Oct. 28--Besides all the previously uninsured people who now have health coverage because of President Barack Obama's Affordable Care Act, you know who should be grateful for the hotly contested program?
Mergers and acquisitions lawyers and bankers, that's who.
Walgreens Boots Alliance's just-announced bid to take over Rite Aid, which would bring together the nation's No. 2 pharmacy chain with No. 3, is just the latest consolidation play in the health care sector.
Insurance companies, drugmakers, health care provider groups, pharmacies and any number of businesses in and around the wellness business are looking to bulk up.
The goal has seemed to be to amass enough size and scope to exercise a bit of leverage in trying to push back against government efforts to rein in health costs, which might spare the family budget but threaten to crimp company profits.
On Wednesday's quarterly earnings call with analysts, Stefano Pessina, the 74-year-old Italian billionaire CEO and executive vice chairman who leads Walgreens Boots, itself the product of a fairly recent merger, downplayed the additional bargaining power with benefits managers and insurers the merger would create.
A Rite Aid acquisition was all about synergies and an increased footprint, he insisted.
But Pessina, trained as a nuclear engineer and an academic before taking over his family's drug distribution business and building it into a European and now global retail and health care force, has previously come across like one of James Bond's chattier counterparts on the topic.
Horizontal consolidation. Vertical consolidation. Whatever's there and makes sense, he has said again and again.
"The American market," Pessina told analysts back in April, is primed for "consolidation because the margins are squeezed everywhere. The government is more and more in charge for the costs of the health care business, and so for sure they will exercise their power to squeeze the cost as much as possible, as we have seen in Europe for decades.
"So the complex structure of delivering the medicines to the patients will have to be rationalized," he said. "And as a consequence, it's easy to believe that we will have additional synergies coming from M activities."
Because regulators have yet to dampen enthusiasm for this sort of voraciousness, there's been an orgy of activity in the space with dozens of companies coming together of late, figuring it's eat or get eaten, go big or go home.
Among them: Anthem and Cigna, Aetna and Humana, CVS and Target's pharmacy business, Illinois Health and Science and IBA Molecular North America, National Surgical Healthcare and Optim, UnitedHealth Group and pharmacy benefits manager Catamaran, Navigant and RevenueMed, Alexian Brothers Health System and The Medical Care Group, Pfizer and Hospira and AbbVie and Pharmacyclics.
To name but a few.
Not only are these companies girding for marketplace changes Obama's health care program brings about, they are also trying to spur growth, innovation, new products or anything else they have had trouble creating on their own.
To be fair, this may be part of what Walgreens Boots is attempting to do, too. If margins are to shrink, Pessina and company will be hard-pressed to give Wall Street the quarterly improvements it demands.
Rite Aid would make it decidedly bigger, though it's not entirely clear just how much bigger. Pessina refused to hazard a guess as to how many of the more than 12,000 outlets the two chains have in the United States he expects regulators to demand the sprawling combo shed.
"It is very difficult for us to make public comments," Pessina said. "When we have public authorities, it is better for us not to interfere at all."
Let the M bankers and lawyers work it out, find out what the government prescribes and what it's going to cost.
Margin call: A computer programmer at UCLA sent a message to the Stanford Research Institute in the first host-to-host connection on the Advanced Research Projects Agency Network 46 years ago Thursday. Only the first two letters -- L and O -- were transmitted successfully before the system crashed, but it was a start for today's Internet.
philrosenthal@tribpub.com
