Mergers escalate pace of US healthcare consolidation

Saturday, July 25, 2015

US healthcare firm Anthem said it would pay $54bn to buy smaller rival Cigna in a move aimed at slashing costs.

The biggest healthcare insurer in the US will be created by the historic deal, the largest in the sector.

The tie-up comes weeks after Aetna said it would buy rival Humana for $37bn.

If they are approved by regulators, the two mega-deals would transform the US healthcare industry, consolidating the country's five biggest health insurers to just three, including UnitedHealth.

Forrester analyst Alex Cullen said the deals are being driven by the "huge pressure" on healthcare firms to reduce costs.

"The landscape has changed completely. Firms are now competing to be the 'Amazon' of the healthcare sector. It's a much more consumer-orientated landscape, " he said.

Forcing efficiency

The deal frenzy comes in the wake of rapid change, largely linked to "Obamacare" - President Obama's Affordable Care Act.

The 2010 law was aimed at extending health insurance care to all Americans, including those not covered by their employers, as well as the poor and the elderly.

But the conditions it has imposed on insurance firms, such as banning them from denying health coverage to people with pre-existing health conditions and allowing young people to remain on their parents' plans until the age of 26, is forcing them to become more efficient.

The law has also resulted in marketplaces - with websites akin to online travel and shopping sites - where individuals can compare prices as they shop for coverage, which have also added to pressure to minimise costs.

Merging will give the firms better negotiating powers with drug companies, but critics say the smaller number of providers mean that consumers could end up paying more.

"The business motives are relatively obvious, but we don't know yet if it's good for consumers," said Mr Cullen.

The US spent $2.5 trillion - or 17.4% of GDP - on health care in 2013, according to official figures. Per capita the figure has risen from $4,129 in 2000 to $7,826 in 2013.