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Behind 5 Major Health Plan Acquisitions

Margaret Dick Tocknell, for HealthLeaders Media, November 28, 2011

With so much of healthcare reform focused on hospitals and physicians, health plans have more or less been left to their own devices to figure out what role they will play in future of healthcare delivery. They have been very busy this year making acquisitions that will keep them in the center of the healthcare universe for years to come.

Health plan acquisitions in 2011 have focused on three areas, explains Steve Elek, a partner in PwC's Healthcare Transaction Services practice:

  • Horizontal integration. These acquisitions include other health insurance companies. Elek says growth in the baby boomer population is among the factors driving interest among commercial carriers in Medicare Advantage companies. These acquisitions can create an opportunity for commercial insurers to attract lifetime members who can be easily shifted to a Medicare Advantage plan at age 65. He says Medicaid insurers offer another acquisition opportunity as more states turn to Medicaid managed care to help control the costs of that program.
  • Vertical integration. These acquisitions include hospitals, physician groups, and urgent care and outpatient surgery centers. The goal is for health insurers to control the patient care cost centers. Elek says to look for more of this type of acquisition as health insurers become more proactive in the delivery of care to their members in order to bend the cost curve.
  • International opportunities. These acquisitions include healthcare systems and insurers in other parts of the world. Elek says these acquisitions offer an opportunity for U.S. health insurers to diversify their revenue base.

Here's a look at five health plan acquisitions from 2011 that illustrate how health plans are using horizontal and vertical integration and even international acquisitions to meet strategic goals.

1. Cigna and HealthSpring
When Cigna plunked down in October some $3.8 billion to acquire HealthSpring, a Medicare Advantage plan, it gained instant credibility in the very desirable senior insurance market. Cigna has long been a major player in employer-sponsored business and in recent years has focused much of its attention on the growing international market. The insurer has fewer than 50,000 Medicaid Advantage members, almost all in Arizona.

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