Will Mergers and Acquisitions in Health Care be the Disruptive Force We Need?

There is still uncertainty about federal funding for the upcoming fiscal year, at least until March 31, the next pending deadline on the federal budget. At the end of December, Congress provided the Children’s Health Insurance Plan (CHIP) with $2.85 billion to keep it funded through March. Will they fully fund CHIP to cover the program for the year or leave it to the states to cover the gap? They have also provided community health centers with $550 million. Will they provide full funding or again leave it to those providers and states to figure it out? Will there be any activity from Congress on reducing drug pricing? Likely not, but the FDA is working to bring lower cost generics to the market in attempts to promote competition. There is also discussion regarding congressional work on entitlements such as welfare, Medicaid and food stamps, but there is not a strong consensus between the House and Senate nor along party lines?particularly with 2018 being an election year. So, we will have to watch congressional activity and await outcomes.

So, with the stalemate we see right now on the policy side at the national level, many private sector players are taking things into their own hands. They have not seen the health care sector transforming as quickly as it needs to, so many private sector players are positioning themselves as intentional disruptors in health care and particularly in the health care delivery system. In the last quarter of 2017 we saw horizontal, vertical, regional, national, large and small scale mergers and acquisitions take place. Many of these mergers appear positioned to shift care away from hospitals in order to reduce medical spending. Will that tactic be the magic bullet? We’ll have to wait and see.

We saw Humana partner with Kindred Health with a presence in 45 states and almost 2,500 locations. They have teamed up with private equity firms to increase revenue, allowing them to break up services at Kindred into two separate categories: hospital and rehabilitation, and home and hospice. In ambulatory care we saw CVS partner with Aetna in a $69 billion deal combining retail and medical clinics. Will providing health care where the patient is be the answer? Another big merger was UnitedHealthcare – Optum purchased DaVita Medical Group. Finally, a big announcement in December was the merger of Dignity Health and Catholic Health Initiatives, creating the nation’s largest not-for-profit hospital system by operating revenue, which will serve 28 states and use a co-CEO model. All of these are about creating new health care systems and delivery of care models.

These mergers will all impact New Mexico. Will they affect your market? The answer is probably yes, since most of these organizations have a presence in a majority of states. How much will they disrupt the current market is still yet to be seen. We can only hope that an outcome will be to lower health care costs and benefit consumers.

What do you think?