Deals show health care giants want to pair up
A spate of deals on Thursday showed that health care companies are convinced, regardless of tax benefits, that bigger is not only better, it is necessary.
The whole industry seems to be reading from the same playbook: pair up with a company that makes the same product to become a leading provider, and thus gain more clout to negotiate business with hospitals and health insurers.
That explains some of the impetus behind the more than $40 billion of deals announced Thursday. Some of the deal activity can also be explained by the desire to acquire growing biotech firms and product lines to make up for older products whose sales are in decline.
To get bigger in the cardiovascular-device world, Abbott agreed to pur- chase St. Jude Medical for $25 billion. To double down on treatments for prostate cancer, Sanofi made an offer to buy Medivation for about $9.3 billion. And as part of a bigger push into oncology treatments, AbbVie signed a $5.8 billion deal for Stemcentrx.
It is all part of an evolution in health care, where companies are responding to new regulation, new methods of payment and record consolidation. Regardless of the failed transaction between Pfizer and Allergan earlier this month, health care deal activity has been reinvigorated as company executives see no choice but to scale up.
Why so many companies chose to merge Thursday is more a coincidence than anything, but it has made for a strikingly busy week.
A new rule involves bundling to create a single payment for all the costs associated with a patient’s condition. That means if someone requires care for a certain ailment, the doctor, the hospital stay, the devices used and the drugs administered would be offered as a package deal. Earlier this month, the Centers for Medicare and Medicaid Services mandated bundled payments for knee and hip replacements in certain cities. Analysts and experts say that it is only a matter of time before treatments for cancer and cardiovascular disease also move to bundling.
The goal is to make health care cheaper and more efficient, especially when the government is doing the reimbursing. Companies that position themselves as the leading providers of a product or service are at an advantage.