From Health Plan Week

Wall Street Ponders Plan Megamergers as M&A Spreads in Many Forms Across Sector (with Table: Top 10 Provider-Sponsored Health Plans, By Medical Membership)

HEALTH PLAN WEEK is the most reliable source of objective business, financial and regulatory news of the health insurance industry.

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March 23, 2015Volume 25Issue 10

Right about now, health insurers are working hard to perfect their inner Gordon Gekko. This is because Wall Street equity specialists in the insurance sector say major national carriers are talking openly in investor circles about megamergers that could result in significant shifts in the pecking order of the commercial and government-sponsored segments. A new report on March 16 by Credit Suisse lays out the possibility for some of these “fantasy” deals actually taking shape, with analysts naming the most likely plays led by a possible Anthem, Inc. takeover of Humana Inc., an Aetna Inc. bid for Humana or Cigna Corp., or a Humana purchase of Centene Corp.

While market consultants say the chances for any of these large mergers occurring is on the rise, there is certainty that other M&A activity is increasing at the less headline-grabbing level, with health plans gobbling up smaller providers and issuers, IT firms and data analytics concerns. Taken as a whole, the fundamental strength of the health insurance business, the relative calm after the storm of Affordable Care Act (ACA) implementation and the desire by carriers to set long-term strategies lead to estimates that M&A activity will grow impressively in the near term, insiders concur.

“Last year we saw 22 announced deals in the managed care sector, and already this year we have had 10 announcements of deals between insurance companies. It looks like activity is picking up for 2015 for sure,” Lisa Phillips, editor, Health Care M&A News for Irving Levin Associates, Inc., in Norwalk, Conn., tells HPW. One deal, for example, was Cigna’s Jan. 26 agreement to buy Piscataway, N.J.-based QualCare Alliance Networks, Inc., an insurer that is owned by health systems and hospitals (HPW 2/2/15, p. 3).

Wall Street Sees Humana in Play

The 22 total doesn’t capture deals in which the target isn’t a health plan, like Aetna’s announced $400 million acquisition of private exchange operator bswift on Nov. 3, 2014 (HPW 11/10/14, p. 1). That’s because Irving Levin tabulates deals by the company being acquired, so there are even more transactions involving at least one insurer. “Managed care did pretty well for those 22 recorded deals, a total of 47% higher [in the number of deals year on year] than the year before. So the time is getting to be ripe where I think Medicaid and Medicare companies, those companies are the ones that seem to be in play right now,” Phillips adds.

The fact Credit Suisse mentioned Humana as a top “major” target illustrates the longstanding theme that Humana’s strength in the higher-margin Medicare space makes it attractive, if another insurer is willing to pay up for the apparent jewel in the crown (HPW 3/31/14, p. 6). But this time, the talk may be acted on, Ralph Giacobbe, securities analyst for Credit Suisse, wrote in the M&A research alert.

“In our discussions with investors it is difficult to get through a conversation about managed care without the M&A topic coming up. This has been driven in part by unbashful commentary by management teams citing appetite for deals. While none of the companies have directly named targets, it has nonetheless been surprising to hear candid discussion around the end-markets of interest that would allow inferences to specific assets,” he said.

In some instances, the deal rationale makes it seem more likely, like in the case of an Anthem try for Humana. “With an average commercial market share of 30% across its Blue states and a Medicaid market share of 18% across its 19-state footprint, Medicare remains the only end-market where Anthem is lacking real sizable presence,” Giacobbe wrote. “Anthem holds only 3% market share of total Medicare Advantage enrollment vs. the market leaders UnitedHealth Group and Humana that hold 20% and 18% of the market, respectively.”

Anthem CEO Joseph Swedish has also called Medicare “an incredibly important area for us and we do remain committed to growing in this space,” the analyst said. “As a result, we view Humana as a coveted asset for Anthem that would not only accelerate the company’s turnaround story in Medicare Advantage, but also propel it to a position of market leadership at roughly 21% share,” Giacobbe said.

Aetna, Anthem and Humana had no comment on talk of their possible M&A activity.

Below the Big Plays Lie a World of M&A

Meanwhile, the conversion of the health care industry with the blending of payers and providers is spurring M&A business.

“We are doing a lot of transactions for your large established managed care companies who are out there buying provider networks,” says Bill Baker, partner-in-charge, health care transaction services for audit, tax and advisory firm KPMG LLP in Dallas. “They are buying urgent care clinics, they are buying freestanding ERs and they are buying physician associations. So you really have a growing movement — nothing new, but certainly a building pace and momentum as the payers move into the provider sector,” he tells HPW.

He points to Anthem’s $800 million purchase of seniors medical care provider CareMore Health Group, Inc. in June 2011 as an example (HPW 6/13/11, p. 3). Baker says he is not free to discuss the details of pending plan-provider transactions.

What Is Behind the Expectations?

Beyond health plans looking to implement strategies to tap into higher-margin government-sponsored segments, and also acquire more expertise in data analytics or health IT for instance to gain a foothold in the movement to pay-for-value, there are fundamentals that point to M&A acceleration in the coming months. “I think right now one of the dynamics that certainly is impacting the private sector is the multiples that people are willing to pay for managed care plans, for data analytics companies, for health care IT services,” Baker says. “We are at an incredibly high valuation peak right now. So you are seeing a lot of people today who six months ago said ‘we’re not for sale,’ but now you’d have to be an idiot to at least not consider it.”

He adds, “There are a lot of buyers in the market looking to buy companies of these types, whether private equity financial investors, the big corporates or whether it’s middle-market players looking to consolidate operations. We’ve got nine financial diligence partners focused in health care on our team, KPMG, and I bet you right now we’re probably working on maybe 10 transactions where either the buyer or the seller is a managed care player,” he explains.

Baker emphasizes that the shift in risk to providers is a major impetus. “Every health system over $1 billion or $2 billion in revenue, I can tell you with an unbelievably high degree of confidence those guys have a group of people in that health system trying to figure out how they are going to roll out a health plan….Ultimately, if you are on the provider side of the wall, you’re going to be in an ACO or some type of at-risk model for a good chunk of your covered lives,” he continues. “You cannot operate a health system coherently with one foot in FFS and one foot in a world of an at-risk population. There is a stampede of people looking to make the full jump and be able to take risk for as much of the covered lives as they can.”

And as risk shifts to providers, “Those managed care plans are reaching out to those IPAs and saying, why don’t you sell yourself to us and basically become part of managed care XYZ and we’ll put a big bucket of money in your pocket,” he says. “And if you dangle money in front of a physician he will grab it, but the other dynamic is if you dangle money in front of a physician they basically trust no one (in a generalized sense) and they will go out and shop that deal for a better deal to be had.” That is leaving certain markets where you have an IPA with 5,000 to 20,000 MA lives in the middle of bidding wars, pitting larger provider systems and insurers against each other, he adds.

Read the Credit Suisse report at

Top 10 Provider-Sponsored Health Plans, By Medical Membership*

AIS’s Directory of Health Plans: 2015 counts 256 provider-sponsored plans, representing half of all plans. Some 33 million members — 11% of total covered lives — are covered by provider-sponsored entities. This represents an 8% increase from last year.

Health Plans


% From Public Exchanges

Kaiser Foundation Health Plan, Inc. (Calif.)



AmeriHealth Caritas Family of Companies






HealthPartners, Inc.



UPMC Health Plan, Inc.






Health Alliance Plan of Michigan



Priority Health



Kaiser Foundation Health Plan of Colorado, Inc.



Group Health Cooperative



NA=company does not have any plans on public exchanges.

*=company could not determine number of members via exchanges.

SOURCE/METHODOLOGY: AIS’s Directory of Health Plans: 2015, now available from AIS. Includes insured and ASO medical membership in commercial, Medicare and Medicaid sectors. Enrollment collected during fall 2014. For information or to order your copy, visit, or call (800) 521-4323.

© 2015 by Atlantic Information Services, Inc. All Rights Reserved.

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