Choice Stories

March 15, 2018

New California Laws Could Change Mergers and Acquisitions in Health Care Industry

4 Things to Remember: 
  • Health care-related mergers are up significantly since the Affordable Care Act was enacted in 2010.
  • Two big mergers involving retailers and insurers are currently under review.
  • A proposed measure in the California legislation would give the state a greater say in mergers.
  • A separate bill proposes an independent commission to set pricing for medical care.
 

Proposed Legislation Could Shake Up Health Insurance Mergers

Since President Barrack Obama signed the Affordable Care Act (ACA) into law in March 2010, the health insurance industry has seen a lot of changes. Among them have been mergers and proposed mergers of some major players in the health care and insurance industries. However, some of that could change under proposed legislation making its way through the California legislature.

 

Not since the 1990s have so many health care management and hospitals initiated talks to discuss a possible consolidation. In fact, as reported by Managed Care magazine in 2016, an analysis by the consulting firm Kaufman Hall found health care-related mergers, acquisitions, joint ventures, and joint operating agreements almost doubled from 2010 to 2015. A 2017 post by Health Standards reported more than 560 hospital mergers since 2010, and there are more affiliations being discussed today by some of the country’s largest medical center and hospital operators.

 

On the insurance side of the health care industry, several major deals have been proposed, but some have not been completed because of government opposition. Those include the proposed consolidation of Anthem and Cigna, which terminated talks in 2017, and an Aetna-Humana marriage called off last year after 19 months of planning and growing opposition.

 

Deals – or proposed deals – announced in the past six months include Cigna’s acquisition of pharmacy benefit manager Express Scripts, a hookup of the retailer CVS with insurer Aetna, and discussions between the world’s largest company, Walmart, and America’s fourth-largest health insurer, Humana.

 

Some of these proposed consolidations could face an uphill battle if legislation now in the California State Senate is approved. Assembly Bill 595, authored by Assembly member Jim Wood (D-Healdsburg), would require health plans that would like to merge with or acquire other health plans to receive approval from the California Department of Managed Health Care (DMHC).

 

State regulators say they want to consider the impact on cost and quality of care that could result from any proposed merger or acquisition. Under current law, health plans must provide the DMHC with notice of a planned merger; however, the state has limited authority to review any proposed consolidation. Insurers oppose the proposed legislation saying it is too broad and approvals could be unreasonably high. As of mid-March, A.B. 595 is under review by two committees: the State Senate Committee on Health and the State Senate Judiciary Committee.

  Another proposed legislative bill that could impact Californians’ health care – and health care costs – is Assembly Bill 3087. The bill would put an independent commission in charge of pricing for hospital stays, doctor visits, and many other medical services covered by commercial health plans. Costs would be based on rates approved for Medicare plans.  A similar measure was enacted for Maryland’s all-payer program in 2014.  

Proponents of A.B. 3087 – including labor unions and consumer groups – say it is designed to reduce escalating health care costs in the Golden State. According to the California Health Care Foundation, premiums for Californians who get their health insurance through their employer grew by more than 240% from 2002 to 2016. Inflation during the same period was about 40%.

 

The California Association of Health Plans says it is reviewing the cost control proposal; however, it has opposed previous efforts to regulate pricing. That includes a 2014 ballot initiative that would have empowered the state insurance commissioner to block rate increases considered excessive. Proposition 45, as it was known, was rejected by Californians in a 59 to 41 percent vote during the November 2014 election.

 

Passage chances for these two bills are not yet known. We will continue to monitor proposed legislation in Sacramento and will share updates.