Healthcare companies’ fear of missing out is fueling a massive bidding war for one of the lowest-paying majors.
Earlier this year, Amazon and CVS Health partnered with One Medical, with Amazon in August announcing it plans to buy the primary care operator for $3.9 billion. The same month, CVS, Amazon, UnitedHealth Group and Option Care Health vied for ownership of Signify Health, the nation’s largest provider of health risk assessment services. CVS announced plans to buy Signify Health for $8 billion in September.
CVS is reportedly currently in a bidding war with Humana over Cano Health, a technology-enabled primary healthcare practice that went public through a special-purpose corporate acquisition. valued at $4.4 billion last year but its share price has tumbled since then. Humana is the original investor in Cano and reserves the right to first refuse if the company receives an offer to buy back. Humana declined to comment on the recent reports.
Renee Buckingham, president of primary care Humana, said: “We are not opposed to larger transactions, but those types of transactions will need to be complemented, need to deliver something that we do not currently. yes”. That could include “things that will open up a new geographic area for us, that could bring a new possibility to our set of capabilities. In general, there are fewer opportunities for large-scale M&A than for small-scale M&A.”
CVS and Cano did not respond to requests for interviews.
Gary Taylor, managing director and senior equity research analyst at the investment bank, said companies such as CVS and Humana are playing a protective role, following the lead of UnitedHealth Group, which has made major investments in physician operations through its Optum healthcare services arm over the past two years. Definitely Cowen. This year, UnitedHealth spent $7.15 billion on acquisitions, up from $4.8 billion in all of 2021, according to a Securities and Exchange Commission filing in June.
UnitedHealth, which declined to comment, did not disclose which entities it purchased on file. Taylor said he believes all of the company’s acquisition money has gone to doctors.
“United leads the industry because they are the largest and most overvalued company, and a lot of health plans have valuation envy. They wanted to be seen as United, and United were doing this, so they bought it,” Taylor said.
In some cases, companies are taking advantage of the competitive environment by placing themselves in the sales block. Signify Health, for example, received an unsolicited buyback offer at $20 per share in June and then advertised itself to 15 other parties, according to a September SEC filing. CVS submitted the highest bid of $24 per share, but ended up offering a price of $30.50 per share to the company and paying $8 billion – more than double the transaction price above. per share of Signify in June.
Ari Gottlieb, a principal at A2 Strategy Group, adds that more primary care companies may seek acquisition partners if the mass market continues to underperform. Companies need capital to keep their businesses afloat, and due to the stock market downturn, accepting an acquisition from a larger company may be the best way to attract investment.
“Cano is a prime example,” says Gottlieb. “They don’t have a lot of cash on their balance sheets, and funding these new centers is expensive.”
Patient care continues to transition from centralized hospital operations to emergency locations, a cheaper option for providers and a multi-year trend spurred by the COVID-19 pandemic- 19. As a result, healthcare companies beyond traditional providers are looking to integrate services into their networks. Matt Wolf, senior healthcare analyst at professional services firm RSM, said that payers who partner with doctors will be more competitive in the market.
“We are at this inflection point in healthcare where we can no longer share costs. Some of these old tricks no longer work, and we need to revisit some of these models and some of these practices,” Wolf said.
Companies see an opportunity in primary healthcare to add clients across a broader range of clinics and provide an unlimited source of revenue on demand for associated medical loss rates. state of insurance companies. There are also opportunities to engage directly with groups of individuals, such as Black women or the LGBTQ community, and to invest in virtual platforms, which can play a larger role in the care of the room. prevent. It’s an attractive prospect for companies with older members, reducing avoidable procedures and keeping patients away from higher-cost facilities.
“Getting closer to patients and providing them with more personalized services and meeting them everywhere comes at a high cost. Customers want to reduce friction. They want the opportunity to have more access points,” said Dr Jay Bhatt, executive director of Deloitte’s Center for Health Solutions and Institute for Health Equality.
Primary care investments tend to work better for companies like Humana or UnitedHealth, than for hospitals and health systems. Brad Ellis, senior director at credit rating agency Fitch Ratings, said the companies, which run insurance divisions across the country, have access to more comprehensive data. and can better navigate market dynamics such as pricing. They can also limit services to exclusive membership groups – a tactic not an option for hospitals. By sending their insured members to a provider owned by the same parent company, vertically integrated health insurers can pay for themselves to provide care. for members, change the MLR cost.
“From a Wall Street perspective, if you’re one of the big, publicly traded health insurers, and you don’t have a value-based care strategy and the story you’re telling investors, fourth, it sounds like you’re behind the game,” Taylor said.
The next company in the auction block? Taylor said primary care operators Oak Street Health, Agilon Health, Privia Health and Caremax. Each company declined to comment on whether it has received an acquisition offer or is in discussions with potential buyers.
