OR WAIT 15 SECS
A glimpse into the present and future of healthcare industry mergers and acquisitions
The merging of large companies and corporations has been fairly common practice in modern America's business landscape. In fact, mergers (successful and unsuccessful) between giants like AOL and Time Warner, Exxon and Mobil, as well as AT&T and BellSouth denote how almost all major industries have participated in and have been affected by grandiose mergers and acquisitions.
Although there have been some mergers related to healthcare, such as the merger between Pfizer and Warner-Lambert in 2000, a recent and potentially game changing industry merger occurred when health insurance juggernaut Aetna announced its $37 billion acquisition of Humana in 2015.
Even though the interested parties optimistically deem that the deal will be approved and finalized by the end of 2016, serious questions remain about how such a sweeping combination will affect industry executives, insurance economics, and possibly the overall quality and affordability of healthcare.
Other noteworthy healthcare industry mergers announced in 2015 include Anthem-Cigna and Centene-Health Net.
GelineauMany experts agree that mergers and acquisitions are likely to continue across the entire healthcare landscape. Steve Gelineau, executive vice president with GE Healthcare Camden Group explains, "We have been in a long period of consolidation in healthcare for a number of years now, and have a way to go before we reach a period of higher stabilization."
He says that many healthcare organizations are increasingly in pursuit of the following business objectives:
Linda S. Ross is partner at Honigman and leader of that law firm's Health Care Practice Group. She agrees that high-profile mergers will continue in 2016 in response to health reform and the emphasis on value-based purchasing, which is causing providers and health plans to seek critical mass, control over increasing costs, and diversification in their product offerings.
Ross"In my view, all facets of healthcare will be affected. On the provider side, I expect continued acquisitions, mergers and divestitures involving community hospitals, large healthcare systems, municipal hospitals becoming part of other systems, and more nonprofit/for-profit transactions."
She also envisions hospitals continuing to seek efficiencies and support in key areas such as supply chain, revenue cycle management, IT, access to capital, and assistance with underfunded pensions or long-term debt.
With any large-scale merger possibilities, regulators like the U.S. Department of Justice must assess such deals and determine how they might ultimately affect consumers. Ross says regulators will be specifically concerned over how these transactions impact competition and costs for purchasers.
"To the extent that regulators are concerned that particular transactions are anticompetitive, they may investigate further, block the transaction or require the parties to divest or exclude certain assets from the transaction," she says.
HallerBrad Haller, senior manager of mergers and acquisitions at West Monroe Partners, also acknowledges that regulators will focus their attention on health plan consolidation because this part of the industry has the greatest potential for anticompetitive outcomes for consumers.
"Health plans have the ability to exert pressure on the patient, employers, providers, drug companies and medical products-so legislators will need to spend their primary resources on validating that all mergers are within the bounds of good judgment." Haller notes that the Affordable Care Act will be in the background of all of these debates because its ultimate goal may be undermined with continued health plan consolidation.
More mergers and acquisitions are on the health insurance industry's future horizon. In fact, Munzoor Shaikh, director of healthcare at West Monroe Partners, believes payer-payer and provider-provider mergers will outpace payer-provider ones.
Shaikh"The industry is resisting change from fee-for-service to value-based payment and still sees itself playing for different sides of the fence,” he says. “Also, [independent practice association] mergers will happen more as doctors are disgruntled from becoming part of large health systems and not having the independence they thought they would have."
Related to this, Ross says providers and health plans are increasingly receptive to initiating or responding to solicitations for affiliation partners as a result of pressures caused by declining reimbursement, increased costs, and limited resources. "Other motivating factors include increased competition from larger players and the quest to attract, retain and leverage more business as the market moves to value-based healthcare and population health," she says.
The experts all concur that at least through the remainder of this year, healthcare executives should expect mergers, acquisitions, affiliations, and broader network formations to continue in every sector of the healthcare field.
Ross notes that joint ventures will arise even among entities that previously were fierce competitors. "More transactions between nonprofit and for-profit entities, as well as more private equity investment in healthcare businesses, should also be expected. Healthcare executives should actively monitor these trends and be proactive about the strategic plans for their organizations," she says.
Gelineau adds, "Some transactions will be horizontal between like entities, while others will reach vertically in an effort to achieve higher levels of integration across the care continuum."
Christopher Cussat is a medical writer based in Pittsburgh.