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Acquisitions and divestitures shape private health insurance

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Consolidation

According to a report by Cain Brothers, the private health insurance industry—part of the healthcare industry represented by the Healthcare Select Sector SPDR (XLV)—should see a rise in merger and acquisition activity (or M&A) in 2015. This outlook is especially true of managed care organizations entering the fields of long-term care management and health information technology.

The above graph shows that since 2009, in this space, the highest deal activity has taken place in health information technology, followed by Medicare and Medicaid managed care assets. UnitedHealth Group (UNH) has been the leader in acquiring health IT assets, while Wellcare Health Plans (WCG) has been actively adding Medicare and Medicaid assets. Humana (HUM) has adopted a strategy of acquiring ambulatory care units or outpatient services and physician practices for its provider network. Meanwhile, Cigna (CI) has been actively pursuing international assets.

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Integrated care model

Managed care organizations such as Humana are acquiring companies to create an integrated model for delivering medical services. This aims at reducing costs while improving quality of care, ensuring higher profitability. Acquiring health IT assets such as health mobile technologies and health analytical technologies has let managed care organizations improve plan members’ access to care while using technology to evaluate risks involved with new business models.

Divestitures

Post-2009, managed care organizations have been divesting pharmacy benefit assets and concentrating on medical services. Pharmacy benefit assets are also called “Medicare Part D assets” for prescription drug business lines. Managed care organizations such as HealthNet and Universal American sold their prescription drug service lines to CVS Caremark, while WellPoint sold its assets to Express Scripts.

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