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?
Also Chicago Tribune, MedCityNews.
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
Breaking News. Not with a bang, but a whimper.
Late Wednesday 8 Feb, the anticipated decision derailing the $54 million Anthem-Cigna
merger was released by the Federal District Court, District of Columbia. Judge Amy Berman Jackson’s decision denying the merger was very much along the anti-competitive and anti-trust rationales contained in the 19 January advance report
by the New York Post
. There’s little that hasn’t already been explored in our prior reports, so we will leave the rehashing to sources like CNBC
. The general consensus is that the four Big Payer Merger participants (Aetna
merger denied [TTA 24 Jan
]) will be moving on, perhaps to their advantage as most of the premises for merging, based on ACA’s effects, are expected to change, drastically.
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.
Breaking News from Washington Judge John B. Bates of the Federal District Court for the District of Columbia ruled today (23 Jan), as expected, against the merger of insurance giants Aetna and Humana. Grounds cited were the reduction in competition for Medicare Advantage plans, where both companies compete. “In this case, the government alleged that the merger of Aetna and Humana would be likely to substantially lessen competition in markets for individual Medicare Advantage plans and health insurance sold on the public exchanges.” The decision could be appealed in the US Appeals Court for the DC Circuit, or could be abandoned for different combinations, for example a rumored Cigna-Humana merger, or smaller companies in the Medicare/Medicaid market such as Centene, WellCare, and Molina Healthcare. Certainly there is money about: Humana would gain a $1 bn breakup fee from Aetna, and Cigna $1.85 bn.
No decision to date has been made in the Anthem-Cigna merger, but the general consensus of reports is that it will be denied by Federal Judge Jackson soon. [TTA 19 Jan]
Healthcare Dive, Bloomberg, Business Insider, Benzinga
Of course, with a new President determined to immediately roll back the more onerous regulatory parts of the ACA, in one of his first Executive Orders directing that Federal agencies ease the “regulatory burdens” of ObamaCare on both patients (the mandatory coverage) and providers, the denial of these two mega-mergers in the 2009-2016 environment may be seen as a capital ‘dodging the bullet’ in a reconfigured–and far less giving to Big Payers–environment. FoxNews
Breaking News. The anticipated shoe has dropped. With all the US news concentrating on the Republican convention, the US Department of Justice, late today, without much fanfare beyond the presser, lobbed lawsuits at Aetna and Anthem to stop their respective acquisitions of Humana and Cigna. US Attorney General Loretta Lynch was joined by Principal Deputy Associate Attorney General William Baer, who had been the DOJ’s point person for this anti-trust review.
According to CNN’s report, Mr Baer said “the two mergers would leave consumers at risk by reducing benefits and raising premiums. He also stressed that the most vulnerable would be hit the hardest and that competition would be reduced. “These are so-called solutions that we cannot accept,” Baer said. He added that the mergers are a “convenient shortcut to increase profit for these two companies,” and that the DOJ had “zero confidence” that they would benefit consumers.”
Reuters reported that Aetna and Humana expect “to vigorously defend the companies’ pending merger,” Anthem’s response was “more muted”, as industry observers expected, as it has been more problematic not only in size and with Medicare Advantage divestiture, but also with reports of disagreements on management and governance.
If these mergers were successful, the Big Five in US health insurance would be reduced to the Big Three, with the $48 bn Anthem-Cigna matchup besting UnitedHealthCare for the #1 pole position with 45 million covered persons.
Why is this important to those of us in telehealth, telemedicine and telecare? We are still seeking ‘who pays for it’ (remember our Five Big Questions/FBQs?) and when five becomes three, and things are unsettled….negotiations grind to a halt. (This Editor will reference the post-2008 years where health tech US deals and development came to a screeching stop as we waited to find out what was in that mystery ACA bill. Recovery/reset took years….)
Earlier reports via Bloomberg News and Reuters noted that both sets of insurance companies faced substantial opposition from the start. (more…)