Top four healthcare industry changes to watch in 2017
In one stroke of a pen the ACA changed health plan leaders’ views of their total imaginable market. “Suddenly, their market became everyone in the market,” says J Pegues, managing director, Huron. “With the doors of opportunity wide open, health plans have sought out potential target plans as they looked to merge local markets and corporate operations. The search for the right target includes rigorous analysis of a plan’s local market demographics and share of that market, competitors, economics, and leadership.”
Pleasing shareholders, strategic leverage, and increasing scale are among the key reasons why consolidation in health plans is occurring. “Shareholders have an endless demand for growth,” says Christopher Kane, principal, DHG Healthcare. “Strategic leverage is a blunt force. If a large health plan has significant geographic coverage, it expands its opportunities and a contract may become essential for the area’s hospitals and physicians.”
Regarding scale, for the past 20 years health plans have been designed to compete on price. “The primary factor in achieving any market’s lowest cost position is its ability to acquire the raw materials to provide service at the lowest cost,” Pegues says. “The more members a health plan has, the greater the ability to drive the best deal with care providers and the greater likelihood the plan can achieve the lowest cost position.”
So how will Trump’s presidency affect consolidation? Gil Irwin, partner, Strategy&, a member firm of PwC, expects the trend toward consolidation to continue. “There are significant market pressures, particularly since the ACA was passed—including pressure on margins, a need to innovate and respond to changes in the marketplace, and access to capital,” he says. “If done well, consolidation can bring access to new markets (as well as any products or services that a plan may provide), as well as access to a plan’s capabilities, capital, and its pool of investing capacity.”
Although it has yet to be seen whether the new administration will be friendlier to mergers, Trump is clear that he wants less regulation, so Irwin thinks the country will become more merger friendly.
“If Trump makes it a more open market, that will drive the healthcare industry to become more scale sensitive and lean toward consolidation,” Irwin says. “If it becomes easier to sell insurance across state lines, that will also promote consolidation.”