Moody’s Investors Service outlined the strategies underlying the rapid M&A activity driving much of the change underway in healthcare delivery.
UnitedHealth Group is the most vertically integrated health insurer today “by far,” thanks in large part to mergers and acquisitions it began undertaking several years ago, according to a report released Thursday by Moody’s Investors Service.
UnitedHealth picked up Catamaran, a pharmacy benefits manager (PBM), for $13 billion in 2015, before snatching up physician groups, surgery centers, and other businesses in a spree of acquisitions last year, the report notes.
But the clear leader in vertical integration now has competitors nipping at its heels, as fellow insurers have latched onto PBMs of their own.
Dean Ungar, a Moody’s vice president and senior analyst, said the uptick in vertical M&A activity in this sector of the healthcare market has been driven primarily by a desire to control costs.
“The growth in medical costs has been a great challenge to the industry,” Ungar said in a statement. “Medical costs are impacted by medical cost inflation, changes in the level of utilization, and the use of inpatient versus outpatient services and pharmacy costs, which are estimated at 20% of total medical costs.”
The report outlined three main reasons for health insurers and PBMs to merge:
1. Cost savings
The desire to keep costs down is a major factor pushing companies to combine forces, but it may not be a good enough reason on its own to justify certain of these vertical mergers, according to Moody’s.
“If a health insurer already contracts with a large PBM as a client, it should already be benefiting from superior purchasing power and scale,” the report states, adding that existing PBM contracts should also be giving insurers an informational advantage.
—Steven Porter is an associate content manager and online news editor for HealthLeaders, a Simplify Compliance brand.