Consolidation in health care, disruption coming soon?

Local and national insurers are continuing to partner, innovate and adapt

With spring almost upon us, I’d like to take a look back at recent developments in the health care and employee benefit markets.

At a national level, healthcare spending is rising faster than the rest of the economy is growing. According to the Health Care Cost Institute’s latest annual report, total annual per-person spending grew at a rate of 3.9 percent between 2013 and 2017, outpacing the 3.1 percent average annual increase in the gross domestic product (GDP). Although health care spending already accounts for 18 percent of GDP, it reached an all-time high in 2017 due to increased prices, even though health care utilization grew at only 0.5 percent.

A number of factors are contributing to these trends in Southeast Wisconsin. These include ongoing partnerships and consolidation among health care providers, as well as new construction projects. Local and national insurers are continuing to partner, innovate, and adapt to gain an edge in the market. And on the broker side, small agencies are cashing out by selling to larger brokerage firms.

Providers

Partnerships and mergers continue to dominate the local health care market. The merger of the largest health system in Wisconsin, Aurora Health Care, and the largest health system in Illinois, Advocate Health Care, is well underway as the two systems have rebranded as Advocate Aurora Health. The new entity has a strong footprint from Green Bay south to Chicago and represents the 10th largest health system in the country.

Early this year, ProHealth Care and UW Health announced that they are extending their partnership to include advanced heart and vascular care services for ProHealth patients in Waukesha County and surrounding communities. This follows the two systems’ successful collaboration to provide cancer services at the UW Health Cancer Center at ProHealth in Pewaukee. The UW Health Heart & Vascular Center at ProHealth Care is a new building on the grounds of the ProHealth Waukesha Memorial Hospital campus.

Insurers

The failure of the proposed mergers between Anthem and Cigna, and Aetna and Humana in 2017 led to new combinations in 2018. Pharmacy giant CVS bought Aetna for $70 billion, and Cigna bought Express Scripts, the country’s largest pharmacy benefit manager, for $67 billion. The latter pairing likely contributed to Anthem’s decision to terminate its contract with Express Scripts early and begin transitioning members to its new in-house PBM, IngenioRx, in March. Not wanting to be left behind, Anthem also launched a comprehensive redesign of its IT infrastructure in the fourth quarter of 2018. Humana remains a popular subject of merger speculation, as observers imagine possible deals with Walgreens, Walmart, or even Anthem.

Brokers

In the broker community, larger firms continue to gobble up smaller competitors. Minnesota’s Hays Companies sold to Florida-based Brown & Brown for more than $700 million. New Berlin’s HNI Risk Services sold to Michigan-based Acrisure LLC for an undisclosed sum. And Brookfield’s Diversified Insurance Solutions sold to Green Bay-based Associated Banc-Corp. These mergers come on the heels of Hausmann-Johnson’s 2017 acquisition of The Benefit Services Group, Inc. (BSG).

Whether in the field of brokers, insurers or providers, I expect the coming months and years will see more mergers and partnerships as smaller players seek to monetize their market share and larger entities aim to keep pace with the acquisitions of their competitors. With new entrants like Haven, the joint venture between Amazon, Berkshire Hathaway, and JP Morgan Chase & Co., the massive healthcare market is poised for disruption.

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