While Congress was in the midst of eliminating the Affordable Care Act’s individual mandate and putting a band aid on the Children’s Health Care Program’s funding crisis late last year, several important players in the health care industry were busy on another front: Making deals.
In that burst of activity, three transactions are of particular note: CVS Health’s (CVS) proposed acquisition of insurance giant Aetna (AET); Humana’s (HUM) intention to take a minority stake in Kindred (KND), a home health and hospice company; and UnitedHealth Group’s (UNH) plan to acquire Colorado-based DaVita’s (DVA) primary and urgent care business.
Interestingly, all of these combinations have a common goal: Keep patients out of high-cost hospitals by providing alternative care settings.
To understand the most recent wave of health care deals and the effect they may have on consumers, it’s important to understand the backdrop, explained Andrea Harris, senior healthcare analyst at Height Securities and a former staffer at the U.S. Department of Health and Human Services. For years, hospitals have been consolidating across the country, and the trend continued with a slew of big regional deals announced in 2017. In many areas, hospitals are now concentrated enough to dictate prices to even the biggest insurance company payers, said Harris
In part to fight back, insurers tried, unsuccessfully, to undergo their own wave of consolidation back in 2016. That’s when mega-insurers Aetna and Humana and Cigna (CI) and Anthem (ANTM) proposed merging, but both deals were blocked by the Department of Justice.
Now the trend has turned toward integrating other types of health care providers and systems in an effort to provide relief from high-cost hospital care, Harris explained. These deals are less likely to face regulatory scrutiny because insurers are expanding their businesses into areas that cause little overlap in services.
The most dramatic example is the $69 billion CVS-Aetna. The hope is the merged companies would provide a willing group of patients to use CVS’ local clinics and disease management services to avoid hospital visits. By the same token, Humana wants a piece of Kindred so it can provide home health services to customers who might otherwise go to the hospital. And UnitedHealth’s alliance with DaVita will add 300 clinics in six states to UnitedHealth’s network of urgent care centers.
Earlier, UnitedHealth acquired Surgical Care Affiliates, adding 200 surgical centers to its network.
The combinations are likely to continue well into 2018. Harris believes companies such as home health care provider Amedisys (AMED) and Almost Family (AFAM) could become potential targets. Pharmaceutical benefit managers, facing political and market pressures, may also make attractive merger targets, she wrote in a recent report.
Meanwhile, nearly half of middle-market health care executives surveyed by Capital One Healthcare say they plan to merge with or acquire existing businesses in the coming year, as reported in Modern Healthcare.
What does all this mean for health care consumers? Harris believes the trend away from high hospital costs toward alternate types of health care services, if it works, could help keep costs down for consumers as well as insurers.
At the same time, however, the trend could impede consumer choice, according to Lyndean Lenhoff Brick, CEO of health care consultant Advis Group. “You might have access, but you’ll be told where to go to get it,” she said in an email. “Taking choice out of the equation helps control costs, but it will also mean a different experience for the consumer.”
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