Health care companies in the United States have been involved in acquisitions and mergers worth close to $270 billion in the first nine months of 2015. The health care merger frenzy involving insurers, hospitals groups, and drug makers is far more active in recent years, according to Mergermarket.
For example, on Thursday, pharmaceutical giant Pfizer is considering buying the maker of Botox, Allergan – market value $113 billion, making it the biggest deal this year. Allergan was actually formed by merging with Actavis for $66 billion.
On July 27, Teva Pharmaceuticals in Hungary agreed to buy the generic drug unit of Allergan for $40.5 billion and eventually dropped its pursuit of Mylan. On July 3, Aetna’s headquarters in Hartford agreed to acquire Humana for $37 billion in stock and cash.
But the mergers and acquisitions go beyond the drug industry. According to a report by the New York Times, this year’s biggest health care deals included mergers among the U.S.’ five largest health insurance companies. The health insurance companies set out to pursue one another until perhaps only three will remain.
Aetna is pursuing Humana and Anthem is trying to buy Cigna for close to $50 billion. UnitedHealth Group is the only health insurance company remaining without a partner. However, by buying Catamaran Corporation — a fast-growing competitor, UnitedHealth created a portfolio of health care businesses this year and fortified OptumRx, the company’s pharmacy benefit manager.
The combination of these two companies is expected to process more than 1 billion prescriptions in 2015. They are also better equipped to compete with the industry giants Express Scripts and CVS Health, which operates CVS/Caremark in addition to drugstores. CVS, in turn, acquired Omnicare to broaden its reach into nursing homes and bought 1,700 pharmacies from Target.
The list goes on.
Earlier this week, the huge drugstore chain, Walgreens Boots Alliance, said it planned to buy its competitor, Rite Aid.
The mergers and acquisitions among pharmaceutical companies cannot be outdone. They are always in the market for a promising new drug or pipeline. Last November, Actavis bought Allergan, and took its name. Shortly after the two companies combined, Allergan decided to sell its generic business to Teva Pharmaceuticals for about $40 billion. According to Allergan, their deal with Teva will not have an effect of the arrangement with Pfizer.
Pfizer’s acquisition of Allergan could offer a substantial return to the American drug makers’ plan of an overseas base. Allergan’s headquarters are in Dublin, and Pfizer had earlier considered acquiring AstraZeneca in London.
Consumer advocates and others are concerned that some of these huge mergers and acquisitions — especially deals proposed by large for-profit health insurers, will not benefit consumers. Skeptics say competition could decline considerably in some businesses, such as private Medicare plans, in addition to as few local markets where there may already be one or two powerful health care insurers.
Consumers may end up paying more because, without competitors, hospitals could raise prices and health care insurers could raise premiums.
Any large transaction between health care companies is going to get a careful regulatory review by federal and state officials. The Justice Department is looking at the insurance mergers, and the Federal Trade Commission has examined some of the hospital mergers, including one in which a hospital system acquired a physician practice.
Nevertheless, health care insurance providers, hospitals, drugstore chains, and pharmaceutical companies are all searching for ways to build themselves up, in order to gain a greater advantage to negotiate.
The enthusiasm for health care companies to make deals may curtail if the state of the economy declines or some other factors. Nevertheless, health care companies are likely to continue their quest to merge because of the Affordable Care Act and the pressure to provide better care at lower prices.
Torrey McClary, a lawyer for Hogan Lovells specializing in mergers, offered his thoughts to the New York Times.
“Our view from the ground is that the pace will continue. Nobody is sitting still. Everybody in the industry is thinking hard about their next move.”
[Photo by Adam Berry/Getty Images]