What Aetna will do with Coven­try

In­sur­ers turn fo­cus from ac­qui­si­tions to Med­i­caid

Modern Healthcare - - FRONT PAGE - Jaimy Lee

Aetna’s planned ac­qui­si­tion of Coven­try Health Care marks the third, and pos­si­bly the last ac­qui­si­tion of a large man­aged-care com­pany as in­sur­ers fo­cus on pre­par­ing for ex­panded Med­i­caid el­i­gi­bil­ity in 2014.

The Aetna deal, an­nounced last week, comes a month af­ter Wel­lPoint said it would buy Ameri­group in a trans­ac­tion expected to nearly dou­ble Wel­lPoint’s Med­i­caid man­aged-care busi­ness. Aetna will pay $7.3 bil­lion, in­clud­ing the as­sump­tion of Coven­try’s debt.

An­other in­surer, Cigna Corp., closed its $3.8 bil­lion pur­chase of Medi­care provider HealthSpring in Jan­uary. Hu­mana and Unit­ed­Health Group, the na­tion’s other two largest in­sur­ers, have es­tab­lished sub­stan­tial gov­ern­ment busi­nesses.

An­a­lysts had been wait­ing to see what kind of deal Aetna would pro­duce. It was expected the in­surer would look to pure-play Med­i­caid providers, such as Cen­tene and Molina Health­care, or to Health Net or Well­Care as pos­si­ble con­tenders.

Wel­lPoint will pay $4.9 bil­lion for Ameri­group, which has about 2.6 mil­lion Med­i­caid mem­bers in 13 states and 35,000 Medi­care Ad­van­tage mem­bers. The HealthSpring deal gave Cigna 340,000 Medi­care Ad­van­tage mem­bers.

“The win­dow is shut­ting,” said David Wind­ley, an an­a­lyst with Jef­feries & Co. “There aren’t that many large ma­jor buy­ers left.”

While the Coven­try deal boosts Aetna’s Med­i­caid mem­ber­ship by 932,000 mem­bers, it also in­creases its to­tal com­mer­cial and gov- ern­ment busi­ness by 3.8 mil­lion med­i­cal mem­bers, in­clud­ing the ad­di­tion of 253,000 Medi­care Ad­van­tage mem­bers. The in­surer said its gov­ern­ment busi­ness will grow from 23% of pro forma rev­enue to 30%.

The deal puts Aetna in a po­si­tion to ben­e­fit when Med­i­caid el­i­gi­bil­ity is ex­panded un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act in 2014.

It also po­si­tions the in­surer to take ad­van­tage of de­mand driven by baby boomers as they en­roll in Medi­care pro­grams.

“The ac­qui­si­tion of Coven­try, when com­bined with our ex­ist­ing Medi­care ca­pa­bil­i­ties, gives us a lead­ing fran­chise across each of the ma­jor prod­ucts of Medi­care,” Aetna Chair­man, Pres­i­dent and CEO Mark Ber­tolini said last week dur­ing a con­fer­ence call. “This broad Medi­care port­fo­lio po­si­tions us to cap­ture our fair share of the grow­ing Medi­care mar­ket­place as baby boomers en­ter the pro­gram in greater num­bers over the years to come.”

Ber­tolini ranks No. 2 this year on Mod­ern Health­care’s 100 Most In­flu­en­tial Peo­ple in Health­care list (See story, p. 6).

The deal is a “strate­gic move to be in a good po­si­tion for all of the Med­i­caid en­rollees who are com­ing on board,” said Brad El­lis, an an­a­lyst with Fitch Rat­ings.

While other deals may have in­creased the in­sur­ers’ ne­go­ti­at­ing power with providers through the ac­qui­si­tions of man­aged-care com­pa­nies, Coven­try’s pres­ence in mainly sec­ondary mar­kets isn’t likely to sig­nif­i­cantly in­crease mar­ket share and ne­go­ti­at­ing power for Aetna, El­lis said.

How­ever, Aetna’s “sig­nif­i­cant in­vest­ment” in form­ing ac­count­able care or­ga­ni­za­tions with providers may ben­e­fit from Coven­try’s pres­ence in new re­gions, in­clud­ing its reach into four new states, Wind­ley said.

Aetna has been the leader among in­sur­ers that have made the de­vel­op­ment of an ACO strat­egy and in­vest­ment a pri­or­ity, Wind­ley said, with Unit­ed­Health Group and Wel­lPoint also mak­ing sub­stan­tial in­vest­ments in ac­count­able care.

The in­dus­try’s rapid con­sol­i­da­tion over the past year could also ben­e­fit providers as large in­sur­ers in­creas­ingly be­come in­volved in the man­age­ment of the dual-el­i­gi­ble pop­u­la­tion, which may lead to lower health­care costs and less waste, El­lis said.

The con­sol­i­da­tion has caught the at­ten­tion of reg­u­la­tors. Ameri­group dis­closed in an Aug. 23 fi­nan­cial fil­ing that the Jus­tice Depart­ment had re­quested ad­di­tional in­for­ma­tion per­tain­ing to the deal from Ameri­group and Wel­lPoint.

The ad­di­tion of Coven­try, which op­er­ates Med­i­caid man­aged-care plans in 10 states, will make Aetna the third-largest man­aged-care or­ga­ni­za­tion in the U.S.

“As one of the coun­try’s largest di­ver­si­fied health in­sur­ers, Coven­try has long been a leader in pro­vid­ing in­sur­ance so­lu­tions for both the com­mer­cial and gov­ern­ment sec­tors,” a spokes­woman said in an e-mailed state­ment. “The com­bined com­pany will be po­si­tioned to lever­age our in­vest­ments, ex­pand our port­fo­lios to bet­ter serve a broader mar­ket and de­velop new part­ner­ships with providers that en­hance the qual­ity of care.”

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