It may have been predictable, but it is nonetheless striking. With the Aug. 20 deal for Aetna Inc. to acquire Coventry Health Care, Inc. for $5.7 billion in cash and stock, the number of sizable independent Medicare Advantage (MA) and managed Medicaid players remaining probably can be counted on two hands. Consolidation, of course, is nothing new for the managed care industry, but there seems little doubt that the health reform law — with both the opportunities and challenges it poses and also the economies of scale many contend that it requires — has intensified "the urge to merge." Coupled with the continued weakness in the U.S. economy, which has translated into stagnation or worse in the commercial market for health insurance, government programs look like the business sector in which health plans have the best growth prospects for the foreseeable future.
Consider the deals that have taken place in MA and managed Medicaid just since the March 2010 enactment of the reform law. Among others, HealthSpring, Inc. acquired Bravo Health, Inc. and was itself acquired by Cigna Corp.; Munich Reinsurance Co. bought Windsor Health Group, Inc.; WellPoint, Inc. bought CareMore Health Group and is in the process of acquiring Amerigroup Corp.; Humana Inc. bought Arcadian Management Services; and UnitedHealth Group acquired XLHealth Corp. and is buying Florida MA operators Preferred Care Partners and Medica HealthCare Plans in separate transactions. And that's not even figuring in a host of smaller deals that also have been plentiful in the past two and a half years.
Where will this end? Will an MA or managed Medicaid firm need to have more than a million members to survive in the post-reform era? Is this a healthy situation for consumers — or even for states and the federal government given the power of the remaining entities they will have to contract with? Who will be left to turn the lights off when the consolidation is over?
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