In the past year, mergers and acquisitions continued at a torrid pace, including monster deals such as CVS/Aetna, a development that could send reverberations throughout the health care industry. There will be more of these "Clash of the Titans" deals, but all types and sizes of health care companies will see M&A activity in 2019. Already, two big deals in the pharmaceutical industry have been announced. The trend will likely be healthy for bottom lines, but its effect on costs and the health of patients remains an open question. |

Kind of a big deal

The deal between CVS Health and Aetna was finalized last November, a $69 million merger between the nation's largest pharmacy chain and an insurance giant. Although regulatory details are still being worked out, the two companies are moving forward. The goal is to create efficiencies and improve care, but the deal was criticized by a number of different stakeholders, including economists, patient advocates and physicians. Related: Is consolidation in health care good for employers? The CVS/Aetna merger was one of several developments in this area. Another health care giant, Cigna, acquired Express Scripts, one of the nation's largest pharmacy benefit managers (PBMs) for $67 billion. In addition, a possible deal between Walmart and Humana (still in the works), along with the $4.9 billion deal between UnitedHealth Group's Optum and Davita Medical Group, also made waves. As always, regulatory reviews can affect M&A deals, even given the pro-business stance of the Trump administration. Going forward, the merger of PBMs and pharmacy chains with large insurers raises questions about whether enough competition is left in the pharmacy market, at a time when high drug costs are a pressing concern for many Americans. Some studies, such as this one from the Center for American Progress (CAP), question whether the promises of an active M&A market can be fulfilled—the CAP study found that provider consolidation has led to higher health care prices and hasn't resulted in improved care coordination. |

What's in store for 2019

In the pharmaceutical industry, 2019 started with two big acquisitions: drug manufacturer Eli Lilly announced it would acquire cancer drug developer Loxo Oncology for about $8 billion in cash. That was quickly followed by the news that Bristol-Myers Squibb would acquire cancer-drug company Celgene, with a price tag of $74 billion. Both deals were announced in the first two weeks of the year. Besides the giant Walmart/Humana merger that is likely to be finalized in 2019, there are a number of other mergers in the works—many of them involving health systems and provider groups. In Texas, Baylor Scott & White, which owns 51 hospitals and has more than $7 billion in net patient revenue, is in talks with Memorial Hermann (21 hospitals and more than $3.5 billion in net patient revenue). Further west, Dignity Health in California and Catholic Health Initiatives in Colorado are continuing merger talks, which are expected to be finalized at the end of this month. The two systems would become CommonSpirit Health, a 139-hospital system with over 700 care sites in 28 states. The combined system would also bring in nearly $30 billion in revenue. Market analysts are continuing to keep a close eye on both UnitedHealth, a strong candidate for future blockbuster deals, and Amazon, which has begun to move into the health care field. Amazon has a reputation for disrupting and dominating entire industries, so a move by that player could be the biggest M&A story of 2019. |

A range of opinions, strategies

Despite all the activity, some in the industry question whether the high level of M&A activity is sustainable. An investor survey released last November by Capital One Healthcare found that 60 percent of respondents said mergers and acquisitions will either stay the same or decrease in 2019. According to an article in Modern Healthcare, the growth of M&A activity might be hard to maintain. "I don't think it's plateauing from an opportunity standpoint, I think it's very robust right now," said Al Aria, a senior managing director with Capital One Healthcare, in the article. "We're seeing record M&A. I think some people might be questioning how much higher it can go, because we're already at such a high level." One future strategy could be large systems and companies deciding to invest in building out their current capabilities, rather than turning to M&A. The Hospital for Special Surgery, based in New York City, was recently profiled in the Wall street Journal as saying it is finding more value in adding facilities, rather than acquiring competitors. "Our strategy for our growth stems from our ability to develop the HHS model and extend our reach and impact," CEO Louis A. Shapiro told the Journal. However, this strategy may work better for systems that, like HHS, are specialized around a service area such as surgery. Other analysts see a mature market, where established players are looking for other success stories to add to their strengths. "Health system leaders are seeking to acquire organizations that bring embedded expertise and resources to the deal, making these transactions more of a strategic partnership than an asset acquisition," said a report by Kaufman Hall. The same report notes that in this environment, the difference between for-profit and not-for-profit health care systems is becoming harder to see. As companies continue to seek to outpace the competition, expect another big year for M&A. Read more: |

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