Q&A: Wealth in Health: The Current State of Healthcare M&A
By John Sarich, Vice President of Strategy, VUE Software. Here are my comments featured in ‘Axial Forum’ Industry Insights White Paper “Wealth in Health: The Current State of Healthcare M&A”.
Offsetting costs through M&A has also become more important because with the ACA, the market has had to restructure health plans by increasing co-pays and deductibles due to the ACA’s Capture“Cadillac Tax,” an excise tax of 40% on high-cost employer-sponsored health coverage, says John Sarich, a vice president of strategy at VUE Software, a firm advising the insurance industry on automating business processes.
Payer and Provider Dynamics
The quest for survival — on the part of insurance companies, payers, and healthcare providers — is also driving M&A within mid-market healthcare.
“There is a lot of activity in the area of health insurers putting together provider networks such as health practices, physical therapy, and ancillary medical providers,” Sarich says. Sarich explains that in some cases, if reimbursements and capitation fees are too low, a percentage of the provider networks will not be available to the payer. In major metropolitan areas, where there are usually four major networks, a health insurance company may buy out one of those players to lessen the number of networks by one, Sarich adds.
Private exchanges will also be a source of mid-market M&A. “Many mid-market companies are joining the healthcare exchanges for economic reasons,” Sarich says. “Mid-level insurance companies cannot make money, are exiting this business, and are focusing on something else. Companies can’t be too small or else they will fall apart under the current system. It’s that in-between where it’s optimum to be in the mid-market. If they get a better network, they get pricing power and are able to price products cheaper.”
“The current multiples are only as high as how badly parties to the transaction want to get the deal done,” VUE’s Sarich says. “If you’re buying into a monopoly, for instance, you create pricing power and walk away with so much more.’