Tag / Cigna

by Frank Maduri

Healthcare Mergers: The Impact On Patients

CVS and Aetna are just the latest in a list of healthcare M&A activity that is on the deck for the industry. The changing tide of the industry is alarming to some groups of people who see a future of less competition and patient choice. That can be a significant “red flag” for regulators, though so far it does not seem to have derailed any of these acquisitions from moving steadily forward.

The mega-merger that was long rumored between Cigna and Express Scripts was approved on Monday by the Department of Justice. This deal is set to pave the way for the CVS – Aetna proposed merger valued at $69 billion. The reports out of the financial media outlets are that CVS and Aetna would have to divest some holdings to satisfy anti-trust regulations.

Cigna – Express Scripts consolidating creates a combination of a major health insurer with a Pharmacy Benefit Manager (PBM) which they contend will make an environment to decrease costs for the patient. However, some feel that it will have the reverse effect.

Some feel that this deal and the corresponding proposed combination of CVS-Aetna will limit patient choice and force consumers into formularies where they will be faced with having to pay more for prescription drugs in the future.

This activity all comes amid the backdrop of Amazon making a concerted and deliberate push into the healthcare space with their partnership with Berkshire Hathaway and JP Morgan Chase to attempt to reinvent employer provided healthcare provisions. In a subsequent transaction, Amazon purchased the burgeoning mail order prescription provider, PillPack, for $1 billion over the summer.

Furthermore, Amazon announced a joint venture with Xealth which provides the internet shopping giant with a foothold into the healthcare services delivery system. The rest of the industry took notice, and in response Aetna entered into negotiations with CVS, Cigna began talking about synergies with Express Scripts, and Walgreens made certain deals of their own with national insurance carriers on a regional basis such as United Healthcare and Blue Cross & Blue Shield.

In my prior work in the M&A space, I have covered the premise of horizontal and vertical mergers. The vertical merger is one where the two companies may be in the same general industry space, but not in direct competition with one another. A good example of this type of merger was the AT&T – Time Warner deal. They both have business holdings in telecommunications and in television specifically (AT&T owns DirecTV and Time Warner owns multiple cable TV outlets) but they were viewed by the government as vertical in nature.

The example of a horizontal merger would be when Walgreens attempted to consolidate and merge with Rite Aid. I covered that with a series of articles and eventually, the federal regulators struck down that merger because it was between two businesses directly competing in the same industry space: retail drug store. The merger was seen, if approved, to have the effect of limiting consumer choice and potentially increasing costs to the consumer. It would have limited consumer choice in drug stores and the consolidation could have closed locations that were once part of Rite Aid, forcing people in rural areas to travel further to get to a pharmacy.

The CVS – Aetna deal hinges on the sale of Medicare Part D related plans that would most certainly need to be sold off to pass the regulatory standards in place. Some consumers feel that the deal would unfairly limit the choice of pharmacies because if they hold Aetna employer-based benefit plans, they would be funneled to CVS to fill their prescriptions. This could also be seen as giving CVS “a captive” group of consumers.

The Cigna – Express Scripts deal should help them compete against the Amazon healthcare joint venture that will continue to shape the landscape of the industry in the future. The potential impact of all of this M&A activity on the consumer has yet to be determined. Please check with your healthcare provider to make sure that you are aware of any changes this may have on your individual prescription plan coverage.

(Some background information courtesy of Bloomberg News, The Wall Street Journal, CNBC, and Reuters)

by Frank Maduri

Follow Up: Anthem Merger Bid For Cigna Is Scuttled

A federal appeals court upheld the earlier decision of a lower court regarding the proposed merger of two of the largest healthcare insurance providers: Anthem and Cigna. The court opinion cited concerns about cost impacts to the consumer and the lack of competition in the healthcare insurance marketplace as the main issues with the proposed deal.

The backlash against this proposed marriage of two of the top three largest insurance providers had reached a critical mass in recent days. The pressure came from a variety of interested parties within the healthcare industry as well as from consumer interest groups.

The situation is further complicated because Anthem and Cigna are currently in a lawsuit against one another regarding that “breakup fee” clause that I detailed in my earlier coverage of this proposed mega-deal. The clause entails that Anthem pays Cigna $1.85 billion if this merger was to be derailed and not come to fruition.

Cigna is suing Anthem demanding payment of the fee. Anthem is counter-suing trying to force Cigna to stay in the merger deal. The resistance from several states and the federal government caused Cigna to look for ways to exit the deal. This situation has grown ugly very quickly, and the legal team for Anthem seems undeterred by this ruling. They are insisting they are going to find a way to gain approval for this merger.

Anthem and their legal team can spin this any way they would like, and they have 1.8 billion reasons why they are looking to pursue this merger. The reality is that the proposal is all but scuttled. The appeals court decision today affirms that and should be viewed as an indication that this proposal should be abandoned.
The lawsuits are another whole matter that is entirely separate and could take several different routes throughout that convoluted process. The regulatory reviews from the different government agencies ultimately had concerns about pricing and the monopolistic impact that the merger would have on consumer choice.

The combined Anthem/Cigna also would have been a major player in the provision of healthcare insurance to the business community. The potential influence on pricing and the subsequent effect that would have on the employee/employer splits on cost sharing for company provided healthcare coverage was a huge issue for certain states as well as the U.S. Court of Appeals.

This development comes just a few months after the Aetna – Humana proposed merger also collapsed during the review process. These mergers are the direct result of the consolidation route to optimize efficiency and maintain profitability during healthcare market changes due to the Affordable Care Act.

It should be noted that the proposed new healthcare plan changes are not fully known at this time, so the exact impact on the market is also unclear. The relentless pursuit of greed by these corporations in the healthcare industry is at the center of this particular situation.

The future of the Anthem/ Cigna proposed merger from the judicial perspective is either a “challenge” ruling on this verdict, which means that they can re-appeal this decision from the federal court. The other option is to attempt to take the case to the U.S. Supreme Court and see if they are granted a writ of certiorari to move that proceeding forward.

Some industry analysts and media types feel that a writ of certiorari is unlikely in this situation. The component that makes a Supreme Court review possible is the money involved with two companies of this size and the high powered legal representation that is involved in this case. It should be interesting to see how Anthem plans to move forward because they have the most at stake with the breakup clause taken under consideration.

The merger, for all intents and purposes, is opposed by about a dozen states and the federal court system as well as the regulatory bodies involved. This creates conditions where it is unlikely that it moves forward. The court ruling today cited this decision under the framework that it is a victory for the consumer because of the potential impact on pricing the combined entity could have exerted.

In my view, from covering mergers, I am not a proponent of monopolies. I also have learned that the bigger the merger in size, the more combustible it is when it becomes unraveled. This proposal is setback significantly, but it is not over yet. Anthem will not go quietly into the night paying a fee to Cigna, and Cigna is going to want the money from Anthem based on the agreement they had in place. It is going to get ugly in the weeks ahead, but most likely these two companies will be going toe-to-toe and not on their way to a monopoly styled merger.