The ITV News headline grabs attention — but are dermatology apps really endangering the public when teledermatology can help diagnose 88 percent of people with skin cancer and 97 percent of those with benign lesions? A University of Birmingham-led research team did a metastudy of the literature and found three failings: “a lack of rigorous published trials to show they work and are safe, a lack of input during the app development from specialists to identify which lesions are suspicious and flaws in how the technology analyses photos” particularly for scaly or non-pigmented melanomas. But did access to these apps encourage early diagnosis which can lead to up to 100 percent five-year survival? Of course review is required as recommended by the study, but this last factor was not really examined at the British Association of Dermatologists’ annual meeting in Edinburgh. University of Birmingham release with study abstract
DOJ, stay away from our doors! The $69 bn CVS Health and Aetna mega-merger looks like it will go sailing down that river, if Mr. Market is right. Shares in both companies enjoyed a nice bump on today’s report that the DOJ won’t challenge this merger. The local Hartford Courant is relieved that Aetna plans to stay in their longtime HQ city (since 1853), conveniently omitting their long-standing plan to set up a big shop in NYC. CNBC
What a difference from a year ago when two mega-mega-mergers, Aetna-Humana and Anthem-Cigna, were shot d0wn–nay, riddled with bullets–in the Senate and in two courts [TTA 9 Feb 17]. Cigna is still living with the hangover of their bad breakup with Anthem, with a fight over a nearly $1.9 bn breakup fee [TTA 17 May 17] continuing in the Delaware Chancery Court in 2019. Cigna nixed any other insurers in a horizontal merger and sought out Express Scripts, a pharmacy benefits manager (PBM) which was reeling a bit after its largest client (coincidentally) Anthem departed. Anthem sued its PBM, Express Scripts, for $15 billion, alleging the PBM overcharged it by $3 billion annually The merger will cost them over $550 million in transaction cost and that is just the beginning. That $1.9 bn would sure come in handy. Modern Healthcare
Your busy Editor, who has been on business assignment this past month, has noticed the relative quiet around the subject of How Amazon is Rattling Healthcare. We’ve already noted here the retail and pharmacy/pharmacy benefit effects with CVS-Aetna, Albertsons-Rite Aid, and Cigna-Express Scripts. Aside from the bottom line, and Cigna finally closing a gap with other insurers with pharmacy benefit management services (PBM), is it good for the healthcare consumer as promised?
Max Nisen’s article in Bloomberg Gadfly (sic) says ‘not so fast’. His argument is as follows:
- Companies are largely following the lead of UnitedHealth and its Optum units, which integrate not only insurance and PBM but physician groups and analytics.
- Deals will continue. There’s other insurers like Anthem, Humana, and the regional Blues; urgent clinics like CityMD, AtlantiCare, and MedExpress. Looming above all with clinics and retail pharmacies is Walgreens Boots and on the retail side, other supermarkets like Publix and Ahold Group.
- Consolidation means fewer alternatives, competition, and thus less downward pricing pressure for both providers and consumers, as options decrease into what resembles a closed system. The merged companies will have debt to pay off, with pressure to pay off lenders and shareholders.
All this is regardless of what Amazon does with JP Morgan Chase and Berkshire Hathaway. Their admirable, seemingly altruistic reasons for this joint venture, in this view, has multiple unintended consequences and negative effects for ordinary folk–and doctors.
As for healthcare technology, when a Big Trend takes the air out of the room–EHRs, ACA, Watson/big data, even wearables, IoT and Big Data– more mundane everyday tech like remote patient monitoring and telecare, which depend on integrating into healthcare/wellness/chronic care management systems and reimbursement (by those same insurers), tend to suffocate.
Also of interest: Cigna may be too late to the PBM party (InvestorPlace)
Shudders through the US financial markets resulted from Tuesday’s Big Reveal of an Amazon-Berkshire Hathaway-JPMorgan Chase combine. Ostensibly they will be “partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs” and setting up an independent company “free from profit-making incentives and constraints. The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.” This and the Warren Buffett quote about ballooning healthcare costs being a “hungry tapeworm” on the American economy have gained the most notice. Mr. Bezos’ and Mr. Dimon’s statements are anodyne. The company will initially and unsurprisingly be spearheaded by one representative from each company. The combined companies have 1.1 million employees. Release. CNBC.
There is a great deal in those lead quotes which is both cheering and worrisome. To quote a long time industry insider in the health tech/med device area, “What this tells me is finally, enough pain has been felt to actually try to do something. We need more of this.” This Editor notes the emphasis on ‘technology solutions’ which at first glance is good news for those of us engaged in 1) healthcare tech and 2) innovative care models.
But what exactly is meant by ‘technology’? And will they become an insurer?
What most of the glowing initial comments overlooked was the Absolute Torture of Regulation around American healthcare. If this combine chooses to operate as an insurer or as a PBM, for starters there are 50 states to get through. Each state has a department of insurance–in California’s case, two. Recall the Aetna-Humana and Cigna-Anthem mergers had to go through the gauntlet of approval by each state and didn’t succeed. PBM regulation varies by state, but in about half the US states there are licensing regulations either through departments of insurance or health. On the Federal level, there’s HHS, various Congressional committees, Commerce, and possibly DOJ.
Large companies generally self-insure for healthcare. They use insurers as ASO–administrative services only–in order to lower costs. Which leads to…why didn’t these companies work directly with their insurers to redo health benefits? Why the cudgel and not the scalpel?
Lest we forget, the Affordable Care Act (ACA, a/k/a Obamacare) mandated what insurance must cover–and it ballooned costs for companies because additional coverages were heaped upon the usual premium increases. Ask any individual buyer of health insurance what their costs were in 2012 versus 2017, and that’s not due to any tapeworm. Forbes
Conspicuously not mentioned were doctors, nurses, and other healthcare providers. How will this overworked, abused, and stressed-out group, on whose shoulders all this will wind up being heaped, fare? And what about hospitals and their future? Health systems? The questions will multiply.
Disruption is now the thing this year. Of course, shares of healthcare companies took a beating today, many of which do business with these three companies: CNBC names Cigna, Express Scripts, CVS, Aetna (themselves partnering for innovation), and UnitedHealthGroup. Amazon uses Premera Blue Cross (a non-profit).
Because of Amazon’s recent moves in pharmacy [TTA 23 Jan], there is much focus on Amazon, but the companies with direct financial and insurance experience are…JPMChase and Berkshire Hathaway.
An Editor’s predictions:
- Nothing will be fast or simple about this, given the size and task.
- The intentions are good but not altruistic. Inevitably, it will focus on what will work for these companies but not necessarily for others or for individuals.
- An insurer–or insurers–will either join or be purchased by this combine in order to make this happen.
Hat tips to Toni Bunting and our anonymous insider.
For an overview of what we saw at the time as reasons why and possible competitor reaction, Readers should look back to our original article [TTA 28 Oct]. It’s being presented by both companies as a vertical merger of two complementary organizations, which already were moving towards this model, integrating their different services into “America’s front door to quality health care” (CVS CEO Larry Merlo)–a lower cost setting that saves premium dollars and brings integrated care to consumers’ doorsteps.
CVS brings to the table huge point of care assets: 9,700 pharmacy locations, 1,100 MinuteClinics, Omnicare’s senior pharmacy solutions, Coram’s infusion services, and the more than 4,000 CVS Health nursing professionals providing in-clinic and home-based care. Aetna has about 23.1 million medical members, 14.5 million dental members, and 15.2 million pharmacy benefit management (PBM) services members. Aetna also has a wealth of advanced data analytics capabilities through two subsidiaries, ActiveHealth Management and Medicity’s health information exchange technology.
Seeking Alpha has an intriguing POV on this entry into a ‘new era’: that both CVS and Aetna consider this to be a long-term reshaping of their business model under the threat posed by Amazon, and are willing to do this despite little short-term financial benefit for either company. The problem as the writer sees it: execution. This is re-engineering care on a national scale, and its benefits are based upon combining intangibles, a murky area indeed especially in healthcare. Time is also a factor, as Amazon is getting pharmacy licenses in multiple states, and is rather an expert at combining intangibles.
Does it signal that the approach to a ‘new era’ in healthcare is accelerating? If this is a preview, 2018 will be extremely interesting. Our ‘canary in the coal mine’ may tweet–or fall over on its perch, asphyxiated.
Some additional points to consider: (more…)
We have scant facts about the reported bid of US drugstore giant CVS to purchase insurance giant Aetna for a tidy sum of $200 per share, or $66 billion plus. This may have been in development for weeks or months, but wisely the sides are keeping mum. According to FOX Business, “an Aetna spokesperson declined to chime in on the reports, saying the company doesn’t “comment on rumors or speculation” and to Drug Store News, a CVS Health spokesperson did the same. Aetna’s current market cap is $53 billion, so it’s a great deal for shareholders if it does happen.
Both parties have sound reasons to consider a merger:
- CVS, like all retailers, is suffering from the Amazon Effect at its retail stores
- Retail mergers are done with the Walgreens Boots Alliance–Rite Aid merger going through considerable difficulties until approved last month
- The US DOJ and Congress has signaled its disapproval of any major payer merger (see the dragged-out drama of Aetna-Humana)
- It has reportedly had problems with its pharmacy benefit management (PBM) arm from insurers like Optum (United HealthCare), and only last week announced that it was forming a PBM with another giant, Anthem, called IngenioRx (which to Forbes is a reason why this merger won’t happen–this Editor calls it ‘hedging one’s bets’ or ‘leverage’)
- Aetna was hard hit by the (un)Affordable Care Act (ACA), and in May announced its complete exit from individual care plans by next year. Losses were $700 million between 2014 and 2016, with over $200 million in 2017 estimated (and this is prior to the Trump Administration’s ending of subsidies).
- It’s a neat redesign of the payer/provider system. This would create an end-to-end system: insurance coverage from Aetna, CVS’ Minute Clinics delivering care onsite, integrated PBM, retail delivery of care, pharmaceuticals, and medical supplies–plus relationships with many hospital providers (see list here)–this Editor is the first to note this CVS relationship with providers.
We will be in for more regulatory drama, of course–and plenty of competitor reaction. Can we look forward to others such as:
- Walgreens Boots with Anthem or Cigna (currently at each others’ throats in Delaware court)
- Other specialized, Medicare Advantage/Medicare/Medicaid networks such as Humana or WellCare?
- Will supermarkets, also big retail pharmacy providers, get into the act? Publix, Wegmans, Shop Rite or Ahold (Stop & Shop, Giant) buying regionals or specialty insurers like the above, a Blue or two, Oscar, Clover, Bright Health….or seeking alliances?
- And then, there’s Amazon and Whole Foods….no pharmacy in-house at Whole Foods, but talk about a delivery system?
UPDATED. In seeking an update for the Anthem-Cigna ‘Who Shot John’ court action about breakup fees (there isn’t yet), this Editor came across a must-read analysis in Health Affairs
Where the money and attention are going. The first generation of Quantified Self apps was all about viewing your data and storing it online in a vault or graphs…somewhere, usually proprietary. Your Pebble, Fitbit, or Jawbone tracked, you crunched the numbers and found the meaning. At the same time, there are wellness companies like Welltok, ShapeUp, Keas, Virgin HealthMiles, and RedBrick Health, usually working with companies or insurers, that use various methods (money, gamification, other rewards) to influence lifestyle and improve a person’s health in a quantified, verifiable, but general way. What’s happened? There are now apps that combine both data and behavior change, focusing on a specific but important (again) condition, coach to change behavior and verify results rigorously through clinical trials. Some, like Omada Health, prove through those clinical trials that their program successfully changes pre-diabetic indicators, such as weight loss, decrease cholesterol and improved glucose control–without medication. This results in big savings for insurance companies, one reason why a $50 million Series C was led by Cigna. Another model is to work with pharmaceutical companies to better guide treatment. Propeller Health with its asthma/COPD inhaler tracker is partnering with pharma GlaxoSmithKline on a digital platform to better manage lung patient usage, and surely this will go through a clinical trial. We will be seeing more of this type of convergence in medical apps. (The rebooted Jawbone Health Hub is moving in this exact direction.) The Forbes article, while short, is written by someone who knows the business of apps– the co-founder of the AppNext distribution/monetization platform. He does achieve his aim in making us think differently about the potential of ‘health apps’.
In light of yesterday’s decision and Cigna’s refusal to support the merger, however, Anthem has delivered to Cigna a notice terminating the Merger Agreement. Cigna has failed to perform and comply in all material respects with its contractual obligations. As a result, Cigna is not entitled to a termination fee. On the contrary, Cigna’s repeated willful breaches of the Merger Agreement and its successful sabotage of the transaction has caused Anthem to suffer massive damages, claims which Anthem intends to vigorously pursue against Cigna. (Editor’s highlight)
Now we have Anthem seeking damages from Cigna, which is a matched set with Cigna’s Funny Valentine of 14 February adding over $13 bn in damages to recoup the unrealized premium that shareholders did not earn as a result of the merger failure. Anticipating Anthem’s position even at that time, they flipped a wicked backhand in their statement:
Anthem contracted for and assumed full responsibility to lead the federal and state regulatory approval process, as well as the litigation strategy, under the merger agreement. Cigna fulfilled all of its contractual obligations and fully cooperated with Anthem throughout the approval process.
Our Readers will also recall that in March, Cigna joined with Anthem in supporting Anthem’s appeal to the DC Court of Appeals, an unusual move in this light, but one that further reinforced their non-saboteur ‘we’re just innocent victims here’ position. Cigna has not yet publicly responded. The AMA cheered its apparent complete victory in the name of doctors and patients.
They hate each other and have from the start. The real victims here are the policyholders–patients–of both companies, with both companies distracted by a legal battle. How different they are from both Aetna and Humana, which (at least publicly) politely ended all efforts after the merger denial, paid out their breakup, and went back to business, which right now presents challenges with ACA hitting the long-predicted Actuarial Brick Wall. (Aetna exiting ACA individual exchange plans in 2018)
Judge Laster’s plans for a restful summer on Delaware’s beautiful beaches and bays are likely to have gone the way of the mouse in Robert Burns’ poem ‘To A Mouse’ (stanza 7). He is not alone in Indianapolis or Bloomfield, Connecticut:
But Mousie, thou art no thy-lane,
In proving foresight may be vain:
The best laid schemes o’ Mice an’ Men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!
See you in court! Fortune, Modern Healthcare, Healthcare Dive. Interested in the previous details? See our coverage here, including our take on ‘whither the policyholders (patients) and corporate buyers’.
Is this The End? In this Editor’s opinion, yes, the petition to the US Supreme Court for a writ of certiorari notwithstanding. I stand by my Monday observation that “the Chancery Court decision to extend for 60 days–into July– is critical to any SCOTUS hearing, as it is unlikely there would be any merit in a review of a dead deal even if there is a potentially novel issue.
So Cigna can walk, pass ‘go’ and collect…? The open issue is now Cigna’s. There is a contractually mandated breakup fee of $1.85 bn. In February, their Funny Valentine also claimed over $13 bn in damages, on the grounds that Anthem had intent to harm Cigna’s business. Not so fast though–there will certainly be a fight over the damages. According to Bloomberg, “the judge said there was significant evidence Cigna may have violated the merger agreement by dragging its feet on antitrust concerns, which could entitle Anthem to “potentially massive damages.” The next phase of court actions will be around damages awarded to Cigna, if any; if so how much; and what is the final settlement. Dirty laundry and ‘Who Shot John?’ will fly in this same court, unless the settlement is quick and quiet, highly unlikely with these two noisy protagonists. If it remains substantial, Cigna could be shopping for acquisitions–or be a cash-rich acquisition target itself. More distractions for management.
Other mergers may be more palatable in a changing healthcare landscape…just not this one. Also Fortune. Interested in the previous details? See our coverage here, including our take on ‘whither the policyholders (patients) and corporate buyers’.
The War of the Payers grinds on. It’s altogether appropriate that this is the 100th anniversary of the US entry into the Great War. It was marked by a costly strategy that stalemated in the trenches and fatally ground into dust over four years men, machines, national treasuries, and ultimately a world order. In this Editor’s view, we are witnessing it writ large in Anthem’s, and to a lesser extent Cigna’s, actions after their merger was put paid to, first by a DC Federal District, then a District Appeals court, in a suit brought by the Department of Justice (DOJ) and 11 states.
Update: In Delaware Chancery Court May 8, Anthem requested a 60-day preliminary injunction to prevent Cigna from ending their merger. This was in a hearing on the February restraining order that Anthem received to block Cigna’s exit, filed in that court, from the merger after the District Court decision. Vice Chancellor Travis Laster said (after five hours of argument) that he would rule as soon as possible. Reuters New: Even Judge Laster admits it’s a ‘long shot’ that Aetna could find a path to success after two courts turned down the merger. Cigna’s legal spokesperson further amplified that, stating that it was ‘a near impossibility’ and that no “divestiture package would have solved” the merger’s problems. Bloomberg See the back story below
Watch for fireworks whatever the decision. Antitrust lawyer David Balto rated its potential “more fun than watching an episode of [the television melodrama] Dallas“. CT Mirror
The Chancery Court action is far more important than Anthem’s ‘petition for writ of certiorari’ to the Supreme Court of the US (SCOTUS) for review of the lower court ruling, citing the following:
- The 2 to 1 split in the court decision
- That the 1960s court precedents relied on by the District Court must be updated to today’s understandings of economics and consumer benefit
- And asserting that the loss of the merger “would limit access to high quality affordable care for millions of Americans and deny them more than $2 billion in medical cost savings annually” from the improved bargaining power of the new entity
(What perhaps was not included was that the merger partner, Cigna, wants out, out, out of the merger, which does tend to put a negative cast on the whole affair, as it did for the DC District Court.)
This Editor believes that the Chancery Court decision to extend for 60 days–into July– is critical to any SCOTUS hearing, as it is unlikely there would be any merit in a review of a dead deal even if there is a potentially novel issue. In the Reuters report, Anthem’s attorney mentioned the SCOTUS petition with a decision date by early July (the end of the term). He confirmed their intent to appeal to the DOJ for a ‘negotiation’ once the Trump Administration had its nominated officials in place. In Bloomberg, Cigna’s attorney’s position is that SCOTUS wouldn’t even consider the petition until September, which would put it past the extension and a decision into the next term.
Petitions for writ of certiorari are the Hail Mary pass–the last-ditch move–of court actions. (more…)
Update: The DC Court of Appeals released its decision Friday 28 April to deny the Anthem-Cigna merger, upholding the District Court’s decision. This was a 2 to 1 vote that was issued immediately prior to the 30 April merger expiration. It cited that the savings would not mitigate the anti-competitive effects in the national, large group, and local markets, mainly in Medicare Advantage. What has been under-reported is that 11 states plus DC originally joined with the DOJ to enjoin (stop) the merger. In the US system, any healthcare merger also has to be approved by the states, and this merger was a failure in this area. Remarkably, even the dissenting judge cited problems with hospitals and doctors due to the combined company’s negotiating power.
In any rational business deal, this would be the final nail in the coffin, especially with one of the merger partners already wanting to leave. Unless Anthem wants to appeal to the US Supreme Court, this merger has reached The End of the Line. Yet publicly Anthem is pursuing, at least for the time being. In a statement, Anthem expressed “We are committed to completing the transaction and are currently reviewing the opinion and will carefully evaluate our options.” Court decision in full. Healthcare Dive. MedCityNews.
To recap other recent developments: In February, the two insurers were filing and counter-filing each other in Delaware Chancery Court–Cigna to end their merger, Anthem to continue. Last Wednesday (19 April), Anthem filed an injunction to prevent the deal from expiring as per the merger agreement on 30 April. This injunction may be heard by the Chancery Court on 8 May, according to Anthem documents, but the main court documents are still under seal. (Law 360, via Healthcare Dive 24 April)
In prior Federal court actions, the Federal District Court in DC, based on action by the US Department of Justice, first denied the merger on 8 February on antitrust and anti-competitive grounds [TTA 9 Feb]. Unlike the also denied Aetna-Humana merger, it was publicly known, to the point where it was cited in the District Court decision, that the companies had significant disagreements on the merger. After the denial, Anthem wasted no time in appealing for a reversal of the decision with the DC Court of Appeals. Cigna lost no time in initially wanting no part of any appeal of the ruling by Anthem–and filed in Delaware Chancery Court for $13 bn in damages in addition to the contractual breakup fee of $1.85 bn [TTA 14 Feb]. Two days later, Anthem filed in the same court for an injunction to delay the merger agreement’s legal termination [TTA 16 Feb]. In March, Cigna surprisingly filed a brief in support of Anthem’s appeal (Healthcare Dive). Anthem has also denied rumors of an appeal to the Justice Department to save the merger (Reuters), which is now moot if it ever existed.
As the clock winds down, there remain rivers of bad blood and accusations of bad faith between these two organizations which will continue to be fought in court. Was this merger ever really necessary? No, and it never was, and in our 16 February/21 February update (see analysis), this Editor opines on why Anthem’s to-date persistence in pursuing this has been extraordinarily harmful–to their customers and to both companies.
Breaking News in The War of the Payers. Late on Wednesday (15 Feb), Anthem received a temporary restraining order to block Cigna from terminating the merger. Judge Travis Laster’s decision in the Delaware Court of Chancery maintains the “legal status quo’ until an April 10 hearing, where he will hear arguments from both sides. Anthem is now able to proceed with a fast-tracked appeal in the DC Federal Court of Appeals to overturn the February 8 DC District Federal Court decision that denied the merger. The sole extension in the merger agreement is to April 30, which will be preceded by the Chancery Court hearing 20 days prior. Bloomberg, WSJ (via 4-traders.com)
Wednesday morning, Anthem had filed a temporary restraining order in Chancery Court to keep Cigna from ankling the merger, which would make an appeal moot. It was positioned in their February 15 release as “a temporary restraining order to enjoin Cigna from terminating, and taking any action contrary to the terms of, the Merger Agreement, specific performance compelling Cigna to comply with the Merger Agreement and damages.” Cigna wanted out immediately, as we noted on Feb 14, seeing no hope in challenging the District of Columbia Federal District Court ruling as Anthem does, and took the position that the extension was invalid. They also sought an additional $13 billion in damages for shareholders beyond the $1.85 billion breakup fee.
The language Anthem used in Wednesday’s release to justify the filing was harsh: “…Cigna does not have a right to terminate the Merger Agreement at all because it has failed to perform fully its obligations in a manner that has proximately caused or resulted in the failure of the merger to have been consummated.” Anthem then accused Cigna of actively working to sabotage the merger: “Cigna’s lawsuit and purported termination is the next step in Cigna’s campaign to sabotage the merger and to try to deflect attention from its repeated willful breaches of the Merger Agreement in support of such effort.”Also Forbes
Bottom line: ‘Cigna, you’re a bad and faithless partner, but we are going to force a merger by any means possible anyway.’ Cigna blames Anthem for botching the merger approvals. Does prolonging any of this make sense?
Updated 21 Feb The differences started at the very beginning, with C-level disputes on who would lead a merged company and other areas of governance, so obvious (and public) they were cited by DC Federal District Judge Amy Berman Jackson’s Feb. 8 decision. David Balto, an antitrust lawyer in Washington, dubbed it ‘a shotgun marriage that went sour’ and not to discount Cigna’s case for damages due to business harm. After reading this article, you’ll wonder why they even started. Hartford Courant
Analysis Any merger between Anthem and Cigna has become, despite the language, a hostile takeover, worthy of Frank Lorenzo in this Editor’s airline days, or more recently, Carl Icahn. Having worked for Mr Lorenzo years ago, observing from my tiny chair way over on the sidelines, I learned that hostile takeovers and poorly thought-out mergers don’t work out well, in service delivery or economics, short or long term. They usually end badly, in bankruptcy court, with many tears shed and lives wrecked.
Memo to Anthem and Cigna–is this really necessary? Here we are dealing with insurance, and service to policyholders/members, affecting both their health and wealth. You both talk a good game about saving on medical costs, accelerating the progress of value-based care, delivering value to shareholders, and improving quality. But you hate each other and have from the start. Playing the game of Who Blinks First, and the distraction of a long and bitter legal battle, cannot be anything other than harmful to your members, employees, doctor and health system providers, your bottom lines, and your future.
This is not the airline business, beverages or detergent. It’s people’s lives here–have you both forgotten? Enough! Stop now! Get back to the business of healthcare!
Previously and related in TTA: Cigna to Anthem: we’re calling it off too, Aetna’s Bertolini to Humana: let’s call the whole thing off, Anthem-Cigna merger nixed
Breaking News Not quite so tuneful or amicable is today’s other Funny Valentine, which is now in Divorce Court. Cigna officially wants out, out, out of its merger with Anthem in a big, big, big way. In addition to the contractual breakup fee of $1.85 bn, Cigna is suing for additional damages exceeding $13 bn.
The action versus Anthem in the Delaware Court of Chancery seeks to lawfully terminate the merger (already denied in the DC District Court, TTA 9 Feb) and to stop Anthem’s current move to extend the agreement to 30 April. The additional $13 bn in damages would recoup the unrealized premium that shareholders did not earn as a result of the merger failure.
Anthem stated last week following the District Court decision’s release that it would appeal. Healthcare Dive reported that filing took place yesterday in the District of Columbia Federal Court of Appeals.
The Cigna release is intriguing for its careful air-clearing and positioning. In their view, the merger “had the potential to expand choice, improve affordability and quality and further accelerate value-based care”. Then a wicked backhand to Anthem: “Anthem contracted for and assumed full responsibility to lead the federal and state regulatory approval process, as well as the litigation strategy, under the merger agreement. Cigna fulfilled all of its contractual obligations and fully cooperated with Anthem throughout the approval process.’
Financially, Cigna stresses its positive outlook of 12 to 18 percent growth and ‘significant capital available for deployment’, as well as touting that their “approach of focusing on health care services over sick care financing has never been more critical.” There is also an updated statement about their share repurchasing authority: “Cigna is also announcing that its Board of Directors has expanded the company’s share repurchase authority to an aggregate amount of $3.7 billion. Management has determined that it is prudent to cap the amount of the repurchase to $250 million per quarter until there is more clarity with respect to the litigation with Anthem.”
No press response yet from Anthem. Stay tuned. Also CNBC
Earlier today: Aetna’s Bertolini to Humana: Let’s call the whole thing off
Updated–Humana exits individual exchange policy markets
Breaking News On this Valentine’s Day, a Romance Gone Flat. This morning, both Aetna and Humana formally announced the end of their merger, ruling out any appeal of the Federal District Court decision against it last month [TTA 24 Jan]. While positioned as a mutual agreement, Aetna CEO Mark Bertolini took the key quote in the release: “While we continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction. We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations. Our mutual respect for our companies’ capabilities has grown throughout this process, and we remain committed to a shared goal of helping drive the shift to a consumer-centric health care system.”
Humana’s release limited the announcement to one line and briskly moved on to what really counts–the financials. They will receive a breakup payment of $1 bn (after taxes, $630 million) from Aetna, with their 2017 financial guidance call/release taking place after 4pm EST today. Molina Healthcare, which was to receive certain Aetna Medicare Advantage assets from Aetna post-merger to relieve an over-dominance in some markets, will also receive an undisclosed termination fee. Ka-ching! CNBC, Hartford Courant (Aetna’s hometown paper)
UPDATED 2/14-16 Humana’s financial release announced an updated strategy, share repurchases, a nicely increased dividend–and, buried in the release, their exit effective 2018 from the ‘individual commercial’ business, which are individual policies offered in 11 states through the ACA-created Federal Marketplaces, citing an ‘unbalanced risk pool’ and losses estimated at $45 million for FY17. (By 2018, it may be a moot point.) It is ironic that Aetna’s exit from exchange policies due to unprofitability (or not, as it turned out to be in a few cases) proved to be one of the many bricks that broke the merger, in Judge Bates’ view. The truth is that Aetna and Humana are hardly alone in fleeing the exchanges, and that they have turned out to be unprofitable, as predicted.Consistent with their behavior over the 19 months of the proposed merger, both Aetna and Humana are publicly respectful, unlike….
These other two will never be one, something must be done? The demise of the Anthem-Cigna merger [TTA 9 Feb], now breaking up in Delaware Chancery Court, may mean a period of Payer Merger Quiet. Does this mean a refocusing on benefiting corporate and individual policyholders during the certain changes to come? Aetna may also proceed with a plan to move operations to Boston, which may affect hundreds of jobs, but has pledged to keep a presence in Hartford according to the Hartford Courant. Humana continues to be interested in investment opportunities and, from reports, another merger.
Goodness knows what the end will be! (Hat tip to Ira Gershwin for the title and the interpolated lyrics!)
Cigna must also be relieved after its reported ‘merger remorse’ after too many rumored disagreements with Anthem. According to Bloomberg, Cigna is sitting on $7 to $14 billion deployable capital, with the high end including extra debt. (Does this include the $1.85 bn breakup fee that Anthem owes to Cigna? Stay tuned on how Anthem tries to get out of this.) And the American Medical Association is beyond delighted (release).
Of course, there’s a lot of speculation about all that loose cash being deployed on new merger targets, which include the Usual Suspects of Humana, WellCare, Centene and Molina. Some free advice: all these companies should, for the next year, sit quietly and breathe deeply (as many employees who would be redundant in any merger are). They should also take care of business (TCB!), refocus on serving their policyholders, make their processes far less onerous on providers, and let it all shake out rather than rushing out to find out Who To Buy. (New Attorney General Jeff Sessions was sworn in this morning, and many changes are coming in both healthcare policy and the judiciary.) Also Neil Versel’s pointed take in MedCityNews.
- Anthem-Cigna still undecided by despite our 19 January report that the merger would be denied by Judge Amy Berman Jackson of the Federal District Court for the District of Columbia. Reading the SEC 8-K filed in July 2015, the extension to 30 April is automatic if the merger is not consummated or is non-appealable by 31 January. Likely this is to Cigna’s chagrin, as multiple sources over the two years this has been going on have detailed the growing disagreements between the two companies. As we noted in January, Anthem is also running up against ‘the Blues rule’ where it does business as a Blue Cross Blue Shield plan. The arguments that this internal competition is beneficial are pretzel-like indeed.
- A labor union investor, Westchester Putnam Counties Heavy & Highway Laborers Local 60 Benefits Funds, is suing Aetna for shareholder losses in the Federal District Court in the District of Connecticut (complaint here). The demand is for a jury trial and details what they believe to be false and misleading statements by management and not disclosing adverse facts.
Healthcare Dive is recommended for their two deeper dives: 1 Feb on Anthem-Cigna and the outcomes of both mergers, 30 Jan on the labor union lawsuit. The likelihood of either happening becomes more remote as time goes by, but there could be a surprise.