog post on the various forms that vertical consolidation can take
Review our profile of UnitedHealth Group's approach to vertical consolidation
Review our profile of CVS Health's approach to vertical consolidation
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