Uptick in health market consolidation

Health Insurance.

While it has been an ongoing trend for years, consolidation is one of the primary strategies being chosen by health insurers and health service providers  in response to the health care reform movement.  Fortune magazine reports that there have been “close to $90 billion worth of health insurance acquisitions since 1996, with about half of those from 2004 and 2005”. (Cyrus Sanati, “What’s next for health insurers”, Fortune, 1/19/11).

24 of the 43 states the two largest insurers had a combined market share of 70 percent or more

The AMA reported that the trend toward consolidation appears to be accelerating in its annual study of the health insurance market.  In an analysis of enrollments in private health maintenance organizations (HMOs) and preferred provider organizations (PPOs) across 43 states and 313 metropolitan markets, the AMA found that 24 of the 43 states the two largest insurers had a combined market share of 70 percent or more.  In 2009 18 of 42 states had two insurers with a combined market share of 70 percent or more.  (AMA.  Competition in Health Insurance:  A Comprehensive Study of U.S. Markets. 2010)

The AMA report offers these additional details:.

• Ninety-nine percent of metropolitan markets are “highly concentrated” according to federal merger guidelines (up from 94 percent metropolitan markets the year before).
• In 54 percent of metropolitan markets, at least one insurer had a market share of 50 percent or greater (up from 40 percent of metropolitan markets the year before).
• In 92 percent of the metropolitan markets, at least one insurers had a market share of 30 percent or greater (up from 89 percent of metropolitan markets the year before).

America’s Health Insurance Plans (AHIP) has expressed concerns about the AMA study methodology and analysis.  AHIP President Karen Ignagni, stated that the study does not include self-insured employers, a group that she contends can comprise more than half the market.  The AMA counters that the majority of self-insured employers are added in their analysis of PPOs.  Self-insured HMO members, however, are not included.

Health care providers and medical suppliers.

The drive towards greater consolidation, however, is also underway among health care providers and medical suppliers.  The AMA has petitioned the federal government to reexamine anti-trust regulations when they are in regard to the establishment of Accountable Care Organizations (ACO).  (See Verity Reports. Can Physicians Take the Lead?  Accountable Care Organizations.  11/1/10 for more information about ACOs). The government response has been favorable.

we can to help you put together a plan that avoids antitrust pitfalls.”

Jon Leibowitz, the Federal Trade Commission chair tells physicians that “If you join together to improve patient care and lower costs, not only will we leave you alone, we’ll applaud you.  And we’ll do everything we can to help you put together a plan that avoids antitrust pitfalls.”  (AMA News.  Accountable care organizations:  How your practice can profit. 9/20/10)

Every aspect of the health care market is a candidate for consolidation.  Bloomberg.com reports that as of February 2011 private-equity firms have “announced 397 pending or completed acquisitions of U.S. health products and services companies in the past five years, with an average size of $449.4 million and a typical premium of 30 percent”.   (Jeffrey McCracken and Elizabeth Lopatto.  EMS Falls After Sale to Clayton, Dubilier & Rice Fails to Meet Expectation.  Bloomberg.com.  2/14/11)

The largest acquisition yet was the 2006 leveraged buyout of hospital operator HCA Inc. for about $33 billion.  Arthur Henderson a financial analyst with Jefferies & Company expects ” to see a lot more consolidation in health services, nursing homes, and long-term care.  The number of competitors is going to get smaller and the ones that survive are going to get bigger.”

Dawn Brock, an analyst with Kaufman Bros, agreed.  “Unless you believe there will be a wholesale repeal of health reform, which I don’t think anybody does, there will be some scenario where there are more covered bodies and more paying customers than you have right now.”   She noted that private-equity firms have raised $50 billion to $80 billion for health industry deals from 2006 to 2010.   They “have very deep pockets right now and will be looking to do more deals in this space”.