Mergers between insurers and hospitals expected to accelerate

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Published: October 25,2010

Tags: American Medical Association, health care reform

Source: The American Medical Association

Health care reform, in combination with economic factors and other trends, is expected to speed consolidation of health insurers and hospitals, leaving physicians to figure out how they should adapt, reports the American Medical Association.

The prospect for mergers and acquisitions throughout the industry is high thanks not only to health system reform, but also more access to financing to buy up other companies.

In addition, a change in the 2011 capital gains tax means privately held companies will do better to sell this year, said Bill Baker, a Dallas-based health care transaction consultant. He is a principal at the consulting firm KPMG, where he leads the health care sector transaction advisory group.

“The overall outcome of the health care bill across numerous sectors is that it creates models that incentivize health care companies to be very large — larger for the sake of driving efficiency,” Baker said. “There is going to be less reimbursement available, less cash, and you’re going to have to have scale.”

Analysts expect to see the major health plans buy small regional health insurers rather than try blockbuster mergers of large companies.

Even before health reform, insurance companies argued in favor of consolidation by promising efficiency of scale, but the resulting efficiencies typically lead only to better profits, not lower premiums, said J. James Rohack, MD, immediate past president of the American Medical Association.

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