A Change in Health Care

There is no question that the healthcare market is changing. It is quite possible, however, that we will see a real revolution in health care in the next decade because it will be necessary to avoid the financial catastrophe that awaits us if things do not change. Medicare and Medicaid budgets are not sustainable, and the out of pocket expenses required from managed care plans are not affordable for the average American. As a result, healthcare companies of all accounts are trying to figure out how to position themselves for the coming payment squeeze.

Medicare and Medicaid

The first of the boomers — the population born between 1946 and 1964 — turned 65 in 2011, and the last will turn 65 in 2029. By 2030, boomers over 65 will make up 20 percent of the U.S. population, numbering around 60 million people, according to a report from the U.S Census Bureau.  As the baby boomer generation approaches retirement, thus qualifying for Medicare, healthcare spending by federal, state and local governments is projected to increase. Assuming the government continues to subsidize Marketplace premiums for lower-income populations, this increased government healthcare spending will greatly affect the entire healthcare system in the U.S. Although Medicaid spending growth decelerated in 2016 due to reduced enrollment, spending is expected to accelerate at an average rate of 7.1 percent per year in 2018 and 2019 due to the aging baby boomer generation.

Managed Care

In the managed care sector, that showed itself in the attempt by four of the largest health insurers to merge into two companies in 2015.  The combined dollar value was $91.2 billion. They were both challenged in the courts and both were terminated. By 2017 and 2018, a new mega-merger trend emerged, with CVS announcing a proposed acquisition of Aetna for $77.0 billion after Aetna’s attempt to buy Humana for $37.0 billion was terminated. Then it was Cigna’s turn, announcing its intent to purchase Express Scripts for $67.0 billion, after its purchase by Anthem for $54.2 billion was terminated. These companies are trying to re-write the healthcare delivery market, and we suspect there will be more to come.


Some other important trends in the healthcare M&A market include the ongoing re-shuffling of hospital assets. After the initial bump up in admissions after the implementation of the Affordable Care Act, hospital admissions and lengths of stay are on the downturn as everyone is seeking to control costs and decrease hospital readmission rates. Value-based payment is replacing fee-for-service payment, and that has been challenging years of methodology. As a result, large not for-profit hospital systems have been merging to gain market share and also pricing strength, while the large for-profit chains that merged several years ago have been shedding hospitals to both pay down debt incurred in those acquisitions and bolster margins.

Long Term Care

Finally, the most active sector for the past several years has been long-term care which, from a number of transactions perspective, peaked in 2015 with about 22{ab00da231405656ab53e236adbc822260719de0342a41ff7a037e7d07eabcb24} of the total volume in the market. Demand has been high in this sector because it attracts real estate investors who believe they will be able to take advantage of what is referred to as the “silver tsunami,” also known as the baby boomer generation.