PWC on Health Sector M & A in 2018

When the economy is booming companies in all industries feel emboldened to make large acquisitions, trying to further buttress their market power and health care is no exception, as a recent PriceWaterhouseCooper report finds.   (PWC Report)  A year ago, two mammoth health care acquisitions, Aetna/Humana and Anthem/Cigna had appropriately collapsed due to regulator opposition.  Two of the parties involved in those deals found new partners this year in two of the largest transactions, as Aetna was acquired by pharmacy/PBM firm CVS and Cigna acquired large PBM Express Scripts.  I don’t particularly understand the “strategic” rationale for either of these deals, especially given the price paid, and the truth is that these transactions often have less to do with strategy than a desire by the acquired company’s management to just get out–they don’t really have a strategic or business plan for the future so they try to cash in all those freebie stock options they have been getting.  According to the report, in total their were $121.5 billion in health care services mergers and acquisitions in 2018, across 1,182 deals.  The largest transaction was Cigna’s $67 billion purchase of Express Scripts.  (technically CVS/Aetna is treated as a 2017 transaction, but really probably is a 2018 deal, and it was valued at $78 billion)  Interestingly, there were no health services IPOs in 2018, so companies are finding adequate exit paths through M & A.  While the number of transactions was up in 2018 compared to 2017, total value was down, but still very high compared to recent years.  There is a great deal of activity on the provider and IT front.  Some other large 2018 transactions included private equity firm KKR acquiring physician staffing company Envision for $9.9 billion and another PE firm, Apollo, buying hospital company LifePoint for $5.6 billion.  While there was some health plan acquisition activity, it was largely relatively small add-on deals.  Amazon made a notable move into pharmacy, with the acquisition of PillPack.  Acquisitions of long-term care facilities, which is a highly fragmented sub-sector, provided the most deal volume, but most were relatively small in value.  Behavioral health was another area with substantial activity as recognition widens of the value of integrating behavioral treatment into wider health management objectives.  While the report doesn’t address this, I don’t think all the consolidation is good for health care or the economy in the long-run.  Market power is increasing in most sectors and this generally means higher prices, not greater efficiency that leads to lower prices.  A little more competition would likely be a good thing.