CVS and Humana aim to compete with UnitedHealth in bidding wars

Medical companies’ fear of missing out is leading to big wars for one of the lowest paid jobs.

Earlier this year, Amazon and CVS Health clashed over One Medical, and in August, Amazon announced that it plans to buy the primary care operator for $3.9 billion. That same month, CVS, Amazon, UnitedHealth Group and Option Care Health were vying for ownership of Signify Health, the nation’s largest health risk assessment provider. CVS announced plans to buy Signify Health for $8 billion in September.

CVS is now reportedly in a trade war with Humana over Cano Health, a technology-based primary care practice that went public with a $4.4 billion special-purpose company acquisition deal last year, but has since shares fell. Humana was an early investor in Cano and has a right of first refusal if the company receives an offer to acquire it. Humana declined to comment on recent posts.

“We are not opposed to large transactions, but these types of transactions should be incremental, should bring something that we currently do not have,” said Renee Buckingham, president of primary health care organization Humana. This might include “things that will open up new geography for us, might bring new possibilities to our feature set. As a rule, there will be fewer opportunities for large-scale mergers and acquisitions.”

CVS and Kano did not respond to interview requests.

Companies like CVS and Humana are playing defensively, following the example of UnitedHealth Group, which has invested heavily in physician practice over the past two years through its Optum Health Services division, said Gary Taylor, managing director and senior investment banking analyst. Cowan firm. UnitedHealth has spent $7.15 billion on acquisitions this year, up from $4.8 billion in all of 2021, according to a June report from the Securities and Exchange Commission.

UnitedHealth, which declined to comment, did not disclose which entities it acquired in the bid. Taylor said he believes all of the money the company made from the acquisition went to doctors’ practices.

“United leads the industry because they are the largest and highest rated, and many health insurance plans are jealous of the valuation. They want to be considered United and United do that, so they kind of bought into it,” Taylor said.

In some cases, companies take advantage of the competitive environment by placing themselves on the sales block. Signify Health, for example, received an unsolicited buyout offer at $20 a share in June and then presented itself to 15 other parties, according to a September SEC filing. CVS submitted the highest bid at $24 per share, but ultimately bid $30.50 per share for the company and paid $8 billion, more than double Signify’s market price per share in June.

More primary care companies may be looking for acquisition partners if public markets continue to perform poorly, according to Ari Gottlieb, director of the A2 Strategy Group. Companies need capital to sustain their business, and as the stock market drops, making the decision to acquire a larger firm may be the best way to attract investment.

“Kano is a good example,” Gottlieb said. “They don’t have a lot of money on their balance sheets, and funding the growth of these new centers is expensive.”

Patient care continues to shift from centralized hospital operations to outpatient operations, a cheaper option for providers and a multi-year trend accelerated by the COVID-19 pandemic. As a result, healthcare companies outside of traditional providers are looking for ways to integrate these services into their networks. Payers who partner with clinicians will be more competitive in the marketplace, said Matt Wolf, senior healthcare analyst at professional services firm RSM.

“We are at a tipping point in healthcare where we simply cannot share costs anymore. Some of these old tricks no longer work and we need to rethink some of these models and some of these practices,” Wolf said.

Companies see an opportunity in primary care to attract clients from a wider range of clinics and generate a revenue stream that is not limited by insurance companies’ federal medical loss ratio requirements. There is also the opportunity to engage directly with specific groups such as black women or the LGBT community and invest in virtual platforms that can play a greater role in preventive care. This is an attractive prospect for companies with aging employees to reduce avoidable procedures and keep patients away from costly healthcare facilities.

“There is an advantage to being closer to patients, providing them with a more personal service and meeting them where they are. Customers want to reduce friction. They want to be able to have more hotspots,” said Dr. Jay Bhatt, Executive Director of the Deloitte Center for Health Solutions and the Health Equity Institute.

Investing in primary health care tends to work better for companies like Humana or UnitedHealth compared to hospitals and health systems. These companies, which operate insurance divisions across the country, have access to better data and can better navigate market dynamics such as pricing, said Brad Ellis, senior director at Fitch Ratings. They may also limit services to exclusive groups of members, a tactic that is not appropriate for hospitals. By referring their insured members to a provider owned by the same parent company, vertically integrated insurance companies can pay for their members’ services by passing the costs on to the MLR.

“From a Wall Street perspective, if you’re one of the big public health insurance companies and you don’t have a value-based strategy and a story that you’re telling investors, it sounds like you’re falling behind. game,” Taylor said.

Next companies up for auction? Primary care operators Oak Street Health, Agilon Health, Privia Health and Caremax, Taylor said. Each company declined to comment on whether it had received acquisition offers or was in talks with potential buyers.

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