CAROL MASSAR AND CORY JOHNSON | BLOOMBERG ADVANTAGE RADIO | 22 JULY 2016
Bret Schroeder, healthcare expert at PA Consulting Group, shares insights with Bloomberg Advantage Radio on the implications of the Department of Justice's (DoJ) recent anti-trust lawsuit aimed at preventing two major health insurance mergers on the healthcare industry overall.
Commenting on whether or not this is an end to the M&A activity in the healthcare space, Bret states: "So I don't think it is an end to the activity, I actually think the mergers will continue, but probably on a smaller scale. If these deals are blocked, I think what the DoJ is saying is that they are just too concerned about having three major payers as opposed to five. So if they do fall apart, or are blocked, I think what you are going to see is each of those companies going after their own growth strategies, looking at maybe smaller deals that aren't as significant as combining the five into three."
Bret continues: "I think the Government is right to question, a complete blockage is interesting. If you look at the hospital space, mergers in the hospital space over the last five years under the administration has exploded and it's a direct result of ACA. The concern from these organizations is that 'we need to be able to compete the rising prices from the hospital side, hence why we need more negotiating power. The DoJ has let the hospital side consolidate and increase price so the question then becomes, how do these insurers then battle that because if you are saying this is a concern from an increase in price perspective, you are talking out of both sides that way."
Bret expounds on the impact of the ACA on the industry, explaining: "I think the ACA did change the landscape and how the insurers are going to market. So now you can offer individual plans and I think part of the issue here is how do these companies offer those plans cost effectively. We have seen a lot of those plans from the individual market not be profitable. United chose to step away from that market. Cigna and the others say they are going to stay. The question is, if the stay and they are still not profitable, they have to spread those prices across the rest of the group, which is going to mean premium increases anyway. So it is an interesting dilemma."
Bret concludes: "I think all of the other healthcare insurers are looking at this because there is going to be merger activity that continues. It might not be at this scale, but I think the other players in this space are looking at this very closely to see 'what does this mean for me if it goes through' and 'what does it mean for me if it doesn't go through.'"