In the first half of 2015, more than 350 mergers & acquisitions (M&As) took place in the healthcare industry. 346 of those occurred in the first quarter alone! Not all prices were publicly disclosed, but as of the end of March, disclosed deals were valued at nearly $105 billion.
Fast forward to the middle of the year and the biggest healthcare M&A in history that occurred on July 24, 2015 when Anthem bought Cigna (more on Cigna, below) for $54 billion. This is just weeks after the second biggest healthcare merger in history, when Aetna bought Humana for $37 billion on July 3, 2015.
When you add these recent mega-mergers (worth $54 billion and $37 billion respectively) to the first quarter $105 billion in disclosed deals, we are approaching $200 billion in healthcare M&As. And it’s only July!
M&A activity is occurring in every healthcare sector, including hospitals, medical groups, pharmaceutical companies and insurance. All of this was predicted. A 2010 New York Times article by Robert Pear predicted that the Affordable Care Act would lead to corporate consolidation in the healthcare sector.
There are lots of reasons we should be worried about M&As, including reduced competition leading to higher costs and incentive structures that promote the denial (instead of the delivery) of care. You see, when doctors and hospitals keep costs down, they get bonuses. Keeping costs down is a great goal, but who wants that to mean your mom doesn’t get the care she needs?
When corporations implement ill-conceived incentive structures, bad things happen. Think Enron. Think 2009 global economic collapse – thank you, Goldman Sachs and your Wall Street buddies!
This is a complex issue for sure. But, for now, let’s focus on the one question no one is asking:
How is it that a health insurance company can amass riches equal to the legendary hoard of the Firedrake Smaug, of Middle Earth?
Seriously. Forbes Magazine estimated that Smaug, the dragon from The Hobbit, had a net worth of $54 billion, the same amount that Anthem spent to acquire Cigna.
Did this “left over” $54 billion result from Anthem’s executive management team scrimping and saving? Hardly. In 2014, the CEO of Anthem, Joseph Swedish, earned $13.5 million and other members of the executive team earned handsomely as well.
No, Anthem’s hoard is simply the result of more monies coming in than going out. The monies coming in are your health insurance premiums and government-paid insurance subsidies – otherwise known as “your tax dollars.” The monies going out are health insurance claim payments.
Health insurers are making money hand-over-fist, collecting premiums while paying out as little as possible for our health care. While the health insurance mandate requires us to carry insurance, the high out-of-pocket expenses we have to pay and the tricky doctor networks actually discourage or prohibit us from using it.
The bottom line is that our hard-earned premiums and tax dollars are being wasted on mega-mergers and golden parachutes for executives. It’s wrong, and we’ve got to stop it.
Note: CIGNA is the infamous insurer that, in 2007, denied a liver transplant to Nataline Sarkisyan, a resident of Glendale, California. She suffered from recurrent leukemia and her UCLA medical team recommended the transplant. After a very public fight to get the procedure covered, and on the advice of their crisis management team, CIGNA reluctantly agreed to pay for her transplant. They were too late. Natalie died within hours of the decision. She was 17 years old.
Learn More:
Deny, Disclaim, Delay – How Health Insurance Companies Really Work
https://www.youtube.com/watch?v=QCbNxM2EVUA
http://www.hfma.org/Content.aspx?id=29451
http://www.usatoday.com/story/money/2015/07/24/anthem-buy-cigna-mega-insurance-merger/30608995/
http://www.forbes.com/special-report/2013/fictional-15/smaug.html
http://www.nytimes.com/2010/11/21/health/policy/21health.html?_r=0
