What Aetna will do with Coventry
Insurers turn focus from acquisitions to Medicaid
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.”