Healthcare Mergers: Because Bigger is Better

Due to low interest rates and cheap capital, merger activity has been exploding in nearly every industry. Healthcare is especially devoted to merger activity with the mantra that bigger is always better. U.S. Mergers and acquisitions announced in the first 9 months of 2015 are worth about $270 billion. Many health insurers and hospitals are being forced to reduce costs and increase quality in the face of changing healthcare regulations. With little resources to accomplish that goal, many are merging to increase resources. However, no matter how much quality goes up and costs go down, healthcare consumers are still left with little to no benefit. 
Hospitals continue to join forces to create a larger presence in their markets or regional systems. For example in New Jersey, Barnabas Health and Robert Wood Johnson Health System announced plans to combine, which will create the state’s largest hospital network. Hospitals are seeking the size and clout necessary to gain leverage and negotiate well with insurance companies. In addition, hospitals are supersizing so that they can invest more in technology and computer systems that allow them to better track patients’ care. However, Accenture predicts the share of hospital-hospital mergers will fall to about 6% of transactions by 2018, from 21% in 2014.

With a current market value of $113 billion, Allergan recently said it was discussing the possibility of being bought by Pfizer in a deal that could easily become the year’s biggest deal. Meanwhile, Anthem is trying to buy Cigna for nearly $50 billion, and Aetna is pursuing Humana. UnitedHealth Group remains the last of the big five insurers without a partner. However, they smartly created a portfolio of health care businesses including OptumRx. Meanwhile, CVS acquired Omnicare to expand its presence into nursing homes and bought 1,700 pharmacies from Target. Not to be outdone by Walgreens Boots Alliance, which plans to buy Rite Aid.

All of these mergers will likely cause consumers to pay more because, without competitors, insurers could easily raise premiums and hospitals could raise their prices. Drug makers, hospitals, health insurers and drugstore chains are all seeking to bulk up to gain more leverage in negotiating with the other sides. Mergers bring about more mergers especially as healthcare players seek to keep up with their rivals, thus every player is thinking seriously about their next move. 

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