- The Federal Trade Commission on Wednedsay approved UnitedHealth Group's $4.3 billion acquisition of DaVita Medical Group but imposed some conditions.
- Under an agreement reached with the federal agency, UnitedHealth will divest the medical group's Las Vegas practice, HealthCare Partners of Nevada, to Utah-based Intermountain Healthcare no later than 40 days after the acquisition closes. FTC said the deal would otherwise have reduced that market's competition in managed care provider organization services sold to Medicare Advantage insurers and MA plans sold to individual MA members.
- SVB Leerink said in an analyst note Thursday the long-awaited completion of the deal should be a positive catalyst for UnitedHealth. "As the assets are integrated into the OptumCare primary care services suite, we see continued top-line synergies on the Optum business as well as potential for increased share gains and membership growth in UHC," analysts wrote.
UnitedHealth Group, the country's largest commercial payer, is completing the purchase through its Optum arm. The company said OptumCare will serve 16 million patients across 80 health plans with the DaVita acquisition. The medical group has practices in California, Colorado, Florida, New Mexico and Washington state.
The deal, first announced in December 2017, is part of UnitedHealth and Optum's continued plan to push vertical integration. Optum was a big part of the payer's robust first quarter earnings report, showing 12% year-over-year revenue growth to $26.4 billion while earnings from operations grew nearly 14% year over year to $1.9 billion.
Integration among payers, providers, IT vendors and other health companies continues to be a major feature of the sector's M&A landscape. The nearly $70 billion CVS Health-Aetna deal, Cigna's purchase of pharmacy benefit manager Express Scripts and the Humana's acquisition of home health and hospital care company Kindred are all evidence of the trend.
And Optum has been ahead of the curve. It bought Massachusetts-based Reliant Medical Group in May 2017 and announced plans to acquire Surgical Care Affiliates in January of that year. OptumHealth was also part of a $2.2 billion deal to gain a controlling interest in medical staffing company Sound Inpatient Physician Holdings in June 2018.
The Optum arm also runs UnitedHealth's PBM, OptumRx. The PBM saw revenue increase to $17.8 billion in the first quarter of this year, up nearly 11% from the year-prior period.
Regulatory pressure on vertical deals appears to be ratcheting up, however. A federal judge has yet to sign off on the CVS-Aetna merger agreement with the U.S. Department of Justice, leaving open the possibility further conditions could be imposed. The companies already agreed to sell Aetna's Medicare Part D business to WellCare to secure approval of the deal.
The Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights held a hearing last week on the topic of vertical healthcare M&A. Craig Garthwaite, Director of Healthcare at Kellogg, said in prepared testimony every vertical merger is unique, and most have potential for success that should still be viewed with healthy skepticism.
"While vertical integration can set the stage for potential cost savings, there are still a number of stumbling blocks," he said. "Furthermore, the history of these integrations should temper our expectations about success."
SVB Leerink said the DaVita Medical Group deal will spur membership growth in the MA business, particularly "where primary care and risk sharing and capitation arrangements with physicians are driving superior medical cost structure and can drive a clinical and distribution competitive advantage."
MA has been a consistent source of growth for the payer. For the first quarter of this year, UnitedHealth's MA membership increased about 405,000 members year over year.
The completed acquisition will likely be a boon to UnitedHealth brand, already the world's most valuable in healthcare, according to consulting group Brand Finance's annual list, released last month. Optum itself wasn't far behind, coming in third, behind rival payer Anthem.
Brand Finance CEO Alex Haigh said the payer's "overwhelming dominance of the healthcare market creates an environment where rivals have to acquire and expand in order to achieve the scale they need to compete."
DaVita closed the Wednesday up 3.1% in the stock market in response to the FTC nod. UnitedHealth was up 1.8%.