An in­surer’s trans­for­ma­tion

Hu­mana’s evo­lu­tion into Medi­care pow­er­house of­fers strong lure to Aetna

Modern Healthcare - - NEWS - By Me­lanie Evans

An ac­qui­si­tion by Aetna would bring an end to the half-cen­tury of rad­i­cal com­pany makeovers by Hu­mana and cre­ate an in­sur­ance gi­ant in the fast-grow­ing mar­ket for gov­ern­ment-sub­si­dized health plans.

Louisville, Ky.-based Hu­mana—a $23 bil­lion com­pany that be­gan as a sin­gle nurs­ing home in 1961 founded by David Jones and Wen­dell Cherry—is the sec­ond-largest player in Medi­care Ad­van­tage, Medi­care’s pri­vate man­aged-care op­tion that has seen en­roll­ment triple in the past decade. That pro­gram will con­tinue to grow, with a surge of baby boomers en­ter­ing Medi­care.

The deal, val­ued at $37 bil­lion, would give Aetna ac­cess to tech­nol­ogy and an­cil­lary ser­vices ac­quired and de­vel­oped by Hu­mana to man­age the cost and qual­ity of care for chron­i­cally ill Medi­care ben­e­fi­cia­ries.

Hu­mana has in­vested in care-co­or­di­na­tion pro­grams, em­ploys nurses and care co­or­di­na­tors, and has a net­work of clin­ics that spe­cial­ize in co­or­di­nat­ing care for se­niors. Hu­mana’s strength in the Medi­care Ad­van­tage mar­ket, with its fo­cus on re­tail cus­tomers, also could help Aetna shift to the con­sumer fo­cus that many ex­perts pre­dict is the fu­ture of health in­sur­ance.

Medi­care Ad­van­tage “is a very im­por­tant part of our busi­ness be­cause (it) en­cour­ages com­pe­ti­tion, value-based re­im­burse­ment and look­ing at in­di­vid­ual mem­bers holis­ti­cally,” Hu­mana CEO Bruce Brous­sard said in an in­ter­view with Mod­ern Healthcare this year. “It’s a per­fect ex­am­ple of where the con­sumer is mak­ing the choice. Providers are in­cen­tivized around qual­ity and cost, and that forces in­te­gra­tion.”

Hu­mana has bought—and shed—com­pa­nies in the past few years to bol­ster its Medi­care busi­ness, in­clud­ing the $1 bil­lion sale of Con­cen­tra in June. It con­tin­ues to ex­pand and is now the most widely avail­able Medi­care Ad­van­tage op­tion na­tion­ally, with the broad­est num­ber of health plan choices, ac­cord­ing to a Kaiser Fam­ily Foun­da­tion anal­y­sis.

An­a­lysts say Hu­mana would ben­e­fit from the deal, which would re­sult in a more diver­si­fied com­pany. Hu­mana has lim­ited busi­ness in the com­mer­cial-in­sur­ance mar­ket, which ac­counts for nearly two-thirds of Aetna’s busi­ness when the

com­pany’s ad­min­is­tra­tive ser­vices con­tracts for self-in­sured em­ploy­ers are in­cluded. Com­mer­cial and ad­min­is­tra­tive con­tracts ac­count for onequar­ter of Hu­mana’s busi­ness.

Aetna, based in Hart­ford, Conn., would gain sig­nif­i­cant clout in the Medi­care Ad­van­tage busi­ness with the deal, adding Hu­mana’s 19% share of the mar­ket to its 7% share, ac­cord­ing to Kaiser.

The com­bined com­pany would have 4.34 mil­lion Ad­van­tage mem­bers with the ad­di­tion of Hu­mana’s 3.2 mil­lion en­rollees. Aetna op­er­ates Ad­van­tage plans in seven states and the Dis­trict of Columbia, in­clud­ing three that over­lap with Hu­mana— Ari­zona, Florida and Texas.

“To­gether, we be­lieve we will be very well-po­si­tioned to bet­ter serve and pro­vide im­proved value to our cus­tomers and con­tinue to cap­ture our fair share of this grow­ing mar­ket­place,” Aetna CEO Mark Ber­tolini said as he de­scribed the deal to an­a­lysts. Ber­tolini was not avail­able for an in­ter­view, an Aetna spokesman said.

The prospec­tive part­ners are also play­ers in the Af­ford­able Care Act ex­changes and in state Med­i­caid pro­grams, where pri­vate man­aged care has grown dra­mat­i­cally.

The deal would cre­ate a com­pany with 33 mil­lion mem­bers and 2015 rev­enue of $115 bil­lion. Aetna re­ported pre­mium rev­enue of $49.56 bil­lion in 2014. Hu­mana’s pre­mium rev­enue that year to­taled $45.96 bil­lion. Hu­mana and Aetna ex­ec­u­tives touted the po­ten­tial sav­ings at $1.25 bil­lion in 2018 be­fore taxes. They also cited as an as­set “Hu­mana’s chronic-care ca­pa­bil­i­ties.”

The tie-up could give Aetna lever­age to com­pete more ag­gres­sively on premi­ums in mar­kets where reg­u­la­tion lim­its other ways that health plans can stand out from com­peti­tors, said Moody’s In­vestors Ser­vice An­a­lyst Stephen Za­haruk.

For ex­am­ple, the ACA re­quires health plans to in­clude a stan­dard set of es­sen­tial ben­e­fits. “These prod­ucts are more of a com­mod­ity,” he said. “Price is a very im­por­tant com­po­nent of con­sumer choice.”

The ACA ex­change ex­pe­ri­ence so far has shown that in­di­vid­u­als and fam­i­lies are highly price-sen­si­tive. But whether Aetna would use its much big­ger size to re­duce prices is un­cer­tain. “That’s pos­si­ble,” said Amanda Starc, an as­sis­tant pro­fes­sor of healthcare man­age­ment at the Univer­sity of Penn­syl­va­nia’s Whar­ton School. “If I were try­ing to make the case that this was not go­ing to be an an­ti­com­pet­i­tive merger, that’s what I would say.”

In­stead, Aetna could use its big­ger size to squash com­pe­ti­tion to the detri­ment of con­sumers, Starc said. Re­search sug­gests that could hap­pen.

Con­sol­i­da­tion means fewer com­peti­tors, and fewer com­peti­tors mean higher premi­ums, one study of ACA ex­change mar­kets de­ter­mined. The anal­y­sis found premi­ums for ex­change plans would have been lower if Unit­edHealth­care had en­tered those ex­change mar­kets. Com­pe­ti­tion from Unit-

ed Healthcare would have low­ered the av­er­age plan pre­mium by 5.4%; av­er­age premi­ums would have been 11.1% lower if ev­ery in­surer com­peted in the ex­change in states where they op­er­ate.

“When you have a fairly con­cen­trated mar­ket, there are more prof­itable op­por­tu­ni­ties” to dif­fer­en­ti­ate other than by price com­pe­ti­tion, said Leemore Dafny, au­thor of the study and a healthcare strat­egy pro­fes­sor at North­west­ern Univer­sity, who said it isn’t clear whether in­sur­ers would pass on sav­ings to con­sumers.

Hu­mana was started by two Louisville lawyers who co-founded a nurs­ing home, ac­cord­ing to a history of Hu­mana pub­lished on the web­site Fund­ingUni­verse.com.

They rapidly added nurs­ing homes in other states to their com­pany, then called Ex­ten­di­care, which be­came the na­tion’s largest nurs­ing home com­pany at the time. Ex­ten­di­care ac­quired its first hos­pi­tal in 1968, and within sev­eral years ac­quired more. In 1972, it di­vested its nurs­ing homes and fo­cused on hos­pi­tals. It changed its name to Hu­mana in 1974. As the third­largest hos­pi­tal chain, it bought the sec­ond-largest chain, Amer­i­can Medi­corp, in 1978.

By 1982, Hu­mana had nearly 100 hos­pi­tals, mainly in the Sun­belt. In 1984, the com­pany launched Hu­mana Health Care Plans, pri­mar­ily as a way to keep pa­tients within its hos­pi­tals. In 1993, with its health plans do­ing well, it spun off its hos­pi­tal di­vi­sion into a new com­pany called Galen Health Care, which quickly merged with Columbia Hos­pi­tal Corp., later known as Columbia/HCA.

Then Hu­mana went on a cor­po­rate buy­ing spree, ac­quir­ing health plans around the coun­try, with ma­jor in­vest­ments in Florida.

In 2014, when the ACA’s in­di­vid­ual in­sur­ance ex­changes started, Hu­mana be­came one of the most ag­gres­sive par­tic­i­pants among com­mer­cial in­sur­ers. It cur­rently com­petes for cus­tomers in 15 states. The com­pany en­rolled 730,800 ex­change plan mem­bers as of the end of March in ACA mar­kets that are pro­jected to in­clude 22 mil­lion peo­ple within 10 years.

For its part, Aetna ranks among the top five com­pa­nies in Med­i­caid man­aged care by num­ber of states. States have dra­mat­i­cally ex­panded their Med­i­caid man­aged-care pro­grams, and the en­rolled pop­u­la­tion has swelled in the 28 states that so far have ex­panded Med­i­caid el­i­gi­bil­ity to low­in­come adults un­der the ACA.

With the ac­qui­si­tion of Hu­mana, Aetna may be bet­ter­po­si­tioned to com­pete in these gov­ern­ment-sub­si­dized mar­kets, which are in­di­vid­ual-con­sumer-fo­cused and more reg­u­lated than prior to the ACA, an­a­lysts say. The greater size could help re­duce op­er­at­ing costs and in­crease ne­go­ti­at­ing clout with hos­pi­tals and doc­tors, ar­eas where con­sol­i­da­tion is also un­der­way.

Hu­mana’s re­cent ac­qui­si­tions have tar­geted tech­nol­ogy and an­cil­lary ser­vices to man­age chron­i­cally ill pa­tients. The com­pany re­ported a 50% in­crease in 2014 from the prior year to 420,700 mem­bers who are en­rolled in the Hu­mana Chronic Care Pro­gram.

Hu­mana ac­quired Se­nior­Bridge Fam­ily Cos. three years ago and re­named it Hu­mana at Home. Se­nior­Bridge was a home healthcare com­pany for the chron­i­cally ill and is one of Hu­mana’s re­cent deals to boost its pri­mary care and care-co­or­di­na­tion busi­ness.

Hu­mana ac­quired Metropoli­tan Health Net­works in late 2012 and Amer­i­can Eldercare the next year. Both are in Florida, Hu­mana’s largest mar­ket.

Metropoli­tan Health Net­works man­ages care for Medi­care and Med­i­caid en­rollees. Those as­sets and oth­ers have the po­ten­tial to be ex­panded into new mar­kets, the com­pany said in reg­u­la­tory fil­ings.

Amer­i­can Eldercare is a home- and com­mu­nity-based care provider for se­niors. The com­pany also op­er­ates mul­ti­spe­cialty med­i­cal cen­ters in South Florida.

The fo­cus on Medi­care Ad­van­tage prompted Hu­mana to jet­ti­son its oc­cu­pa­tional-health sub­sidiary, Con­cen­tra, for $1 bil­lion ear­lier this year. It ac­quired the com­pany in 2010.

Brous­sard said Hu­mana is us­ing re­mote mon­i­tor­ing tech­nolo­gies with its Ad­van­tage mem­bers to help them bet­ter man­age their health.

Hu­mana also re­cently launched two pop­u­la­tion-health di­vi­sions, Tran­scend and Tran­scend In­sights, to mar­ket care co­or­di­na­tion and data an­a­lyt­ics to providers.

“Tran­scend In­sights is a great ex­am­ple of an ap­pli­ca­tion that can help physi­cians man­age their pa­tients with a mo­bile de­vice, iPad or mo­bile phone,” Brous­sard said. “They can see gaps in care and data an­a­lyt­ics, al­low­ing them to rec­om­mend the next best ac­tion for their pa­tients.”

The pro­posed Aetna-Hu­mana deal is not the only pro­posed com­bi­na­tion of ma­jor health in­sur­ers.

Med­i­caid man­aged-care com­pany Cen­tene Corp. said this month it would ac­quire Health Net for $6.8 bil­lion. An­them has made a bid for Cigna and Unit­edHealth Group is re­port­edly look­ing for a deal.

Those deals, if ap­proved by an­titrust reg­u­la­tors, may re­quire in­sur­ers to exit mar­kets where the merger would cre­ate too much con­cen­tra­tion.

The flurry of ac­tiv­ity comes af­ter the first year of in­sur­ance ex­pan­sion un­der the ACA, which ab­sorbed in­sur­ance com­pa­nies’ at­ten­tion as they sought to grap­ple with new reg­u­la­tions and un­cer­tainty over how mar­kets would op­er­ate, said Joseph Mar­in­ucci, the lead an­a­lyst for Hu­mana at Stan­dard & Poor’s.

“The sense is, they’ve got­ten through this pe­riod of un­der­stand­ing what they’re deal­ing with,” he said.

The po­ten­tial that an­titrust reg­u­la­tors will block Hu­mana’s ac­qui­si­tion is an ex­pen­sive one for Aetna, which would pay Hu­mana $1 bil­lion in that event.

Another po­ten­tial cloud is that the U.S. Jus­tice Depart­ment has asked Hu­mana for more in­for­ma­tion about its Medi­care Ad­van­tage risk-ad­just­ment prac­tices, based on a whis­tle-blower law­suit from sev­eral years ago, Hu­mana dis­closed in a reg­u­la­tory fil­ing this year.

“We have a very strong Hu­mana at Home plat­form, and to­day we em­ploy about 10,000 nurses, and we ac­tu­ally as­sist peo­ple when they tran­si­tion out­side of the hos­pi­tal to the home.”

Bruce Brous­sard CEO, Hu­mana

The $37 bil­lion deal would give Aetna ac­cess to tech­nol­ogy and an­cil­lary ser­vices ac­quired and de­vel­oped by Hu­mana to man­age the cost and qual­ity of care for chron­i­cally ill Medi­care ben­e­fi­cia­ries.

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