Insurance megamergers limit nonprofit hospital negotiating power: 5 things to know

The recent wave of mergers and acquisitions in the health insurance sector is intensifying reimbursement negotiations with nonprofit hospitals as the insurance pool shrinks and constrains hospital profitability, according to a recent report from Moody's Investors Services.

Payer consolidation is a credit negative for U.S. nonprofit hospitals, according to the report, entitled "Giant Insurance Mergers to Curb Hospital Negotiating Leverage."

Here are five things to know about how insurance megamergers will affect nonprofit hospital business, as presented by Moody's.

1. Fewer payers are in control of an increasing portion of hospital revenue. More than half of hospital revenue is subject to negotiation with payers. This portion is likely to grow as the population ages and Medicare Advantage, Medicaid managed care and federal exchange plan participation grows.

2. Hospitals are unlikely to feel the affect until mid-2017 at the earliest. The mergers are subject to regulatory approvals, which take about 12 to18 months, but the sheer size of the mergers mean the process could take longer.

3. Markets with both Anthem and Cigna are most at risk. A merger between Anthem and Cigna means the combined companies would take a 22 percent leading share of the market with 48 million members, giving it superior control over commercial business, which accounts for about a third of gross hospital revenue.

4. Large multi-site hospitals with strong market share will fare best. As with any major changes in the healthcare market, impact of payer M&A will vary based on local factors and hospital characteristics. That said, hospitals or health systems with unique services, a dominant market share or contracts with a competing insurer will have more negotiating power.

5. Payer M&A will drive hospital M&A. Moody's expects insurer consolidation to be countered with the provider consolidation over the next year or two. Merger activity is beginning to include more system-to-system, rather than system-to-hospital activity, as well as geographic expansions. Bulking up will help providers maintain some negotiating power with bigger payers.

 

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