Health Care Mergers: What Does It All Mean?

It started as a low rumble.  Then, it picked up steam.  Then, it became a huge juggernaut—the now-massive wave of mergers in the health care industry.  What does it all mean?  Who will be the winners?  Who will be the losers?  Will it lead to better health?  Who is for it and who is against it?  Where will it all go from here?  These are the critical questions being posed—now more prominently—as the health care industry goes through a massive wave of consolidation.

None other than former Secretary of State and democratic presidential candidate Hillary Clinton has weighed in on the matter, calling for more scrutiny into the mergers.  Clinton is questioning whether the mergers mean “the balance of power is moving too far away from consumers.”  Clinton, in a statement to reporters, said she has “serious concerns” about mergers between Anthem and Cigna and Aetna and Humana.

“These mergers should be scrutinized very closely with an eye to preventing the undue concentration that they appear to create,” Clinton said. “I am very skeptical of the claim that consumers will benefit from them because the evidence from careful studies shows that too often the companies end up pocketing profits rather than passing savings to consumers.”

Although there have been several proposed and actual mergers, the one that seems to have been the shot heard around the nation is Anthem’s has agreement to acquire Cigna for $54 billion. The deal is expected to finalize in June of 2016, provided that it meets the scrutiny of antitrust regulators. The combined company would insure 53 million people and be one of only three major powers in the insurance industry.

But, not everyone sees these mergers as having a negative impact.  Dr. John D. Birkmeyer, executive vice president of integrated delivery systems at Dartmouth-Hitchcock Health and a professor of surgery at Dartmouth’s Geisel School of Medicine, writes in the Harvard Business Review:

Hospitals and physician groups are merging into large health systems at unprecedented rates, fueled in part by the Affordable Care Act. Provider consolidation takes many forms, but the general trend can make it easier to share electronic records systems, coordinate care of patients, and eliminate redundant costs. Another potential benefit of integrated health systems is in addressing the persistent problem of variation in health care practice and outcomes, particularly in surgery.

Decades of scientific research confirm the obvious: Patients who undergo complicated operations fare worse when their hospitals or surgeons rarely perform them. (In the medical community, we classify these surgeons and hospitals as “low-volume.”) The problem has long been known, and the purchaser coalition called Leapfrog Group has tried to curb it. However, recent analyses confirm that thousands of Americans whose surgeries are performed by low-volume surgeons and hospitals die unnecessarily every year.

“Unfortunately, the evidence belies all the claims and promises. Northwestern University researchers found that prices increase on average 14 percent after a hospital’s acquisition,” says Jean Bestafka, R.N., former CEO of the New Jersey Home Health Services Association.

Pfizer CEO Ian Read has often cited high US taxes as a competitive challenge for his company and a major reason for mergers that are done for the purpose of tax inversions.  An inversion is a legal restructuring of a business entity in which a US company merges with a foreign-domiciled company to lower its tax rate.

“To be successful in the future, we need to have a competitive tax rate,” Read said in response to a question about the political risk of inversion on the earnings call. “So that is why it’s an important issue for us.”

Critics of President Obama think that the Affordable Care Act is the ultimate driving force behind the wave of consolidation and that it will, eventually, lead to a single-payer health care system in the United States.

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