Is the Affordable Care Act the Catalyst to Merger Efficiency Reform?

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Andrew Mann, George Paul, Sep 30, 2014

Recently, the Obama Administration has reshaped the healthcare industry and encouraged collaborations among competitors as a way to drive skyrocketing costs down and improve the efficiency of the delivery of healthcare to Americans. But are the Administration’s own competition watchdogs standing in the way of these efficiencies?

Tensions between reducing costs and protecting competition are increasingly ramping up for companies seeking to adjust to a constantly shifting competitive landscape created under new federal healthcare reform legislation—the Patient Protection and Affordable Care Act—increasing deal uncertainty for parties attempting new collaborations. Going forward, parties will continue to face uncertainty about how the industry will respond to collaborations, including how competition will be affected, and a lack of clarity about how the agencies will weigh the potentially substantial benefits of proposed collaborations against the potential effect such collaborations will have on a constantly shifting competitive landscape.

This is occurring as the healthcare industry remains one of the largest and fastest-growing sectors in the U.S. economy. It makes up approximately one-fifth of the U.S. GDP, which makes it almost the size of the entire economy of the United Kingdom. According to economists in the Office of the Actuary at the Centers for Medicare and Medicaid Services (“CMS”), healthcare spending is projected to grow at an annual average rate of 5.8 percent through 2020, which is just over 1.0 percent higher than the projected growth rate of U.S. GDP. By 2020, healthcare spending is projected to exceed $4.5 trillion.