Insurance Companies Continue in Mergers & Acquisitions
In 2019, insurance companies were a major player in the active market, and the trend is likely to continue in 2020. It appears to be a disciplined and defensive market, with companies prioritizing strategic deals while supporting both organic and external growth to protect their bottom line in an era of economic uncertainty.
As a result, insurers and providers are turning their focus on M & A (mergers & acquisitions) deals that provide integrated offerings, including pharmacy services or technology to enhance the patient experience. These integrations will be a force in significantly changing the landscape of the insurance industry in 2020 and beyond.
WHAT CHANGED IN 2019?
Downgrades outpaced upgrades due to industry disruptions, and this is expected to continue in the start of the decade. The push for lower pricing and value-based care, calls for greater transparency, proposed opioid-related legislation, and expanded data use in the healthcare sector are all contributing factors. Pharma also saw increased M & A activity, while other subsectors such as healthcare equipment experienced lesser levels of deal-making.
WHAT WILL CHANGE IN 2020?
Healthcare is a hot-button issue with the upcoming 2020 U.S. presidential election, and this will contribute to policy uncertainty and heighten industry pressure. Pharma companies and healthcare providers will feel elevated pressure from the insurance companies as the insurers will continue to increase transparency and strive to deliver greater cost savings to their patients. With increased pressure on industry pricing and rising debt leverage due to M & A, credit metrics are expected to deteriorate in the rated healthcare portfolio.
WHAT ARE THE KEY CREDIT DRIVERS?
An unsettled sector and policy uncertainty could lead to financial instability. Mergers among payor sources will continue to put pressure on healthcare service reimbursements and pharmaceutical pricing. As the industry faces pending opioid litigation and settlements, the outcomes could lead to decreased credit ratings. The one stable sector is healthcare equipment, due to its indirect exposure to reimbursement risk.
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