How payer mega-merger failures affect healthcare consolidation trends
Over the span of just a few weeks, federal judges have blocked both the Aetna-Humana and Anthem-Cigna mergers. These attempted mergers, which included four of the largest healthcare payers, would have dramatically changed the payer landscape.
So what do their failures say about the broader trend toward consolidation among payers and providers? Will consolidation continue at its steady pace, or will parties interested in mergers take a more cautious approach?
Here’s what several industry experts say.
Dan Mendelson, CEO, Avalere Health
Viewpoint: Consolidation will continue
Dan Mendelson, CEO of Avalere Health, an advisory company focused on healthcare business strategy and public policy, says consolidation will continue throughout the industry, as it is driven by the need to achieve economies of scale, pay for quality, and build health IT expertise.
“In fact, I wouldn’t be surprised to see the top five plans be involved in further merger discussion to achieve the above objectives,” says Mendelson, citing Anthem, UnitedHealthcare, Cigna, Aetna and Humana as the top five. “Also, our data show that most new Medicare Advantage plans are being launched by providers—further showing that integration of plans and providers is integral to health system change in entitlement programs.”
Mendelson does say that as more consolidation occurs, the attempted mergers will take place between smaller companies.
“That is likely—as these are the largest health plan assets in the market, and delivery system acquisitions by their very nature would need to be smaller deployments,” he says.
Michael Abrams, managing partner, Numerof and Associates
Viewpoint: Payers may shift their strategies; provider consolidation will continue
Michael Abrams, managing partner, Numerof and Associates, a healthcare consulting firm, says that for many payers, the blocked merger news isn’t “altogether negative.” The “big six”—Anthem, Cigna, Aetna, Humana, UnitedHealthcare and Blue Cross Blue Shield—will likely welcome a chance to see how the Trump administration redefines the rules of the game, he says.
“In the meantime, cash hoards saved up for acquisition can be used for share buybacks and smaller mergers unlikely to get on the radar of DOJ,” he says. “We might also see more vertical consolidation, with payers buying delivery organizations.”
Abrams says that hospitals and health systems may view the failure of these mergers with relief, and he does not expect the blocked mergers to change the course of consolidation across the provider segment.
“Providers are looking for economies of scale to protect their margins in the face of greater accountability for costs and outcomes driven by CMS,” he says. “Unless that dynamic changes—and I don’t see that happening—the pressure to merge for providers will continue. Maintaining the payer status quo also makes the competitive environment for provider-owned health plans less risky than it would have been, encouraging continued growth of these enterprises.”
Christian Auty, principal, Health Care Law Practice Group, Much Shelist
Viewpoint: Larger merger attempts may be approached differently
Christian Auty, principal in the Health Care Law Practice Group at Chicago-based law firm Much Shelist, doesn’t believe the Aetna-Humana and Anthem-Cigna decision will have an impact on the general trend toward consolidation in the healthcare sector, given the size of the deals and the markets they have an impact on.
“I don’t believe that this will have any effect on, for example, the rate at which large hospital systems acquire physician practices,” he says.
Still he says, “any attempt to merge large systems will be viewed with skepticism for some time. This could be reflected by larger emphasis on break-up fees and allocations of break-up risk in pre-merger negotiations.”