The Health Care M&A Monthly: Managed Care Diversifies--
Aetna Buys Prodigy Health Group For $600.0 Million
Perhaps no sector of the health care industry has been more impacted by health care reform than the Managed Care industry. And this is reflected in lethargic acquisition activity, with just 15 deals announced in the past 15 months. Payors are, after all, on the front line of the battle over changes to health care reimbursement protocols. Some have nightmares that they will wake up one day to a single-payor system, but in general most plan and strategize to meet the challenges that their businesses face. One recent trend in the Managed Care industry is for insurers to diversify their sources of revenue to profitable, but less visible and vulnerable business lines.
One deal announced at the end of April provides a case in point. Aetna (NYSE: AET) recently paid $600.0 million in cash to buy Prodigy Health Group from majority owner One Equity Group. Based in New York City, Prodigy Health Group (PHG) is a third-party administrator of self-funded health care plans, operating in 15 states with 600,000 medical members and 450,000 pharmacy members. PHG operates under three brands: Meritain Health (TPA benefits), American Health (medical management) and Scrip World (PBM). This acquisition extends AET’s reach into the third-party administrator market with the goal of attracting new customers from mid-size and small businesses.
This is what the new normal looks like: of the 15 Managed Care deals announced in the past 15 months, only four involved the acquisition of a vanilla health plan. The rest targeted businesses whose services can serve two purposes: first, they can help the buyer better manage the risk and contain the costs of its own health plans; second, these services can be marketed as products to other organizations, as well. Such businesses include PPOs, employee assistance programs, expatriate benefit providers and managed dental plans, among others.
Buyers are not just seeking to diversify within the Managed Care space, but are looking at e-Health, too. UnitedHealth Group’s (NYSE: UNH) Ingenix subsidiary has made five acquisitions in the e-Health arena since March 2010, the largest of which was its $1.5 billion acquisition of Executive Health Resources, a company that aids hospitals and health systems to manage compliance with government health plans. Last December, Humana (NYSE: HUM) paid $500.0 million for Medicity, a health information exchange company. Even Medicaid niche player Molina Healthcare (NYSE: MOH) paid $135.0 million to buy Unisys Corp.’s Medicaid health information management unit...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today