Large Insurers Expected to Acquire Smaller Medicare Health Plans

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By Sara Merken

Large insurers are expected to acquire small Medicare managed care plan providers in a variety of markets due to prospects of profitable growth, attorneys and analysts contacted by Bloomberg Law said.

Insurers are already taking steps to expand involvement in the Medicare Advantage space. Anthem Inc., one of the biggest U.S. health insurers, is selling bonds to finance acquisitions of HealthSun and America’s 1st Choice, two Medicare Advantage plans based in Florida. Anthem’s competitors include UnitedHealth Group Inc., Humana Inc., Cigna Corp., and Aetna Inc.

Consumers can anticipate seeing more national insurer names and co-branding efforts as companies seek to enter the Medicare Advantage market. While the expansion of MA plans is not expected to raise antitrust issues, there is a possibility for acquisitions to alter member experiences, attorneys and analysts said.

“It’s a booming business,” Maria Currier, partner in Holland and Knight’s Miami office, told Bloomberg Law. The Medicare Advantage market is attractive to large insurers as industry experts predict “rapid growth and transition” in the MA space, she said. Currier practices in the firm’s business law section and co-leads the health-care and life sciences industry team.

Profitable Growth

The Medicare Advantage sector has “clear profitable growth,” and will continue to expand with newly interested players entering the space and existing players attempting to gain more members through mergers and acquisitions, Deep Banerjee, director in the insurance ratings team at S&P Global, a financial information and analytics firm, told Bloomberg Law.

Profitable growth is “hard for health plans to find,” Bob Kocher, partner at Palo Alto. Calif.-based venture capital firm Venrock, told Bloomberg Law. The limited growth in both the individual market through Affordable Care Act exchanges and in the group insurance market “leads plans to look at Medicare Advantage, which is growing quickly and also profitable,” he said. Kocher focuses on health-care IT and services investments.

The MA space is growing more rapidly than other segments due to “demographics aging into Medicare,” as well as more seniors choosing MA plans instead of traditional Medicare, he said.

Enrollment in MA plans has increased by 71 percent since the ACA was passed in 2010, according to the Kaiser Family Foundation. About 33 percent of Medicare beneficiaries are enrolled in an MA plan, and that number is expected to rise to 41 percent of all Medicare beneficiaries by 2027, the foundation said.

Small health plans will need the ability to scale programs to address the needs of more people as seniors continue to enter the system and large and small plans alike are looking to revamp and acquire more beneficiaries, Currier said.

The star rating system, created to measure Medicare managed care plan performance, will continue to be important to differentiate the quality of plans, she said. The Centers for Medicare & Medicaid Services reimburses plans based on star ratings.

Market Consolidation

Deals between large and small insurers might attract less attention from the Department of Justice than would a merger between two larger entities, Paul Ginsburg, director of the Center for Health Policy at the Brookings Institution, told Bloomberg Law.

The acquisition of a small entity does not typically raise antitrust issues, unless the small entity has a large market share in a particular geographic or product market, James Burns, an antitrust attorney in Baker Donelson’s Washington office, told Bloomberg Law. For example, the acquisition of a small entity with a large market share in a specific county can raise potential antitrust issues, particularly if the acquirer is also in that county, he said.

“Clearly, this is an industry that the regulators have their attention on,” after the DOJ blocked a deal between Aetna and Humana last year that would have affected the Medicare Advantage market, Burns said.

In the case of the recent Anthem deals in Florida, which are pending, the acquisitions would seem unlikely to raise considerable antitrust issues, because Anthem does not already have a large market share in the Florida Medicare Advantage market, he said. Burns is also co-chair of the firm’s health-care antitrust initiative.

Small entity acquisitions could potentially reduce drug costs, because larger companies often possess efficiencies that smaller companies cannot match, and those efficiencies can potentially be passed on to customers, Burns said.

However, where an acquisition results in a greater concentration of market share, in some circumstances that can result in market power, and the possibility that the acquiring entity might seek to raise prices, he said.

Co-Branding, Customer Service Impacts

The quality of customer service also could be affected by acquisitions.

Large insurers’ use of analytics can benefit consumers by coordinating care and reducing money spent on coinsurance for different services, Ginsburg said. These analytics will be utilized by the small plans acquired by larger ones to provide better outcomes and experiences for beneficiaries, he said. Ginsburg is also a professor of health policy and director of public policy at the Schaeffer Center for Health Policy and Economics at the University of Southern California.

On the other hand, patient experience could be “jeopardized” by acquisitions, because customer service often tends to be less satisfying when working with a big company bureaucracy, Kocher said. Small-sized plans can have a small team of nurses, nurse practitioners, and doctors that knows the patients with the most risk and has a good relationship with primary care providers, and thus a greater capability of closing gaps in care than can a large plan, he said.

Smaller plans often deliver better member experiences and higher quality measures, so a potential risk of acquisitions is that “plans regress to the performance of their acquirers,” Kocher said. Employees often leave the plan after an acquisition due to culture changes, and patients may have a harder time getting questions answered in a large system, he said.

Consumers will start to see more national brand name offerings in areas that previously only had local players, Banerjee said. The addition of players in the market will create more offerings in the near term, and even if there are fewer players in the long term, multiple MA plans will exist “no matter where you are,” he said.

Co-branding efforts between large health systems and small plan providers, such as a recently announced MA plan partnership in Ohio between Humana and academic hospital the Cleveland Clinic, will continue to pop up in several markets to help health plans delve further in the Medicare Advantage space and grow the patient pool, Currier said.

To contact the reporter on this story: Sara Merken in Washington at smerken@bloomberglaw.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bloomberglaw.com

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