Q4 INDUSTRY UPDATE
Overall, healthcare M&A slowed down in 2017 as the U.S. awaited changes to the existing healthcare environment. However, the announcement of several insurance mega-mergers in the fourth quarter of the year signaled rapid consolidation in the market.
Insurance companies have combined at a fierce pace since the passage of the ACA in 2010. After federal antitrust regulators blocked the merger of the two insurance giants, Aetna and Humana, as well as an Anthem/Cigna transaction, large insurers are looking to vertically integrate instead. Aetna and Humana have each announced new transactions with non-insurer parties:
qAfter the failed CVS/Express Scripts merger earlier this year, CVS returned to the market with the announcement that it was acquiring Aetna for $69B, combining one of the biggest health insurers in the country with the drugstore and pharmacy benefits manager (PBM) giant. CVS aims to create community-based healthcare centers that would enable consumers to receive information on illnesses, health benefits, prescription drug coverage and to remotely monitor chronic conditions, all in one place.
qHumana is taking a 40% stake in the home healthcare arm of Kindred Healthcare, a national provider of home health, personal home care and long-term acute care assistance, with TPG Capital and Welsh Carson acquiring the remainder. As a significant Medicare insurer, Humana focuses on insuring the elderly and disabled and stands to benefit from providing home care to improve health outcomes and reduce overall medical expenses.
Also this quarter, the insurer UnitedHealth Group’s Optum unit agreed to acquire DaVita Medical Group, which owns and operates almost 300 medical clinics, urgent care centers and outpatient surgery centers, for $4.9B. UnitedHealth had previously declared its strategy to build an ambulatory care business and began acquiring doctor groups and surgery centers as part of that strategy.
Of note, these insurers have rapidly grown their revenue from Medicare and Medicaid in recent years. Since 2010 and the signing of the Affordable Care Act, the top five insurers, including the three above that announced transactions in the fourth quarter, have increased Medicare and Medicaid revenue from $92.5B in 2010 to $213.1B in 2016.1
The insurance companies appear to be replicating trends in the not-for-profit sector. Innovative not-for-profit systems have successfully combined insurance with delivery mechanisms to provide high-performing medical systems, such as Kaiser Permanente and Intermountain Healthcare of Utah and Idaho. These medical systems have found ways to deliver better care at lower costs…
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