Healthcare mergers and acquisitions: What payers, providers will do in 2017
U.S. federal courts’ decisions to block the proposed Aetna-Humana and Anthem-Cigna mergers are raising questions about the future viability of healthcare consolidation among payers and providers. Add to that the resulting news that Cigna is suing Anthem for a combined $14.85 billion dollars, which includes damages and its contractual “break up” fee, and it’s clear that mergers are a complex issue with multiple risk factors for the parties involved.
Matt Fisher, an attorney with Boston area-based law firm Mirick O’Connell, isn’t surprised by the rulings against the mergers, largely because of the level of skepticism that was swirling about the proposed transactions. “The combinations of such large insurers would create a much different market dynamic that would have far-reaching effects. The courts definitely had a lot of questions as to how the mergers would benefit the market and not result in the ability to control it,” he says.
Absent answers to these questions, these mergers were unlikely, he says. Still, while the payers are considering their legal options—Anthem was appealing at press time—Fisher doesn’t anticipate that any resulting appeals will be successful. The primary reason for the payers to pursue their legal options at this point is because “a lot of time and money has been spent,” he says.
At the same time, Fisher doesn’t anticipate that the rulings will have an impact on other payer or provider mergers. He calls out these particular mergers as “somewhat unique in their size,” while noting that the Obama administration wasn’t supportive of such mergers. As with so many hot button issues in healthcare today, it’s impossible to know the Trump administration’s intentions in terms of antitrust enforcement—and, thus, it’s difficult to know whether future deals will be challenged, says Fisher.
Tom Schramski, president and managing partner of Vertess, a healthcare mergers and acquisitions firm, says that “horizontal mergers” such as these will continue to attract scrutiny about market share and the potential negative impact on consumers. “I think this attitude will continue through the Trump administration and, if you look at the rulings, the judges involved were relatively equally nominated by Democrats and Republicans,” he says.
The impact on future mergers in the healthcare space? According to Schramski, many payers may reconsider their growth and diversification strategy.
Where Schramski sees the most merger and acquisition opportunity is in vertical combinations such as Optum’s acquisition of Surgical Care Associates, which operates 205 surgical facilities in more than 30 states. Schramski describes this move as an attempt to more fully manage the care continuum “with an eye on the emerging preference for outpatient healthcare,” which is also more cost-effective for Optum (an entity of UnitedHealthcare Group).
In a statement, Larry C. Renfro, vice chairman of UnitedHealth Group and Optum’s CEO, highlighted that the deal would enable the company to work with “payer partners to implement care models that reward independent surgeons and specialists for quality and care efficiency.”
Announced in January, the deal is expected to close in the first half of 2017; the transaction will be revenue-neutral for UnitedHealth Group, according to the announcement.