American Medical News
August 9, 2010
Health plan acquisitions target small- to medium-sized companies
By Emily Berry
As a newly reformed health system takes shape, private equity firms are eyeing investments in health plans.
"Private equity funds are out to make money, to invest money, and they've got money they want to put to work now," said Chip Clark, partner in the provider care sector in Ernst & Young's North America Transaction Advisory Services practice.
Investments are likely to target small- to medium-size plans that won't elicit intense regulatory scrutiny, as well as Medicaid contractors likely to continue making money from growing Medicaid rolls and cash-strapped states, observers said.
"Sustainability is going to require companies that can operate on thinner margins with a wider portfolio of products and services," said Paul Keckley, PhD, executive director of the Deloitte Center for Health Solutions, the health research services arm of Deloitte LLP. "A substantial amount of consolidation is very likely."
He said private equity investors he advises are watching for good opportunities in the health care industry, including health insurance plans. A business in the midst of a wave of change isn't necessarily a bad thing in their eyes, he said. "It's exactly what private equity looks for: sectors that are volatile, sectors where there's tremendous opportunity for synergy, sectors where you could pick up a pretty strong management team."
Comment: The Patient Protection and Affordable Care Act (PPACA) has provided expanded investment opportunities for the private equity firms. Two of the greatest opportunities include: 1) consolidation through acquisition of small and medium-size health insurance companies, and 2) takeover of Medicaid contractors in an environment of expanding programs in cash-strapped states.
As Ernst and Young's Chip Clark says, "Private equity funds are out to make money, to invest money, and they've got money they want to put to work now."
Health care money managers very understandably have always placed business first, even if it harms patients and the original sources of payments - be it individuals, employers or government. Instead of giving us a financing infrastructure that placed patients first, PPACA has greatly expanded the business opportunities for the money managers.
This theme is getting old.