Back to business: health care M&A activity expected to accelerate
The Justice Department's failed attempt to block UnitedHealth's $13 billion acquisition of health tech Change Healthcare could bode well for other mega-deals as the nation pushes past the pandemic and health industry players firm up their growth plans.
The big picture: The ruling came not long after a Federal Trade Commission administrative judge denied efforts to block the life-sciences company Illumina from buying cancer-detection company Grail. It highlights how, while President Biden's antitrust team has significantly stepped up reviews and litigation, its bark can be worse than its bite, Axios' Dan Primack writes.
Meanwhile, large health care systems are repositioning to a world with more digital care that's focused on the consumer experience. Pressured by staffing and supply costs, systems are evaluating where they can boost profits, in some cases investing in satellite clinics and taking care outside hospital walls.
- "The better, cheaper, faster art of health care is where the focus is now," Anu Singh, partner on Kaufman Hall's M&A team, told Axios.
Between the lines: Antitrust regulators vowed to make health care a major target this year and are increasingly going to court to block deals to satisfy competition concerns.
- But they lack the resources to go toe-to-toe with powerful corporate legal interests.
- And efforts in Congress to give DOJ and the FTC more authority also appear to be stalling out.
- "They are willing to bring cases and lose because they believe it will increase pressure on Congress to change antitrust laws," Chris Meekins, an analyst at Raymond James, told Axios.
Be smart: Meekins said the UnitedHealth case proved that companies should expect to go to court, but can still win, at least in vertically integrated deals where one company's product is a component or complement of the other's.
Yes, but: The exception could be with hospital system mergers, which have been stymied in courts.
- The FTC sued to block a merger between two New Jersey hospital systems this summer, which the systems then abandoned.
- Following the threat of legal action, HCA Healthcare paused plans to purchase five hospitals in Utah.
- Two Rhode Island hospital systems scrapped a merger plan after the FTC sued to stop the deal.
While smaller deals are still possible, horizontal mergers of large health care systems could be challenging under the current regime, Meekins said.
Between the lines: Tech companies that can offer ways to streamline business will be attractive targets for health systems with cash on hand, Singh said.
- Big Tech will be looking for larger health system partners, especially ones with broad patient bases and diverse geographical footprints, Singh said.
- But it's still difficult to assess exactly when inflation and the market as a whole will stabilize.
- So far in 2022, the number of transactions are not at the level they were pre-pandemic, but there was a rise in "mega" deals, a Q2 Kaufman Hall report shows, with deal values reaching a historic high of $19.2 billion.
Context: Research shows that consolidation leads to price increases throughout the system without a significant change in the quality of care or access to care.
- There is now a body of scholarship showing that when hospitals have fewer competitors, they can charge insurance companies higher prices.
- The largest merger of tax-exempt hospital systems analyzed in a new JAMA study found that it led to reduced charity care in all of the hospitals involved.
- Hospital mergers can also lead to lower wages and benefits for health care workers, ultimately impacting consumers.
- Experts suggest improving competitiveness in markets, not allowing large health systems to engage in unfair contracting practices and bolstering antitrust enforcement.
The bottom line: With recent acquisition announcements like CVS-Signify Health and Amazon-One Medical, vertical health deals aren't showing signs of slowing down.
- With the DOJ and the FTC continuing to take aim at the health care sector, the success of deals will likely depend on who's trying to acquire who — and how solid a legal team they can assemble.