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Wen | vb arterial network
Another big merger and acquisition in the health insurance industry was born.
Recently, the US health insurance giant United Health decided to acquire LHC Group, a listed company in home health care, for a purchase price of up to US$5.4 billion, equivalent to more than 34 billion yuan. Judging from the industry position of both parties to the transaction, this is enough to leave a strong mark on the health insurance industry.
The reason is that as a party to the transaction, United Health is the world's largest health insurance company, with a current market value of more than 3 trillion yuan, and its revenue has continued to rise in recent years, reaching a staggering $287.6 billion in 2021, equivalent to more than 1.8 trillion yuan. This is higher than the total revenue of Ali, Tencent and Baidu in 2021.
The other party to the transaction, LHC Group, a leading U.S. home care company, has been listed on the NASDAQ for 18 years, and currently has annual revenue of more than 13 billion yuan and is still expanding.
After the merger and acquisition, it will boost United Health to expand new formats such as family health services, resulting in a larger scale and volume, and may continue to push up its total revenue plate.
According to the announcement posted on the official websites of the two companies, United Health will take the form of all cash to acquire all the circulating shares of LHC Group, and after the merger is completed, LHC Group will be delisted. The entire transaction is expected to close in the second half of the year.
How will United Health collaborate with LHC Group's business in this acquisition? What are the possible path directions for subsequent developments? What kind of enlightenment will this bring to the domestic health insurance industry? In response to these problems, the arterial network will be analyzed in detail next.
With an annual revenue of more than 13 billion yuan, how is the home health care leader in the United States refined?
Since the 1960s, the United States has gradually entered an aging society, so many health care models have been born around the elderly. This includes large-scale elderly care communities, high-end elderly care communities, nursing homes, community and home care PACE models, and home health care (Home Health) models.
As an important part of the U.S. pension industry, home care mainly refers to post-hospital rehabilitation and home rehabilitation, that is, a service team composed of doctors, nurses, rehabilitation engineers, home health care assistants, etc. to provide help for patients' rehabilitation treatment at home.
Due to the weakness of home care in terms of medical attributes, coupled with the dispersion of each patient's residence, the business path of this model is not clear, so it has always been an independent and relatively fragmented market.
In 1994, Keith and Ginger Myers decided to start a business in the home care sector and founded LHC Group Inc. Originally, the LHC was a single home-based care facility that focused on basic home care for rural populations in the Southern United States (administrative areas with a resident population of 10,000 to 100,000 residents).
In the view of Keith and Ginger Myers, the advantage of choosing a rural market is that the region has a higher proportion of Medicare beneficiaries, but the supply of services is insufficient compared to urban or suburban markets.
From the data, you can get a glimpse of the situation in the industry. According to 2004 statistics from the Centers for Medicare and Medicaid Services CMS, Medicare spent a total of $10.2 billion on home care services that year, about 34 percent of which was in rural markets.
On the other hand, the population size of most rural areas of the United States can only support one or two general acute care hospitals, which makes the needs of rural patients for home care services not well met.
It is based on the prediction of the rural to home health care market that the development of LHC Group is relatively smooth. On the business path, LHC Group implements a clinically oriented business model with four main initiatives.
• Establish partnerships with hospitals, doctors and other health-care providers in rural areas serving;
● The second is to help local hospitals provide more clinical support services;
● The third is to recruit qualified nurses and other health care professionals to establish a more complete home care service team;
● The fourth is to promote the acquisition of technology platforms and related hospitals to strengthen their service and operation capabilities in various places.
Ten years after its founding, LHC Group was successfully listed on NASDAQ in 2004. At that time, LHC Group's service scope had expanded to 86 regions, of which 72.7% were located in rural areas or regions with a population of less than 100,000 people, and more than 80% of the income came from insurance payments.
LHC Group's business coverage in 2004 Source: LHC Group Prospectus
After the first phase of development, LHC Group continued to expand its business scope and extended five major services in the following 18 years, namely Home Health Services, Hospice Services, Community-Based Services, Facility-Based Services, and Facility-Based Services. Human-Computer Interaction Services (HCI).
Specifically, home care services include home-to-home wound care and dressing changes, cardiac rehabilitation, infusion therapy, pain management, medication management, observation and evaluation, and patient education; hospice care services primarily provide pain and symptom management, emotional and psychiatric support, hospitalization and temporary care, meal counseling, family bereavement counseling, and companionship for elderly patient groups.
Community-based services and facility-based services are a range of extended services provided by LHC Group to users, including community services such as medication reminders, meal preparation, respite care, transportation and errand services, daily beauty services, etc., as well as facility-based services including the provision of treatment for patients with serious medical conditions requiring high level of care and frequent monitoring by doctors and other clinical personnel by operating long-term acute care hospitals.
The core of human-computer interaction services is to provide some wearable devices to monitor the user's vital signs, etc., which is a support service. In addition, LHC Group operates medical services such as institutional pharmacies, family health centers and family health clinics to provide more diversified service support.
Judging from LHC Group's financial reports in the past 4 years, home health services have always been the main source of revenue, with annual revenue of about $1.5 billion, but the growth momentum has slowed. On the other hand, revenue growth from community-based services has also begun to weaken.
Behind this, it is related to the intensification of the expansion of the LHC Group's home guarantee: as of now, the LHC Group has covered most of the rural areas in the southern United States with a population of 10,000 to 100,000 people, and the regional-based expansion method has faced bottlenecks.
Source: LHC Group Earnings Report Arterial Network Mapping
It is worth noting that the hospice business has become the growth power source of LHC Group, with revenue in 2021 increasing by 27.5% compared with 2020, and its proportion in the overall revenue has also increased from 11% in 2018 to 14% in 2021.
From the perspective of business model, the growth of hospice care business is mainly due to the secondary extension of home health care services. The reason is that the home care business must meet the standards of the US government's medical insurance certification, and there is a ceiling in the revenue space, while the hospice business can also meet the additional private services provided by some high-net-worth people when enjoying the home services provided by LHC Group in addition to government medical insurance. In addition, the non-medical attributes of the hospice business itself are also low.
In addition to expanding new businesses, LHC Group is also constantly promoting mergers and acquisitions in the industry. On April 2, 2018, LHC Group and Almost Family completed the merger, making it the second largest home care provider in the United States.
In October 2021, LHC Group completed the acquisition of Generations Home Health and Freda H. Gordon Hospice and Palliative Care, thereby expanding LHC Group's range of services. In November of the same year, LHC Group acquired HCA Healthcare and Brookdale Senior Living Inc, winning 23 home health service centers, 11 hospice facilities and 13 treatment facilities.
Since then, after nearly 30 years of development, LHC Group has grown into a home health care leading enterprise with annual revenue of more than 13 billion yuan, integrating home health, hospice care and personal care, with 30,000 employees, serving 60% of the U.S. population aged 65 and over, and is the preferred home health care partner for 435 hospitals in the United States.
What is the intention of United Health's acquisition?
$5.4 billion. That's the price tag United Health offered to buy LHC Group, which currently has a market capitalization of $5.195 billion, representing a premium of about 4 percent.
As the largest health insurance company in the United States, United Health's acquisition of LHC Group marks its entry into the field of home care, so that its business covers a diversified service system such as doctor groups, clinics, surgical centers and family health.
In addition to increasing business coverage, what synergies can this merger bring to United Health?
This needs to go back to the fundamentals of combined health. First of all, the path taken by United Health is to create a commercial closed loop of "health insurance + medical services". In view of this, United Health has built two major segments of business, one is the insurance business based on Unite Healthcare, and the other is the health management business based on Optum.
Joint Health Organization and Business Architecture Diagram Arterial Network Mapping
Optum includes Optum Health (a health management company), Optum Insight (a health information technology services company) and Optum Rx (a pharmaceutical benefit management company). The business unit that performed the merger and acquisition integration is Optum Health. In other words, LHC Group's home care business will become a part of United Health's health management services in the future.
According to the merger announcement, LHC Group, after its merger, will match its high-quality home and community health services with Optum's value-based care experience and resources, thereby improving care outcomes and patient experience.
It should be mentioned that optum Health's overall revenue in United Health remained at about 8%, with revenue of 24.831 billion US dollars in 2021, while LHC's total revenue last year was 2.22 billion US dollars.
Therefore, from the perspective of revenue, LHC Group can bring about 10% increase in the future to the revenue of United Health's health management services, but the growth of the entire group business (group revenue of US$287.6 billion in 2021, LHC's revenue volume is about 1%) is very limited.
However, it should be recognized that The past development history of United Health shows that continuous mergers and acquisitions and integrations can greatly promote its larger business flywheel.
Since 2004, United Health has divided the overall business into two major segments, Unite Healthcare and Optum, and at first the development of the insurance business and the health management business was uneven, and the overall performance of the Optum business in the group revenue was not good. This is because, although United Health holds a huge commercial insurance payment, it lacks sufficient resources on the service side to form an efficient supply.
In the final analysis, the core of the "health insurance + medical service" model lies in the scale effect, that is, through better services to reach more groups, more groups to reduce the cost of medical service expenditure, the cost of savings and then feed back to the service side, bringing more and better services, thus forming a positive flywheel effect.
As a result, it can be seen that since 2010, United Health has continued to promote mergers and acquisitions and integration on the service side, spending tens of billions of dollars to acquire PBM business provider Catamaran, the U.S. kidney care company DaVita Inc's Physician Group, the drug benefit management company Catamaran Corp, the surgical operator Clinical Care, the rapid diagnosis company Alere Health, and the health care payment company Equian LLC, etc.
Continuous integration has also enabled United Health's business to continue to grow. According to the latest fiscal year 2022 annual report, United Health's revenue exceeded 1.8 trillion yuan. It is worth noting that for the first time, the profit of optum-based health management services business also exceeded that of the insurance business.
Profit growth trend of the two major businesses of United Health Arterial Network Mapping
After the acquisition of LHC Group, United Health is bound to continue to expand its supply capacity on the health service side.
With the wave of mergers and acquisitions, where will the future of the health insurance industry go?
Health insurance giants are constantly expanding their territory.
In addition to United Health's acquisition of LHC Group, Humana, also a US health insurance giant, also spent US$8.1 billion and US$5.7 billion last year to acquire KAH (Jindrid Home), a leading US home care service company, which took a total of 4 years (starting in 2017). It was the largest acquisition Ever made by Hamana.
Prior to the acquisition, Kindred Home was the nation's largest provider of home care services, with three businesses: Home Health, Hospice and CommunityCare Services, with revenues of $1.822 billion in 2017, of which 63.6 percent came from Medicare in the U.S. government.
According to Hamana founder Broussard, The incorporation of Kindrid's home can effectively improve the synergy efficiency of Hamana's business. He said that compared with individual Medicare Advantage users who do not use home health, the quality of life of users supported by home care services has improved significantly, and the likelihood of hospitalization is significantly reduced.
More importantly, the addition of the home care business has enabled Hamana to have a one-stop service from primary health care to pharmacy to home care, so as to better provide a variety of services and products for insurance users.
From the current time node, the merger and acquisition of Kindred Home and LHC Group means that a wave of mergers and acquisitions in the health insurance industry based on home care is beginning. This is not only the inevitable choice of the US health insurance giants when the business has reached a certain stage of development, but also the importance of the home care business under the new crown pandemic: people's acceptance and demand for home care are continuing to increase.
In addition to Kindred Home and LHC Group, the American home care leaders also have companies such as Kangborn and Amis Medical, but overall there are not many high-quality targets.
Of course, the big fish in the capital market eat small fish in the process of promoting the growth of more and more enterprises, but also face a lot of risks, so it has been supervised by public opinion and relevant institutions. For example, United Health's previous acquisition of healthcare information company Change Healthcare is facing an antitrust lawsuit by the U.S. Department of Justice, on the core grounds that United Health may control a large amount of healthcare data and can use its digital assets to help its insurance department gain an undue competitive advantage over competitors.
If the merger and integration is successful, United Health may continue to push up the imagination of the health insurance industry, after all, the market value of more than 3 trillion yuan has made United Health a unique benchmark. This means that in the continuous snowball of large-scale expansion, healthcare services can also support huge revenue and market capitalization, and bring huge profits.
With the American health insurance company Zhuyu in the front, will the mainland health insurance industry follow the path of the United States in the short and short term to set off a wave of mergers and acquisitions? The odds are extremely small.
First, from the perspective of industry development, the mainland health insurance industry has not yet given birth to top leading enterprises, and the local "insurance + medical services" model needs to be further verified; second, the equity of LHC Group and other enterprises is very dispersed, which prompts giants such as United Health to be able to conduct more convenient transactions on benchmark companies in the secondary market.
Therefore, for the domestic health insurance industry, it still needs sufficient patience to grow and wait slowly. But what is certain is that the path of increasing the variety and accessibility of health services has proven feasible. However, for domestic enterprises, more localization attempts and innovations are needed in the implementation methods.
As Unity Health has been saying since its inception: "We are working to help people live healthier lives and help make the health system work better for everyone." ”
It can be seen that any way of capital is only a means, and bringing real patient value is the purpose of healthcare companies. Only by doing this can healthcare companies have more room for market imagination.
Resources:
LHC Group Prospectus S-1 https://www.sec.gov/Archives/edgar/data/0001303313/000095014405001444/g92064a2sv1za.htm
"From the listed company to see the U.S. home care industry" Xiang Qingdong
LHC Group's official website https://blog.lhcgroup.com/
《UnitedHealth to buy LHC Group for $5.4 billion》 CNBChttps://www.cnbc.com/2022/03/29/unitedhealth-to-buy-lhc-group-for-5point4-billion.html