As integrated healthcare becomes a central goal, the time may be ripe for mergers and acquisitions to get more interesting.
Recent mega-deals in managed care — like Aetna-Coventry ($5.7 billion), Cigna-HealthSpring ($3.8 billion) and WellPoint-Amerigroup ($4.9 billion) — have created some of the largest health insurers ever seen in the U.S., which has gained the attention of federal regulators who have shown signs that the government might not accommodate more large-scale consolidation.
But some think more acquisitions and mergers are to come, particularly among for-profit payers.
“We’re likely to see M&A heating up, as soon as the back half of this year,” said Brian Wright, an analyst at Sterne Agee, citing Centene, Health Net, Molina and WellCare as acquisition targets.
Not long ago, Centene and WellCare in particular were thought to be possible targets for a rather unlikely buyer — the nation’s largest nonprofit Catholic health system, Missouri-based Ascension Health.
After Ascension Health executives hinted this spring that the 101-hospital system was in talks to acquire a multi-state insurer, Leerink senior analyst Ana Gupte pointed to Centene and WellCare as likely suitors. Both have a large presence in Medicaid managed care — a program that in many states is at once expanding enrollment and seeing pressure to control per-capita costs — and WellCare in particular fit nicely with Ascension's business landscape, with 12 state markets shared between them, Gupte noted.
But a nonprofit health hospital system buying a for-profit health plan would be unprecedented, Sterne Agee’s Wright argued. “It would definitely raise some eyebrows,” as well as questions, he said.
Would a Centene or WellCare acquired by Ascension Health be kept as a for-profit, publicly-traded subsidiary? Or would it be taken private, its shareholders bought out, and perhaps converted into a nonprofit?
Alas, for now, the implications of that type of scenario will not be known.
Ascension is still pursuing a health plan, but almost certainly not a publicly-traded one, as Citi Research analyst Carl McDonald concluded after reading Ascension's latest bond document. In it, the health system’s leaders disclosed that the purchase price of a health plan “would not be material,” in other words not as significant as buying a for-profit plan like Centene and WellCare.
Smaller publicly-traded insurers like Centene, Health Net, Molina and WellCare are still potential targets for takeovers. It’s just that the buyers are more likely to be Aetna, Cigna, Humana or UnitedHealthcare, Wright argued.
But whether now is actually the best time for such a deal, for any of those large insurers, isn’t clear — and some would argue that it’s probably not.
At a recent meeting with analysts, Humana’s new CFO, Brian Kane, a Goldman Sachs and healthcare M&A veteran, argued that national health plan consolidation isn’t likely until 2017 and beyond, as healthcare’s political and regulatory climate evolves and is overseen by a new presidential administration.
Aetna CEO Mark Bertolini also recently echoed a similar view, noting that the company was still in midst of optimizing the Coventry acquisition from 2012.
“I think if you're thinking about big M&A,” Bertolini said during a recent conference call, “we continue to want to meet our needs relative to Coventry. We have to finish the integration, which we are close to getting to.”
Aetna is not out of the deal market, though — just looking to buy technology and service companies rather than smaller health plans. “We continue to pursue assets that we believe are important to our portfolio in enhancing our capabilities to meet both the consumer market and the ACO market,” Bertolini said.
This story is based on a report appearing on Healthcare Payer News.