An­them-Cigna merger poses prom­ise, per­ils for providers and con­sumers

Modern Healthcare - - NEWS - By Bob Her­man

An­them’s an­nounced $54.2 bil­lion takeover of Cigna Corp. last week is the latest and largest sign of health in­sur­ers’ lust for scale. But at the heart of the merger mo­men­tum is their de­sire to ex­pand their gov­ern­ment busi­ness, par­tic­u­larly in the lu­cra­tive Medi­care Ad­van­tage mar­ket.

While many an­a­lysts say the merg­ers, if ap­proved by an­titrust reg­u­la­tors, will cre­ate greater ef­fi­cien­cies, the con­sol­i­da­tion from five ma­jor pub­licly traded in­sur­ers to three is fu­el­ing wor­ries among pol­i­cy­mak­ers and healthcare providers. They fear that the deals will un­der­mine the Af­ford­able Care Act’s goal of cre­at­ing greater pri­vate- mar­ket com­pe­ti­tion and a ro­bust con­sumer-choice model. Healthy com­pe­ti­tion is seen as key to achiev­ing stronger co­or­di­nated-care net­works, im­prov­ing qual­ity and re­duc­ing costs.

There also are con­cerns that col­lab­o­ra­tion be­tween health plans and providers on in­no­va­tive pay­ment and de­liv­ery mod­els could suf­fer as the big­ger, more pow­er­ful pay­ers gain more bar­gain­ing mus­cle over providers. But other ex­perts say more payer clout is needed to drive down ex­ces­sive provider prices.

“Now you have the big three,” said Stu­art Gunn, a healthcare man­ag­ing di­rec­tor at in­vest­ment bank Houli­han Lokey, re­fer­ring to Aetna, An­them and Unit­edHealth Group. “It gives them pretty good provider ne­go­ti­at­ing lever­age across a num­ber of states.”

More than 10,000 baby boomers and dis­abled Amer­i­cans are be­com­ing el­i­gi­ble for Medi­care ev­ery day. In­sur­ance ex­ec­u­tives her­ald the Medi­care Ad­van­tage pro­gram as a pri­mary sec­tor for growth, es­pe­cially con­sid­er­ing the fully in­sured em­ployer health in­sur­ance mar­ket is flat or shrink­ing. An­them and its ri­val Aetna—which this month signed a $37 bil­lion merger deal with Medi­care Ad­van­tage pow­er­house Hu­mana— both want to bulk up their Ad­van­tage busi­ness through their pro­posed merger deals. But they are look­ing to do so in fun­da­men­tally dif­fer­ent ways.

Aetna’s pend­ing ac­qui­si­tion of Hu­mana is a tra­di­tional mar­ket grab. Aetna and Hu­mana have strong Ad­van­tage mem­ber­ships, and com­bined, they be­come the leader in the mar­ket with 4.5 mil­lion Medi­care en­rollees. That sur­passes Unit­edHealth, which has 3.5 mil­lion mem­bers.

An­them will have 1.1 mil­lion Ad­van­tage ben­e­fi­cia­ries af­ter ab­sorb­ing Cigna, leav­ing it well be­hind An­them and United and slightly be­hind not­for-profit Kaiser Per­ma­nente. In­di­anapo­lis-based An­them has strug­gled in re­cent years to ex­pand this side of its gov­ern­ment busi­ness.

“An­them has re­ally never been able to make much of a splash in the Medi­care Ad­van­tage mar­ket,” said Paula Wade, a healthcare an­a­lyst at De­ci­sion Re­sources Group. “Ev­ery time they’ve tried, they’ve had to back up.”

But ex­ec­u­tives out­lined a longert­erm strat­egy to build the Medi­care busi­ness through the big­gest strength of An­them and Cigna—their large em­ployer-group busi­ness.

More than 80% of An­them’s rev­enue will come from com­mer­cial con-

tracts with em­ploy­ers across the coun­try, as a vast ma­jor­ity of An­them’s 53 mil­lion med­i­cal-plan mem­bers are in em­ployer-spon­sored plans.

Most com­pa­nies that work with An­them and Cigna are self-in­sured and use the in­sur­ers as a third-party ad­min­is­tra­tor and claims pro­ces­sor. That’s a less prof­itable en­ter­prise than tak­ing on full in­sur­ance risk for em­ployer groups.

An­them’s goal is to re­tain that mas­sive pool of work­ers and their fam­i­lies as they age into Medi­care. The com­pany will specif­i­cally fo­cus on six big states— Cal­i­for­nia, Florida, New York, Ohio, Penn­syl­va­nia and Texas—in which it has both a large pres­ence and the po­ten­tial to sway large num­bers of older work­ers into its Medi­care plans. The same strat­egy could work with low­in­come peo­ple who churn be­tween Med­i­caid and the ACA’s in­sur­ance ex­changes and who even­tu­ally will be­come Medi­care-el­i­gi­ble.

“We have all the in­gre­di­ents to have an ex­tremely well-po­si­tioned, very growth-ori­ented” Medi­care busi­ness, An­them CEO Joseph Swedish said last week.

Swedish, the for­mer head of Trin­ity Health, a hos­pi­tal sys­tem based in Livo­nia, Mich., will stay on as CEO and chair­man of the new com­pany. Cigna CEO David Cor­dani will be­come An­them’s pres­i­dent and chief op­er­at­ing of­fi­cer, as­sum­ing the deal re­ceives ap­proval from state and fed­eral reg­u­la­tors as well as An­them’s brand spon­sor, the Blue Cross and Blue Shield As­so­ci­a­tion.

Pri­vate sup­ple­men­tal Medi­care cov­er­age is most com­mon among large com­pa­nies, which are more likely to of­fer re­tiree ben­e­fits. An­a­lysts say it’s a ripe busi­ness for An­them for two rea­sons. Peo­ple with em­ployer-spon­sored in­sur­ance are gen­er­ally health­ier and less costly than those with­out such cov­er­age.

An­them will be in a strong po­si­tion to cap­ture that health­ier, ag­ing em­ployee pop­u­la­tion, rather than los­ing them to tra­di­tional Medi­care or a dif­fer­ent Ad­van­tage in­surer.

“It’s an easy tran­si­tion to go to that in­di­vid­ual and say, ‘You’ve had An­them, you’ve had Cigna, sign up with us,’ ” said Steve Za­haruk, a se­nior vice pres­i­dent at credit rat­ings firm Moody’s In­vestors Ser­vice.

To­gether, Aetna, An­them and United will con­trol more than half of the Medi­care Ad­van­tage mar­ket, with even higher per­cent­ages in par­tic­u­lar mar­kets. That may raise red flags for fed­eral and state an­titrust reg­u­la­tors, who could re­quire An­them and Aetna to divest some lo­cal plans.

Yet Medi­care is only one el­e­ment of the con­sol­i­dat­ing mar­ket. An­them is one of the largest op­er­a­tors of Med­i­caid man­aged-care plans, a boom­ing seg­ment with many states shift­ing their pro­grams to man­aged care as a way of achiev­ing more pre­dictable bud­getary costs.

An­them and Cigna also will have a dom­i­nant po­si­tion in many em­ployer mar­kets, par­tic­u­larly Ge­or­gia, In­di­ana, New Hamp­shire and Vir­ginia.

Crit­ics con­tend that even if the big in­sur­ers are forced to shed some as­sets, they still will wield enor­mous mar­ket power and will use it to cut pay­ment rates to providers, raise premi­ums and cre­ate nar­row provider net­works, rather than us­ing their economies of scale to lower costs to con­sumers and em­ploy­ers.

“There’s noth­ing that will com­pel those lower costs to go to lower premi­ums be­cause they’ll pos­sess mar­ket power,” said David Balto, an an­titrust at­tor­ney who for­merly worked at the U.S. Jus­tice Depart­ment and the Fed­eral Trade Com­mis­sion. “You’ve cre­ated a Franken­stein mon­ster.”

An­titrust watch­dogs are not alone in their con­cerns. The com­bined An­them and Aetna com­pa­nies each would have about $115 bil­lion in an­nual rev­enue, putting them among the 20 largest cor­po­ra­tions in the U.S.—larger than Mi­crosoft, Google and many other house­hold names. Providers warn that kind of size and power could lead to strong-arm ne­go­ti­a­tions.

“The lack of a com­pet­i­tive health in­sur­ance mar­ket al­lows the few re­main­ing com­pa­nies to ex­ploit their mar­ket power, dic­tate pre­mium in­creases and pur­sue cor­po­rate poli­cies that are con­trary to pa­tient in­ter­ests,” Dr. Steven Stack, pres­i­dent of the Amer­i­can Med­i­cal As­so­ci­a­tion, said in a writ­ten state­ment.

For their part, hos­pi­tals also have been con­sol­i­dat­ing rapidly. Stud­ies show that provider con­sol­i­da­tion of­ten leads to higher prices. On the other hand, stud­ies have found that very con­cen­trated health in­sur­ance mar­kets show monop­sony ten­den­cies and some­times lead to higher premi­ums for con­sumers.

“An­them com­plains all the time that hos­pi­tals have too much ne­go­ti­at­ing power,” said Dou­glas Leonard, pres­i­dent of the In­di­ana Hos­pi­tal As­so­ci­a­tion, which rep­re­sents 130 acute-care hos­pi­tals in An­them’s home state. “But I’m not sure that’s the case.”

In ac­quir­ing Cigna, An­them is gain­ing one of the most ac­tive in­sur­ers in pri­vate ac­count­able-care con­tracts. But hos­pi­tals lack con­fi­dence that the newly merged in­sur­ers will feel the need or de­sire to push for­ward in col­lab­o­ra­tions with providers on val­ue­based pay­ment and de­liv­ery mod­els, the di­rec­tion most ex­perts agree the U.S. healthcare sys­tem needs to go.

“Our mem­bers have frus­tra­tion with pay­ers not be­ing in­no­va­tive on qual­ity and pa­tient safety,” Ohio Hos­pi­tal As­so­ci­a­tion CEO Mike Abrams said. “This merger may make them even less will­ing to be col­lab­o­ra­tive with the provider com­mu­nity. That con­cerns me.”

Rick Herbst, a part­ner at Sikich In­vest­ment Bank­ing, ac­knowl­edged there are “real con­cerns” about less com­pe­ti­tion re­sult­ing from these gi­ant in­sur­ance merg­ers. Still, he ar­gued, gain­ing economies of scale is one of the few op­tions in­sur­ers have to spread risk and build the tech­nol­ogy in­fra­struc­ture that can help them man­age their mem­bers’ health and med­i­cal costs.

“If you can in­ter­vene ear­lier and help peo­ple avoid hos­pi­tal stays, the bet­ter you’re go­ing to be able to man­age your costs and prof­itabil­ity,” Herbst said.

The com­bined An­them and Aetna com­pa­nies each would have about $115 bil­lion in an­nual rev­enue, putting them among the 20 largest cor­po­ra­tions in the U.S.—larger than Mi­crosoft, Google and many other house­hold names.

Cigna CEO David Cor­dani, left, will be­come An­them’s pres­i­dent and chief op­er­at­ing of­fi­cer, and An­them CEO Joseph Swedish will serve as CEO and chair­man of the new com­pany.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.