Health insurance companies are likely to pursue more mergers and acquisitions in the near future, making it possible to provide coverage more cost effectively. That doesn't necessarily mean those savings will be passed on to their customers.
Healthcare organizations and insurance companies are both likely to see more mergers and acquisitions (M&A) in the coming year as they continue competing for purchasing power in the healthcare marketplace.
Health plan mergers should result in significant savings for the companies, but it remains to be seen if those savings will be passed on to the consumer.
Multiple mergers and merger attempts happened in 2016, most notably the Anthem and Cigna deal, and the Aetna and Humana move, both currently on hold pending the outcome of Justice Department efforts to block them on antitrust grounds.
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M&As will continue to be attractive to health plans and providers no matter what happens to the Affordable Care Act under the Trump administration, says Munzoor Shaikh, a director in the Healthcare practice at business and technology consulting firm West Monroe Partners.
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"I think we're getting caught up in the drama and nothing is going to change that much in the healthcare arena," he says.
"The market forces are so much greater than the political forces at play here. The disease level has not changed, the number of hospitals has not changed, and economic conditions are essentially the same. People are still going to the hospital[s], and the only question now is who is going to pay for that."
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Consolidation through M&A allows payers to reduce expenses and increase profit margins, but consumers may see no benefit and may even be harmed, Shaikh says.
"Combining their size and assets will give the payers more purchasing power, which means they can put downward pressure on providers for costs," he explains.
"So costs will come down eventually, but quality could be compromised if providers find it challenging to meet those thresholds. When you look at cost and quality, I don't see both of them changing favorably for the patient."
Narrow networks will emerge as the gains in purchasing power give health plans the ability to pick the providers that they like working with, Shaikh says. Until health plans and providers start collaborating in a more meaningful manner, consumers may come out on the losing end as hospitals and health systems are forced to find new ways to meet the lower fee schedules of the insurers, he says.
'Buying Like There's No Tomorrow'
"This is still a bit of a dream, but a few of them are starting to do it. Some of the payers are looking more at how to perform better as a care delivery system, starting to buy providers like Kaiser in the western United States," he says.
"I think we will see more of the Kaiser-type moves toward a hospital system integrated with an insurance company. That's when a potential win-win could happen."
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Healthcare organizations also are pursuing more M&A deals, with the prospect of increased purchasing power leading many providers to pursue the strategy before they are ready, Shaikh says.
"You look under the covers and they really aren't M&A-ready," he says. "They haven't done any planning for the post-M&A integration, but they're buying like there's no tomorrow. That potential for purchasing power draws them into an arms race with payers."
Gregory A. Freeman is a contributing writer for HealthLeaders.