Medicare mergers: Green from gray
The health care business keeps concentrating in the US. These big companies realize that the aging of the population is where the future profits are, and two recently announced deals show the desire to consolidate operations and protect their position in the market.
United HealthCare expands
Managed medical care giant United HealthCare has announced it will acquire Pacificare Health Systems for $8.1 billion. That adds 3 million to United's current 23 million subscribers. United HealthCare is the #2 health insurer, after WellPoint/Anthem (with over 28 million members) It also strengthens United's position in California and in senior care, two areas that are still growing.
United HealthCare, which used to concentrate in the Midwest, has now expanded from coast to coast. The moves come on top of recent acquisitions of rival managed care plans Oxford Health Plans and Mid Atlantic Medical Services (2004). The company also recently acquired Definity Health Corp. (2005), a major administrator of self-insured corporate health insurance pans; it also acquired Golden Rule (2003), a company that deals in consumer health savings accounts, another area likely to be pushed by federal legislation. The company has even set up a special bank, called Exante, to run such accounts.
The company is also consciously expanding from its base in the employer insurance plan business (an area that has stopped growing), into the expanding government-funded health care area. With the expanded Medicare drug benefits starting next year, senior healthcare looks to be an ever more profitable sector. UnitedHealth has already signed an agreement with pharmacy giant Walgreen's in expectation of a big share of the Medicare drug market.
The move is, in part, a reaction to last year's WellPoint/Anthem deal. And, of course, it is going to spur on even more mergers, as smaller rivals worry about being cut out of the game. According to a Wall Street Journal story 'Two Health Plans Agree on a Deal For $8.1 Billion". 5/7/2005),
The deal could put pressure on the likes of Aetna Inc. and Cigna Corp., with 14.4 million, and nine million members, respectively. The deal also puts still-smaller players such as Humana Inc. and Health Net Inc. into investors' sights, as they anticipate a new round of dealmaking to create a handful of national health-care players.
Omnicare expamds
On a smaller scale, Omnicare Inc., the #1 provider of pharmacy services to eldercare facilities (nursing homes) in the US, has had a big week. It has announced three significant deals:
- It will buy rival NeighborCare for around $1.5 billion, a company that provides similar services (it's #3 in the market). The joined company will have a network that covers 47 states.
- It will buy hospice pharmacy service provider excelleRX for $269 million. The company handles pharmaceuticals for 400 hospice centers across the US.
- It will acquire RxCrossroads LLC, a company that supports distribution for drug companies, including mail order services. That smaller deal is for $235 million.
Again, these purchases are doubtless in anticipation of the new stage in Medicare drug benefits that are slated for the next year.
Changes in public policy are a big incentive to mergers and acquisitions. It is far easier for big companies to get a share of the big public dollars than to have to pursue hundreds of private institutions or companies. And if they are big, they'll have major influence on future government policy.
