Health care mergers, acquisitions lead surge in global deals

By LINDA A. JOHNSON and STEVE ROTHWELL

Associated Press

In a big year for deal making, the health care industry is a standout.

Large drugmakers are buying and selling businesses to control costs and deploy surplus cash. A rising stock market, tax strategies and low interest rates are also fueling the mergers and acquisitions.

It's all combining to make 2014 the most active year for health care deals in at least two decades. The industry has announced about $438 billion worth of mergers and acquisitions worldwide so far, about 14 percent of the $3.2 trillion total for all industries, according to data provider Dealogic. Overall, M&A is on track for its best year since 2007, the year before the financial crisis intensified.

"Health care has been a sleepy niche of M&A until recently, but the giant has been awakened," says Ken Menges, a senior partner handling M&A at law firm Akin Gump in New York.

To a large extent, the deals are being driven by "cost pressure on the entire health care system," as insurers and government health plans increasingly hold down or even reduce reimbursements to drug, device and service providers, says Ashtyn Evans, pharmaceutical and biotech analyst with investment firm Edward Jones in St. Louis, Missouri.

Companies also are looking to expand market share, and boost their portfolios in hot areas such as drugs for cancer and hepatitis C, she says.

Drugmaker Merck & Co., for example, agreed in June to pay nearly $4 billion for Idenix Pharmaceuticals Inc. to combine that company's hepatitis C medicines with its own.

Taxes are another reason behind the rush to the negotiating table.

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Health care mergers, acquisitions lead surge in global deals

As drugmakers and hospitals cut costs and sharpen focus, health care deals lead global surge

In a big year for deal making, the health care industry is a standout.

Large drugmakers are buying and selling businesses to control costs and deploy surplus cash. A rising stock market, tax strategies and low interest rates are also fueling the mergers and acquisitions.

It's all combining to make 2014 the most active year for health care deals in at least two decades. The industry has announced about $438 billion worth of mergers and acquisitions worldwide so far, about 14 percent of the $3.2 trillion total for all industries, according to data provider Dealogic. Overall, M&A is on track for its best year since 2007, the year before the financial crisis intensified.

"Health care has been a sleepy niche of M&A until recently, but the giant has been awakened," says Ken Menges, a senior partner handling M&A at law firm Akin Gump in New York.

To a large extent, the deals are being driven by "cost pressure on the entire health care system," as insurers and government health plans increasingly hold down or even reduce reimbursements to drug, device and service providers, says Ashtyn Evans, pharmaceutical and biotech analyst with investment firm Edward Jones in St. Louis, Missouri.

Companies also are looking to expand market share, and boost their portfolios in hot areas such as drugs for cancer and hepatitis C, she says.

Drugmaker Merck & Co., for example, agreed in June to pay nearly $4 billion for Idenix Pharmaceuticals Inc. to combine that company's hepatitis C medicines with its own.

Taxes are another reason behind the rush to the negotiating table.

Some big, U.S. pharmaceutical, biotech and medical device companies have been trying to acquire overseas rivals, allowing them to move their headquarters to a country with a lower tax rate. The deals also give the buyer access to billions in overseas profits to invest in research and development, without having to bring those profits back to the U.S. and pay taxes on them.

Medical device maker Medtronic's $43 billion acquisition in June of Covidien, a Dublin, Ireland-based rival, is an example.

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As drugmakers and hospitals cut costs and sharpen focus, health care deals lead global surge

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5,000 Ebola health care workers needed in W Africa

Sri Lankan health workers wear protective gear as they attend a preparedness program for Ebola at the Infectious Disease Hospital for fever in Colombo, Sri Lanka, Tuesday, Oct.28, 2014. Airports in Asia have stepped up their defenses: screening passengers who have travelled from affected countries, taking any with high temperature for observation and trying to keep contact them with for 21 days, the incubation period. According to the World Health Organization, more than 10,000 people have been infected with Ebola and nearly half of them have died. (AP Photo/Eranga Jayawardena)

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By Elias Meseret, The Associated Press

ADDIS ABABA, Ethiopia - More than 5,000 additional health care workers are needed to fight Ebola in the three most affected countries in West Africa, the president of the World Bank said Tuesday.

Jim Yong Kim said he is worried about where those health care workers can be found given the Ebola fear factor. The World Bank president spoke in Ethiopia alongside U.N. Secretary-General Ban Ki-moon and African Union chairwoman Nkosazana Dlamini-Zuma.

Ban said the transmission of the virus continues to outpace the international community's response. He appealed for African Union member states not to impose Ebola-related travel restrictions or close their borders.

"We need to have a steady stream of health care workers from Africa coming into the three affected countries. The head of the U.N. Mission for Ebola Emergency Response, David Nabarro, has told us that we need at least 5,000 health workers from outside the region," Jim said.

"Right now, I'm very much worried about where we will find those health care workers. With the fear factor going out of control in so many places, I hope health care professionals will understand that when they took their oath to become a health care worker it was precisely for moments like this," he said.

Dlamini-Zuma said African Union states have pledged to send more than 2,000 health care workers into West Africa. She did not say when the workers would arrive.

"The disease, which is not new to the world, and its manifestations in these countries, has caught us by surprise. With the wisdom of hindsight, our responses at all levels continental, global and national were slow, and often knee-jerk reactions that did not always help the situation," Dlamini-Zuma said.

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5,000 Ebola health care workers needed in W Africa

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Some New Prescriptions for the Health Care Marketplace

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Amanda Starc and Daniel N. Mendelson on Year Two of the ACA

Enrollment began last weekend for Americans to get health insurance in 2015 through the federal HealthCare.gov and state marketplaces amid expectations of a smoother process and more transparency than in the first year. As the health insurance marketplace enters its second year, the focus is on helping consumers gain a better understanding of premiums pricing, deductibles and provider networks.

Consumers face higher premiums but could also see more insurers in their states and more competitive plan offerings. They are also adjusting to narrower network access for lower premiums which, in combination with incentives to doctors, promises to improve quality of care. Meanwhile, the politicization of the Affordable Care Act (ACA) means it faces continued assaults in a Republican-controlled Congress well into the 2016 presidential election season.

The No. 1 concern is premiums. This year, premiums will go up on average about 3%, said Wharton lecturer of health care management Daniel N. Mendelson, who is also CEO and founder of Avalere Health, a health care consulting services firm in Washington, D.C. While many consumers focus on premiums, it is important to take a more holistic view and look at not just premiums, but also at co-pays and network access, added Wharton professor of health care management Amanda Starc. They discussed the road ahead for the health insurance marketplace on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

Mendelson encouraged consumers to go out and shop because premiums in some plans will increase by much more than [the average of 3%]. Premiums on the most popular plans in the market are higher by 10% over those of last year, and that could mean hundreds of dollars for individuals, he added.

Consumers who are reluctant to shop around leave a lot of money on the table, said Starc. That is especially true for people who in the past have had coverage through an employer but now want to buy it on their own. A lot of times consumers can experience some sticker shock when they realize just how much health insurance costs, she added.

The ACA has stimulated rethinking on how clinicians are paid to make sure that incentives are aligned with the health outcomes that we want. Daniel Mendelson

Wiser in Year Two

Both insurers and consumers will be wiser after the first year of the health care marketplace, said Starc. She expected insurers to understand demand and costs better and to adjust premiums accordingly, including fixing mispricing, if any, from the first year. They may also pull out of some states and enter new states, she added.

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Some New Prescriptions for the Health Care Marketplace

Perspective: Health care and the GOP: a primer

Though the Affordable Care Act passed into law in 2010, conservatives continue to fight it at every opportunity: in the courts, in state legislatures, and in Congress. It's a safe bet that as the race for the 2016 GOP presidential nomination kicks off, a cavalcade of Republican hopefuls will torment innocent Iowans with tales of how they've fought Obamacare in the past and why they're the ones who can finally drive a stake through its heart.

But if you don't read the conservative press, you might have no idea why those of us on the right side of the political spectrum are so worked up about Obamacare. To promote cross-ideological understanding, I've prepared this little FAQ.

Why do conservatives oppose Obamacare?

Not all conservatives are alike, and there are at least some, like Avik Roy of the Manhattan Institute, who believe Obamacare should be reformed and not repealed. But as a general rule, conservatives oppose the law and would like to see it repealed for several reasons.

First, some conservatives oppose it for the same reason that liberals favor it: Through the Medicaid expansion and the exchanges, it subsidizes insurance coverage for people of modest means by raising taxes on people of less-modest means and (in theory) by curbing the growth in Medicare spending. Conservatives tend not to be enthusiastic about redistribution, and they're particularly skeptical about redistribution that isn't transparent.

Second, there is a widespread belief on the right that the main driver of the federal government's fiscal woes is the soaring cost of health entitlements, like Medicare and Medicaid. Champions of Obamacare claim that the law will improve matters by encouraging innovative approaches to paying providers, which will yield big efficiency gains. Conservatives are skeptical. They believe that instead of driving efficiency gains, Obamacare's highly prescriptive approach to insurance will stymie cost-saving innovation and that its costs will soar as it expands. Instead of tackling the health entitlement problem, say conservatives, Obamacare will make matters worse.

Third, most conservatives believe that America needs a system of market-based health reform that will be cheaper, less coercive, and less prescriptive than Obamacare, and they're convinced that the only way to get from here to there is to repeal Obamacare root and branch. The problem, as we'll see, is that there's not a lot of consensus around what an Obamacare replacement should look like.

There are, of course, other reasons conservatives oppose Obamacare, but these are a good starting point.

Okay, got it conservatives oppose a new spending program because they're conservatives. But why are conservatives so angry about Obamacare?

Many on the right believe the White House sold Obamacare dishonestly. Back in 2009, when conservatives and liberals were duking it out over President Obama's push for a new federal health care law, the president often insisted that if you like your insurance plan, you'd be able to keep it. Predictably enough, many conservatives claimed that if the president's overhaul of the U.S. health system passed, many people would lose insurance plans they like.

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Perspective: Health care and the GOP: a primer