Health insurers will see a surge in acquisitions as the combined forces of COVID-19 and rapid advances in digital technology continue to reshape healthcare. In this insightful Q&A, Shashi Yadiki, president of the Health Plan business for NTT DATA, predicts M&A trends and shares practical tips for success, backed by years of experience in helping clients emerge successfully on the other side of mergers and acquisitions.
Q: While COVID-19 impacted every industry, Healthcare faced a direct impact. What effect does this have on M&A trends in Health Plans?
A: As with any crisis, there will be opportunities and challenges. In the case of COVID-19, the world saw an increasing need for mental health services, so many health insurers seek out companies that provide behavioral health services. One example is Centene’s intent to acquire Magellan (announced on Jan. 4, 2021). Centene expects to benefit from Magellan’s strengths in behavioral and mental health services, specialty health and pharmacy offerings. Companies are acting swiftly to grow and scale to serve the holistic needs of their members better. Loss of employment and other financial disruptions caused by the pandemic are driving some plans — especially those in the federal marketplace — to add “financial wellness” programs to their benefit options. Partnerships or acquisitions are one way to expand benefits and better address social determinants of health.
There will also be an increased demand for telehealth-related services and companies that provide ancillary services, including data and AI. Nearly every large health plan will seek out niche technology players in the AI and data space as they build their in-house capabilities and core strength in these areas.
Much of the health plan M&A activity can be attributed to continued growth in Medicare and the expansion of Medicaid and the need to provide more specialized services for these populations. To remain viable in a competitive market, health plans must design member-centric benefits offerings while tightly controlling care management and overall costs. According to a recent Harris Poll, 86% of Medicare Advantage members are looking for a more personalized experience. These results are significant given the unpredictable long-term impact of COVID-19 and potential new policy changes that may play out under the new administration.
Another growing trend we’ll see in the M&A space is Special Purpose Acquisition Companies or SPACs — the creation of shell companies to raise capital quickly (by going public) to acquire private companies. In July last year, Churchill Capital Corp III announced its third acquisition — MultiPlan, a network and analytics company, for $11 billion — the largest SPAC acquisition ever proposed. Churchill Capital II raised $1 billion but acquired a company more than ten times the size.
In summary, we see that smaller health plans targeting the commercial segment are challenged to compete effectively without a differentiated operating or delivery model, while more extensive plans are benefitting from a positive cash flow. These two scenarios will drive the industry into an acquisition spree. Another critical driver of change in the industry is the need to bridge gaps in their ecosystem by acquiring provider technology and patients accessing care.
Q: With increased activity in this sector, what do you recommend organizations do following a merger, acquisition or divestiture?
A: Begin by thinking carefully about the type of transaction. Ask yourself whether it is an investment for the future or an acquisition to build scale/scope. Next, integrate quickly by critically rationalizing your data and technology platforms. Be aggressive if need be because speed is of the essence. But it’s equally important in this phase to understand where the acquisition’s value will come from. This understanding will help you decide how and when to consolidate your data, whether to migrate onto a single platform or maintain split systems.
Before any merger, it’s important to carefully examine your core business and focus on what makes you different. For example, suppose your health plan is buying a provider network to build an integrated model. In that case, this may be a good time to stop focusing on other parts of your business that don’t support a differentiated strategy, like running your own data center or help desk. Organizations should use this opportunity to rethink their core business and the technology that supports it.
Most importantly, ensure you have a vision for the company’s future and clarity on how you fill the gaps. The right capabilities are key. If you undertake a transaction, make sure you’re maximizing the acquired company’s capabilities. Just driving efficiencies may not be enough. By acquiring or merging with another company, you may be able to address problems or business challenges in a unique way.
Finally, we all know an organizational culture is challenging for most M&A scenarios. Health plans need to toe the line carefully here by assessing the company’s true uniqueness they’re acquiring and preserving it rather than overpower it. In mergers, it’s even trickier because it’s a natural tendency for each company to think their culture is better. Balancing culture is key and the secret for long-term success.
Q: Anyone who’s been involved in a merger, acquisition or divestiture knows the difficulty of dealing with tech complexities. How should Health Plans simplify?
A: M&A is notoriously complex, but if companies can keep their business goal and strategy at the center of their system and process, things will likely evolve in an orderly motion. The first step is to define the reference business architecture for the new organization (which should be tightly aligned to the business goal). This will then drive a new technology architecture. It is often helpful to seek an outside opinion (or referee) to make sure that long-held assumptions on business approaches and technology platforms are still accurate. Every technology implementation that follows, whether it is to consolidate data centers or implement microservices architecture, will flow in alignment with the overall strategy.
Also, leadership buy-in and establishing agreed-upon guidelines are critical, as is establishing and measuring metrics. Once you have the executive buy-in and the rationalization, the implementation will cause fewer disruptions. It’s important the overall blueprint of the new organization comes from an integrated leadership.
Q: And finally, what silver lining do you see in your industry?
A: Healthcare is truly at an inflection point. For years healthcare struggled to integrate technology and keep pace with other industries. But in the last year, we’ve seen incredible gains in the areas of remote care and AI adoption. For the first time, technology was viewed as the enabler, allowing the quick pivot to virtual care, then asynchronous care and ultimately a real end-to-end digital platform that provides a personalized experience based on the member’s needs. It took a global pandemic to expose some of the most significant Sgaps in healthcare, but innovation and collaboration are flourishing, and venture capital funding will continue to flow. There is no going back. It’s an exciting time to be in healthcare.
And it is an exciting time in other industries too. Check out what my colleagues have to say:
- M&A Forecast for Life Sciences with Adam Nelson, Senior VP, Life Sciences
- M&A Forecast for Manufacturing with Prasoon Saxena, Senior VP, Manufacturing
- M&A Forecast for Financial Services & Insurance with Wayne Busch, President, Financial Services and Insurance
Fecha de publicación: 03/03/2021