Managed care mergers and acquisitions on the rise?
Managed care organizations led the way in merger activity in the first quarter of this year, according to a report by a Connecticut health care research firm, as the volume of all health care deals surpassed that of the fourth quarter of 2014.
Irving Levin Associates said there were 355 merger-and-acquisition deals in the first quarter, up 1 percent, far surpassing the previous record for first-quarter deal volume, which had been 298 transactions in 2012.
Acquiring in “different directions”
Among them were 10 deals in the managed care space, up from four in the fourth quarter. That sector is made up of insurance companies that provide managed care services for patients in Medicare and Medicaid programs, according to Lisa Phillips, editor at Irving Levin.
Phillips said these companies have moved on from merging with and acquiring each other, to buying companies that can help enhance their service offerings.
“They’re moving in different directions now,” Phillips said.
Irving Levin didn’t disclose details on specific transactions, though Phillips said only one involved a Massachusetts company. But in general, Phillips said acquisitions that give managed care organizations greater control over the health care of the populations they manage are becoming more common.
For example, a managed care company might buy a data analytics firm to assist with tracking variables that impact patient outcomes. Phillips said other managed care organizations are buying doctors’ groups or long-term care facilities, allowing them to build cohesive health care delivery systems.
ACA challenge a factor in continued M&A activity
But whether managed care deals will continue to rise remains to be seen. Phillips said one major factor is the pending case before the U.S. Supreme Court, King v. Burwell, which challenges the section of the Affordable Care Act that provides tax subsidies for people who buy health insurance through the federal exchange.
A blog post from the Commonwealth Foundation, a private health care foundation, said a disruption in subsidies would prompt many insurers to leave the exchanges because they would suddenly be full of high-risk patients who no longer come with subsidies to help relieve the cost to insure them.
“These include Medicaid managed care organizations seeking to expand their footprint, regional health systems seeking to integrate health care delivery with insurance, and nonprofit cooperatives (who receive) federal start-up loans. Many of these new competitors would be unable to withstand negative cash flow, even for a few months,” the post read.
A ruling is expected at the end of June.
Biotechnology startups scooped up
Leading M&A activity in the health care technology space in the first quarter was the biotechnology sector. With 61 deals, activity increased 36 percent over the previous quarter. Phillps said that was driven by large pharmaceutical companies’ need for more products. Many patents have recently expired, and products once offered exclusively by big pharma are now offered over the counter and by competitors, she said.
Clinical-stage biotechnology startups that are closing in on FDA approvals of new treatments offer new prospects for pharmaceutical giants, so they’re being scooped up, Phillips said.
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