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Behind the rise of health care mergers: tight profit margins

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Pier 1 Imports, Aaron Brothers, and Sports Authority all closed in June.

Health care is no stranger to shakeups, with other large companies such as CVS and Aetna recently announcing large acquisitions of pharmacies and medical care companies, respectively. But Brian van der Haar, a New York-based health care investment manager and board member for Quintiles, tells me this deal is one of the larger ones.

With a valuation that has eclipsed $3.7 billion, the acquisition represents the latest large-scale purchase of a health care company by an insurance company in the last decade. In 2007, Aetna acquired a company called Coventry Health Care for $3.8 billion, and Blue Cross Blue Shield of Kansas City paid $4.3 billion for, then-provider Centene Corporation.

Clover Health operates a chain of health care clinics that serves primarily low-income working individuals. The public data show that between 2004 and 2017, Medicare coverage for low-income individuals rose by almost 86 percent. That influx of insured patients has driven up demand for specific types of care, including urgent care clinics, the type of clinic Clover Health operates. And last year, health care spending on urgent care services almost doubled compared to the year before, according to the National Center for Health Statistics.

Clover Health’s deal to sell to Bupa, one of the largest privately owned health care providers in the U.K., is yet another reflection of the changing way that health care has been integrated within broader economic planning. Some companies have long recognized the importance of making sure they are getting the best care for their employees in their hometowns, rather than relying on a centralized medical care center. However, with rising costs of providing the services, several large employers have looked to hospitals to manage their employee health care.

There’s also reason to believe the industry is only going to get more complicated in the future. As the aging population gets older, and people often stay in their homes longer and require more care, some health insurance companies have begun to view urgent care providers more as primary care centers than urgent care centers.

Clover Health has about 800 clinics, primarily in low-income communities, and as the company explains, it provides an “accessible option for health care” in a good area. With this deal, the company will continue to provide care in areas where high-deductible plans are becoming more popular. Bupa, like other insurers in the U.K., has a network of about 40,000 “mobile” care workers who have training in urgent care, pain management, and other areas to help address chronic illnesses. Clover Health will become a division of Bupa’s U.K. healthcare organization.

Despite the financial rationale for this deal, some health care experts are still skeptical of it. Materna, a health care recruitment agency, asked health care companies around the world, including those in the U.S., about the biggest concerns they face with competition and consolidation. Overall, 68 percent of them reported that competition was a high-priority issue, and almost half of them said consolidation is a top concern.

Van der Haar says this deal shows that companies are willing to risk losing competitive advantage to protect their brand and to continue to offer quality health care options to their customers. Of all the healthcare deals we’ve seen in the last ten years, he says this one makes the most sense, especially for those who manage costs.

“Those plans are really trying to establish market share,” van der Haar said. “It’s hard to say that five years from now, the need for care that Clover has to be delivering will be as great as it was in [the] past.”

Read more in the magazine’s special report on health care financing:

Inside the rocky road to revenue sharing

From prison to hospital, in vitro fertilization launches a market

Drug companies lock horns over the future of pharmacy benefit management

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