Cash-rich insurers have consolidation in mind, which would mean higher returns for them but lower revenues for hospitals.
With hospitals already jockeying for the best negotiating position with rival insurers, the news that some of the biggest players in healthcare insurance are looking to merge with competitors is turning up the summer heat for healthcare leaders.
If these multi-billion dollar mergers go through, hospitals may lose much of their negotiating power.
After months of speculation, UnitedHealth Group Inc. and Anthem, Inc., the two largest insurers in the country by revenue, have both made moves to acquire smaller health insurance companies. (Anthem was known as Wellpoint until last year.) The Wall Street Journal reported Tuesday that in recent days, UnitedHealth made an overture to take over Aetna Inc., a deal estimated to be valued at $42 billion.
Robert Fuller, JD
Aetna already had been looking to acquire Humana Inc. and Cigna Corp. Cigna turned down Aetna's offer in the past few months, the Wall Street Journalreported Monday, an offer estimated to have been worth about $45 billion.
The Journal also reported that in the past week, Anthem made a play for Cigna, trying to put together a deal that would bring Anthem closer in size to the current biggest player, UnitedHealth.
The two top payers are substantially larger than the insurers they are trying to acquire: UnitedHealth's revenue last year was $130.5 billion and Anthem's was $73.9 billion. Last year's revenue for target companies Cigna and Aetna, was $34.9 billion and $58 billion, respectively.
Anthem already dominates the individual and small-group markets in the 14 states where it holds the rights to be the Blue Cross and Blue Shield insurer, while Cigna is stronger in the self-insured commercial business. Another benefit: Merging would give the combined companies a leg up in the Medicare Advantage market, with more than a million Medicare members.
Bad News for Hospitals
Though commercial insurers are not confirming many of the reported details or merger speculation, some healthcare leaders and industry observers say consolidation is likely.
And that is uniformly bad news for hospitals, says Robert Fuller, JD, who served as executive vice president and chief operating officer of Downey Regional Medical Center in Los Angeles from 2001 to 2013, when he joined the law firm of Nelson Hardiman in Los Angeles as a healthcare analyst and attorney.