The Health Care Industry Is Getting Bigger

Daily Herald (Arlington Heights, IL), August 3, 2015 | Go to article overview

The Health Care Industry Is Getting Bigger


Byline: Dan Diamond California Healthline/Associated Press

The health care industry is getting bigger.

And so are its key players.

CVS last month bought Target's pharmacy business for $2 billion. Anthem offered $54 billion for Cigna. Aetna and Humana are talking about partnering up.

Why is health care deal making in full swing?

The conventional wisdom is that the Affordable Care Act is pushing health care entities to merge, by creating new pressures on how health care providers do business and adding millions of newly insured Americans to the marketplace. And now that King v. Burwellis resolved, some think that health care insurers are especially ripe to consolidate.

But if the ACA is the preferred explanation, it's an incomplete one. As "Road to Reform" previously reported, the uptick in health care mergers actually began during the recession, several years before the ACA was even signed into law. That's partly because the weakest organizations saw their revenues dwindle and margins shrink, and many reached out to deeper-pocketed systems, seeking to partner up.

"The Affordable Care Act is driving a variety of changes," former Obama administration official Steven Rattner said on CNBC last week. "But consolidation within the hospital arena and insurer arena was probably coming anyway."

"Take New York," Rattner points out. "New York has five major hospital systems and tens of dozens of small hospitals that still aren't really part of a system. You don't need that kind of level of [dispersion]."

State of Play for Health Insurers: Stable, After All

The ACA also isn't a clear driver for health insurers to band together, either.

Looking at the health insurance industry, some prognosticators predicted that the ACA would be bad for business. The health law capped the percentage of revenue that could be routed to overhead and administration at 15 percent, and created a wave of uncertainty.

In January 2014, Moody's downgraded its outlook for the health insurance industry from "stable" to "negative."

"[T]he ongoing unstable and evolving environment is a key factor for our outlook change," Stephen Zaharuk, author of Moody's report, said

at the time. "The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized."

But within a year, Moody's analysts had changed their opinion: They concluded that the insurance business was stable after all.

"Our revised outlook on the US health insurance sector reflects the insurers' ability to adapt to health care reform," Zaharuk wrote in February 2015. "While ongoing legal and political uncertainties remain, we believe that insurers will continue to minimize these risks over the next 12 to 18 months."

With the benefit of time, it's become clear that the ACA is bringing in new customers. RAND Corporation earlier this year estimated that of the nearly 23 million people who have gained health coverage through the ACA, more than 15 million obtained it through private insurance. Recent CMS data suggests that the percentage of Americans covered by private insurance is actually higher than when the ACA first was enacted. …

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