The Affordable Care Act Expected to Drive Contracting Opportunities and M&A
President Obama’s inauguration on January 20th was a temporary cease fire around budget debates and sequestration banter, neither of which bode well for the contracting community. However, the President’s re-election may signify new opportunities for the contracting community, specifically in the healthcare market. Coupled with the Supreme Court’s July 2012 Patient Protection and Affordable Care Act (“PPACA” or “Obamacare”) ruling, President Obama’s re-election signifies that the fundamental provisions of Obamacare are here to stay.
Implementation of Obamacare was largely delayed pending the election (risk of overturn with a Republican win) and given that much of the Act wasn’t scheduled to go into effect until 2014 or later. However, it’s now go time. For example, states have only until February 15, 2013 to decide whether to run independent health insurance exchanges or have the Federal government run them on their behalf. This decision represents over $2 billion in funding for the exchanges in the next few months. This considerable new spend amidst broader spending pull backs should motivate contractors to explore ways to tap this opportunity on behalf of the states, federal government, or commercial.
PPACA is projected to also add more than 60 million people to Medicaid, and with so many new recipients, the Centers for Medicare & Medicaid Services (“CMS”) will likely demand even more from big data and IT services contractors. The trickle-down effect of the PPACA will offer significant incentives for healthcare providers and hospitals to transform processes and build electronic healthcare record systems; providing contractors with new opportunities in both the public and private sectors (i.e., SAIC’s acquisition of MaxIT in July 2012).
Contractors are proactively placing their bets in order to capitalize on Obamacare and broader anticipated HIT spending. A select few have positioned ahead of the curve, but nearly all are turning towards acquisitions to build or bolster footprints and capabilities. For example, there were three federal HIT deals announced in the last month or so – CACI acquired Emergint Technologies and IDL Solutions, both rising players in the big data Federal HIT space at CMS, FDA, and CDC collectively; and ManTech announcing its acquisition of ALTA Systems, a prime holder of the $4 billion CMS Enterprise Systems Development IDIQ. Looking into 2013, we anticipate continued momentum of health-centric M&A activity, as market players seek to capitalize on the significant HIT spending trend in the near to moderate term.