An ongoing wave of mergers and acquisitions in health care is poised to leave fewer players on the field, where they will exert newfound heft and power. Observers are debating what role the Affordable Care Act has played in these shifts, and how a potential “arms race” between larger providers and insurers might play out for consumers.
Health care landscape: A Game of Thrones scenario?
July saw back-to-back announcements that heralded big changes in the health insurance industry. Aetna released plans to acquire Humana, with the resulting company serving more than 33 million people and pulling in roughly $115 billion this year, the New York Times reported. Anthem then announced its intent to buy Cigna. These companies would also have about $115 billion in revenue, the Times said.
These deals come at a time when health care providers have been linking up in their own flurry of activity. As JAMA observed, “Hospital consolidation has increased substantially over the last 5 years, with 95 hospital mergers occurring in 2014, the highest number since 2000. Moreover, it is predicted that as many as 20 percent of all US hospitals will seek a merger in the next 5 years.”
One analyst compared the health insurers’ activity to a Game of Thrones-like effort to gain advantage in the health care kingdom. If that’s the case, insurers and providers aren’t the only players seeking greater strength – or being sought for it. Also this summer, Rite Aid acquired pharmacy benefit manager (PBM) EnvisionRX, and UnitedHealth Group’s PBM OptumRx announced it would combine with Catamaran, another PBM player.
Why is all this happening now? The Affordable Care Act is a likely contributor, though experts disagree over the size of its role. “The driver for this [insurer] activity is Obamacare’s effect in creating millions of customers in the individual-insurance and Medicaid markets. Insurers view this flood of new business as a once-in-a-lifetime opportunity,” a Los Angeles Times columnist wrote, then adding that “Consolidation among insurers under Obamacare probably was inevitable, experts said. Bigger is better, from an insurer’s perspective, with millions of new customers entering the market.”
The California Healthline information service took a similar tone, pointing out that health care players were joining forces long before the ACA to weather pressures during the recession, and hospital and insurer consolidation was likely going to happen anyway.
The Boston Consulting Group recently noted that “Companies now know the basic outlines of the future health insurance marketplace, and they are looking to position themselves competitively in the fast-evolving health care ecosystem. What’s more, easy access to cheap debt and high market valuations make the prospect of deals financially attractive to buyers and sellers alike. These trends are exacerbated by the shared fear that if any particular company doesn’t move fast enough, it risks being left without a ‘dance partner.’ ”
How a ‘Cold War’ in health care might affect insurers, providers and consumers
These mergers are reminiscent of “the Cold War,” a Forbes health care policy writer said. “Each side gets more powerful so that the other side can’t come to dominate it. The two sides finally get so big and powerful they reach a point of détente—let’s just agree to get along.”
But how will consumers get along in this new arrangement? That’s not entirely clear. “The insurers, along with some independent observers … argue that getting bigger will enable them to leverage lower prices from providers, drugmakers and other industry players, thus saving money for employers and consumers,” Modern Healthcare wrote.
On the other hand, the article went on to quote a former Blue Cross and Blue Shield executive who noted “When you already have most or all of the benefits of enormity, I’m not sure becoming even bigger confers more economic benefit.”
Of course, the Justice Department may challenge the health insurance deals, in part over ACA-related reasons. In July, the New York Times quoted a Saint Louis University health law expert who commented, “Economic evidence shows that with fewer competitors, insurance premiums tend to be higher. Less competition among insurers produces higher prices for consumers.” Big insurance mergers, the article added, could reverse some of the ACA’s effects.
Consolidation between healthcare players presents potential risks and benefits to independent review organizations (IROs), says Advanced Medical Reviews CEO Vince Bianco. Since IROs will be under more pressure to serve larger clients, they’ll need to have the capacity for a larger volume of cases. IROs that lack robust, scalable systems will most likely struggle to keep up, he says.
The consolidation trend will open up other opportunities for IROs in the form of expanded offerings, such as pharmacy/drug. IROs that have been awarded URAC accreditation in utilization management will be able to perform reviews earlier in the life of the claim, thus allowing them to offer a more comprehensive solution to their larger clients, Bianco adds.