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WellPoint closed Amerigroup
WellPoint closed its $4.46 billion acquisition of managed-care company Amerigroup on Dec. 24. Insurers are expected to continue to diversify this year.

No letup seen in consolidation


By Beth Kutscher
Posted: January 5, 2013 - 12:01 am ET
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For investor-owned healthcare providers, the story of 2013 is expected to be similar to the narrative of 2012: consolidation, consolidation, consolidation.

For-profit hospital systems are expected to continue, and even accelerate, their acquisition spree in the new year, as they seek to gain even more strength and scale.

The debt and equity markets will remain open to these chains, which will also be able to dip into the healthy amounts of cash sitting on their balance sheets, says John Stein, who leads the for-profit healthcare business in the Nashville office of Bank of America Merrill Lynch. “I think we'll see for-profit entities acquiring not-for-profit entities, and for-profit entities acquiring for-profit entities,” Stein says. “There's so much momentum around consolidation—I just don't see that slowing down.”

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Stein also expects to see similar dealmaking activity in the post-acute space, particularly home health and hospice, which has been heavily exposed to reimbursement pressure from government payers. “I believe those two areas hold tremendous ability to take costs out of the system,” Stein says. “Reimbursement at this point doesn't reflect that. I think there's a similar consolidation story at play.”

Burk Lindsey, a managing director at the healthcare investment banking group of Raymond James Financial, also predicted that provider merger-and-acquisition activity—particularly for large transactions—could pick up in the coming year, as uncertainty around the future of the healthcare reform law has dissipated.

And he notes that it's not only hospitals, but also commercial health insurers that will look to diversify, particularly to gain access to the dual-eligible population, those who qualify for both Medicare and Medicaid. “We've seen a fair amount of dealmaking in Medicaid managed care,” he says.

But while the environment looks ripe for deals, a number of trends will continue to weigh on the sector. Stein notes that patient-care volumes are likely to once again be “fairly soft” in 2013, as individuals continue to put elective procedures on hold. Reimbursement is also expected to remain under pressure, he says.

Michael Waterhouse, a research analyst at Morningstar, notes that uncertainty continues to exist around how federal spending issues will be resolved—and how large any provider rate cuts will be—as well as the number of states that will choose to expand their Medicaid programs. Still, he says, “I don't think there's going to be too many surprises. I think it's going to be a pretty quiet year.”


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