23 M&A deals reshaping CT’s healthcare landscape

Merger and acquisition activity in the health care sector proved active in Connecticut last year, with more $7.3 billion worth of deals taking place as insurers, hospitals, and electronic health companies all got into the act.

Overall, 23 health care M&A deals took place in the Nutmeg State in 2011, only half of which revealed a sales price, according to data compiled by Norwalk-based Irving Levin Associates.

The 13 deals that disclosed terms had a value of $7.3 billion.

Nationwide, merger and acquisition activity in the health care industry grew 11 percent in 2011, with about 980 deals worth $227.4 billion being announced.

Deal making in four services sectors posted notable growth including hospitals, long-term care, managed care and physician medical groups.

The largest Connecticut transaction was Bloomfield-based Cigna’s acquisition of HealthSprings Inc., a $3.8 billon deal that will give Cigna a large presence in the increasingly lucrative Medicare Advantage business.

Most of the significant transactions came from the managed care sector, as insurance companies continue to diversify ahead of a changing health care landscape, said Sanford B. Steever, editor of The Health Care M&A Report.

Besides the Cigna deal, Hartford health insurer Aetna invested $1.1 billion in three acquisitions including purchases of Prodigy Health Group ($600 million), Genworth Financials’ Medicare supplement business ($290 million), and PayFlex Holdings ($202 million).

One of Aetna’s acquisitions (PayFlex Holdings) involved an electronic health company as the insurer tries to evolve into a broader health services business that includes a specialization in technology.

Increasingly, health insurers are showing interest in e-health companies as a way to diversify, but also control medical costs long-term by improving electronic communication between doctors and patients. In Aetna’s case, their technology purchase involved a company that provides web-based benefit administration services for self-insured health plans.

“There has been a growing synergy between managed care and e-health companies,” Seever said. “I would expect that trend to continue.”

Cheshire’s Alexion Pharmaceuticals Inc. was also an active player last year, spending $1.2 billion in three acquisitions. The largest deal was a $1.1 billion purchase of Enobia Pharma Corp. of Cambridge, Mass., which is in clinical trials on its treatment for a rare, potentially fatal metabolic disease.

On the hospital front, there were several notable deals. Hartford Hospital completed its $27 million acquisition of Newington’s Constitution Eye Surgery Center, giving the hospital a major presence in Greater Hartford’s outpatient ambulatory eye surgery industry.

Texas-based LHP Group announced its intentions to spend $200 million to buy and merge Waterbury and St. Mary’s hospitals in the Brass City, a complex deal that would transform the not-for-profit health care operators into for-profit entities. That deal is still waiting for regulatory approval.

Yale-New Haven Hospital also struck a deal to purchase St. Raphael in New Haven in a $160 million transaction that creates one hospital with two campuses. That deal is also awaiting regulatory approval.

The hospital deals are part of a broader consolidation trend within the industry, and are being driven by declining government reimbursements, pressure to invest huge amounts of capital in technology and infrastructure, and the constantly changing political and regulatory landscape, including the new federal health care reform law.