A recent report from industry consulting firm Accenture entitled, "Healthcare M&A rethink: Why are payers on the hunt for providers?" shows there has been a dramatic shift in the kinds of acquisitions completed by healthcare payers in the wake of healthcare reform.
In the pre-reform period of 2004 to 2009, the vast majority of acquisitions by health insurance companies - 83 percent - were focused on either expanding the geographic footprint or adding new members (or both). Post reform, the pendulum has swung in another direction. Since the end of 2009, the focus has shifted from member and geographic growth (only 39 percent of transactions) to acquisitions that add new capabilities.
Jill Dailey, senior payer executive at Accenture, has a front row seat on these trends and recently talked to Healthcare Finance News' Senior Editor Chris Anderson to further explain this movement in the market.
Q: Why are healthcare payers looking to acquire companies with new capabilities instead of the traditional acquisitions, which focused on new members?
A: There are a few things taking place that may be driving them to do this. One is that in order to make some of the changes that are brought about by ACA, it requires companies across the healthcare continuum to make certain investments. The payer premium tax that is scheduled to go into affect in 2014 can have a significant impact on earnings and so the opportunity to replace those earning via acquisition is important. (Another component) involves competitiveness. The lines in the industry are blurring in many cases between payers and providers or other segments of the healthcare continuum. So the opportunity to differentiate your company suggests that it would be helpful to look for these new capabilities.
Q: Is interest in acquiring provider groups dominant, or is it more technology companies?
A: It depends. Some payers have been very public with wanting to have a much bigger lens on health IT and we see that in some of the acquisitions they have made. But in addition to health IT, we do see everything from a hospital system acquisition, like Highmark's West Penn Allegheny acquisition, to those more focused on growing the clinic space, like Humana's acquisition about a year and a half ago of Concentra. There is a third rail, what I broadly put as enabling consumerism. So what can you do to really know the consumer? You take the data you already have internally such as demographic data, or claims data or other touch points you may have and combine that with data you can buy in the marketplace. This allows you to build out a profile of the consumer that might include things about their preferences and expectations.
Q: What are the marketplace trends driving this focus on knowing the consumer?
A: Quite frankly this is based on the way we work. Historically, someone would take a job and stay at it for a long period of time and, therefore, they would stay with the health insurance carrier for that time unless their employer made a change. Now people are changing jobs more. When you combine that with most large employer groups offering more than one choice in health plans to their employees and the opportunity to shop in an open exchange environment, it presents greater value to establish that direct-with-the-consumer relationship than may have existed previously.
Q: What themes do you anticipate for the types of acquisitions payers will undertake in the next three to five years?
A: I think the senior population will be important - serving the Medicare population, or those that are eligible for both Medicare and Medicaid programs. Things like looking at Medicaid pure plays and how those could be combined with Medicare capabilities is important in serving the dual eligibles. For those that have decided to play in Medicare, I do see more activity there. That population will only continue to grow. I think being able to serve the populations that have different health risks, beyond the 65 to 75 zone with the older segment, has some challenges. For those that have decided to play in Medicare, we have seen acquisitions that have built out capability. So far it has been smaller plays to help the companies learn and fill in a specific capability or get into a geography to expand the footprint. But I don't think it is all about acquiring entities that already serve Medicare but is also about expanding the capability set you have to serve this population.