The managed care mega-deals of 2015 have blown up. Aetna (NYSE: AET) and Humana (NYSE: HUM) amicably terminated their $37 billion merger, following a federal judge’s order in January to block the deal on antitrust grounds. The $1 billion termination fee was in the works.

A different federal judge blocked Anthem (NYSE: ANTM) and Cigna‘s (NYSE: CI) $54.2 billion merger on similar grounds. Things turned ugly quickly, as Cigna declared the deal dead and sued Anthem for the $1.85 billion termination fee, and another $13 billion in damages on behalf of its shareholders. Anthem says it will go ahead with the merger.

What do the Big Five health insurers do now that they’re blocked from consolidating into the Big Three? They need acquisitions to fuel growth, and the current healthcare market landscape looks particularly rocky.

With a new head of the Centers for Medicare and Medicaid Services, Seema Varna, about to be confirmed, the companies that have focused on those programs aren’t as attractive as they were 12 months ago. Following the successful, $6.8 billion merger of Centene Corp. (NYSE: CNC) and Health Net in March 2016, the largest players left are  Molina Healthcare (NYSE: MOH) and WellCare Health Plans (NYSE: WCG).

THE OPTUM EXAMPLE

The answer may be to look outside the managed care market, as UnitedHealth Group did in January 2017. The company’s Optum subsidiary surprised many in the industry with its announced acquisition of Surgical Care Affiliates, Inc. (NASDAQ: SCAI) for approximately $3.3 billion.

Surgical Care Affiliates partners with health plans, medical groups and health systems to develop and optimize surgical centers. It operates 205 surgical facilities, including ambulatory surgery centers and surgical hospitals, in partnership with 3,000 physicians.

SCA will become part of the OptumCare platform, which has 20,000 affiliated physicians and hundreds of care facilities.

Optum, which contributes about 40% of UnitedHealth’s annual revenue, also operates OptumHealth, a population health management company; OptumInsight, a healthcare information analytics company; and OptumRx, a pharmacy benefits management (PBM) company.

The growth has been partly organic, but certainly helped by UnitedHealth’s acquisitions in recent years. In 2015, the OptumRx division added home infusion services provider AlexaCare Holdings, once a portfolio company of Harvest Partners, for an undisclosed price. In March 2015, it beefed up its pharmacy benefit management services with the $12.8 billion acquisition of Catamaran Corporation.

Catamaran (then NASDAQ: CTRX) provided PBM services and healthcare information technology solutions (HCIT) to the healthcare benefits management industry. Its services include retail network pharmacy management and pharmacy claims management. The combination created a dynamic competitor in the PBM market, coupling Optum’s data analytics capabilities with Catamaran’s technology platform.

Only two weeks later, in April 2015, Optum announced the acquisition of MedExpress, from Urgent Care MSO, LLC for an undisclosed price. At the time, MedExpress operated 141 full-service neighborhood medical centers in 11 states, and planned to accelerate its expansion by opening 25 to 30 additional centers in 2015.

Optum integrated its own care management and clinical programs with MedExpress’ services, which include wellness and prevention, prescriptions, blood work, imaging and lab services, and workers’ compensation and occupational medical services.

Those services were already complemented by Optum’s $600 million deal for Alere Health, in October 2014. Alere Health, a subsidiary of Alere Inc. (NYSE: ALR), provided condition management, case management, wellbeing, wellness and women’s and children’s health services to more than 200 regional and local health plans, 89 Fortune 500 employers and 29 states.

Alere Health’s management capabilities were intended to broaden the value Optum provides to health care payers, employers and states. Adding those offerings in areas such as tobacco cessation and home-based obstetrical services will deliver more innovative and comprehensive population health management solutions.

OUTSIDE THE BOX

So what’s out there for these frustrated acquirers? To crash the PBM market at the top, there’s Express Scripts (NYSE: ESRX), the largest PBM in the U.S. But with a market cap of $43 billion, Express Scripts wouldn’t come cheap. Aetna’s current market cap of $45 billion means a lot of debt would be needed to make a deal. Aetna had the debt lined up for its $37 billion deal with Humana (market cap of $31 billion), and could do it again, for the right target.

It would be far cheaper to take on Magellan Health (NASDAQ: MGLN), with a market cap of $1.7 billion. Magellan is in the healthcare management business, including special populations and pharmacy benefits management, and has been making its own modest acquisitions. Its most recent was Veridicus Holdings, LLC, a portfolio company of Gauge Capital, which it picked up for $74.5 million in November 2016.

For acquirers looking to emulate Optum, there’s MEDNAX (NYSE: MD), which has grown from a single focus on neonatology and maternal/fetal medicine to adding anesthesia practices, and now radiology. With a market cap of $6.5 billion, it may look attractive. but could turn into a hostile takeover.

Or there’s Surgery Partners, Inc. (NASDAQ: SRGY), with a market cap of $1.0 billion and more than 150 locations in 29 states. There are a slew of privately held physician platforms, too, but most are specialty-focused, such as Anne Arundel Dermatology (a New MainStream Capital company) and U.S. Anesthesia Partners, LLC (Welsh, Carson, Anderson & Stowe).

Looking for multi-specialty groups? There’s DuPage Medical Group, the largest independent multi-specialty physician group in the Chicago area, with more than 480 physicians in more than 60 locations. Or Family Care Partners, based in Fort Mill, South Carolina. Its focus is on primary and urgent care practices in that state, and added two more practices in January 2017.

Those are just a few of the companies in our M&A database, and we’re sure Aetna, Humana and others have knocked on a few of their doors. It will be interesting to see where this sector lands in 2020.