Three major forces behind healthcare payer consolidation
For health plans, the recently announced Anthem-Cigna deal signals that the industry is responding to structural changes in healthcare that have been building over the past few years.
StoneFor health plans, the Anthem-Cigna, Aetna-Humana and Centene-Health Net deals signal that the industry is responding to structural changes in healthcare that have been building over the past few years. Those changes are by no means complete, and neither is consolidation in healthcare.
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Three major forces-none of which are losing momentum-are driving this consolidation:
1. Desire to broaden the portfolio and need for distinct expertise. Commercial carriers are looking to expand into Medicare, Medicaid and public exchanges-all of which require distinct new capabilities. Broadening the portfolio can offer greater scale for negotiating with providers in a local market, some risk diversification from volatility in a single segment, and the potential for synergies across customers such as Medicare age-ins and between Medicaid and public exchange segments.
2. Struggles with profitability. Recent regulations, the transition to value, and management of new populations are leading to significant struggles with both medical and administrative cost management. Successfully achieving scale efficiencies from an acquisition hinges heavily on integration and execution success. A plan that roughly doubles its membership can reduce administrative costs by 20%. The ability to achieve greater local scale for network contract negotiations and to drive greater value through accountable care organizations and alternative arrangements is also an attractive factor for acquisitions.
3. Reorientation toward the consumer. As healthcare becomes more retail and consumer facing through the rise of public and private exchanges, significant investment and organizational changes are required to build needed consumer marketing, engagement, and experience capabilities. In addition, consumers will grow to expect more for their healthcare dollar as they are accountable for a greater share of the expense. Plans need to become more efficient and effective at driving greater consumer value. Scale from acquisitions can help. While early consolidation has largely centered on the first two structural issues, the reorientation toward the consumer is likely the most imposing force in the longer term.
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