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Radar On Market Access: As Payer M&A Slows Down, What's Next?

Posted by Peter Johnson on Sep 22, 2020


The climate for payer mergers and acquisitions (M&A) has cooled substantially at a national level ever since the collapse of the proposed deals between Anthem, Inc. and Cigna Corp. and between Aetna Inc. and Humana Inc. However, consolidation in the provider sector has increased since the start of the COVID-19 pandemic as such firms grapple with the rapid collapse of fee-for-service revenue, AIS Health reported.

The breakdown of Anthem's bid to acquire Cigna resulted in a public spat and dueling lawsuits over Cigna’s attempt to exit their agreement before exhausting the firms' option to appeal a federal ruling against the transaction. On Aug. 31, the Delaware Court of Chancery ruled that neither firm had to pay damages to the other over the failed deal.

This failed deal was a catalyst for the slowing pace of health insurance consolidation at the national scale, according to antitrust lawyer and former Federal Trade Commission official David Balto.

Ashraf Shehata, KPMG national sector leader for health care and life sciences, says that Cigna's acquisition of Express Scripts, a transaction that the firm pursued partly because of the failed Anthem merger, set a precedent of its own.

"I would say what that has spawned instead of the health plan integration, it's spawned…the PBM integration. Rather than health plan to health plan, it was health plan plus PBM. And we saw that across the board with all the commercial entities," he says.

Shehata says he sees three likely types of payer transactions and reorganizations going forward. The first is the PBM-payer integration. Second, Shehata says that horizontal coordination between regional payers, if not outright mergers, is likely to accelerate. Finally, he's tracking the emerging model of "health plan plus retail plus PBM."

Michael Abrams, co-founder and managing partner of consultancy Numerof & Associates, says that large regional hospital systems with healthy balance sheets are likely to speed up their vertical acquisition of independent hospitals or horizontal consolidation with local peers.

Abrams also points out that this wave of consolidation will compound or accelerate the rising cost of health care. He adds this continual rise in prices will eventually drain the generous margins that payers have enjoyed over the course of the pandemic.

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Topics: Industry Trends, Data & Analytics, Provider, Payer