Aetna-Humana/Anthem-Cigna: Is This the End of Mega Mergers?

When the Aetna-Humana and Anthem-Cigna mega-mergers were announced in 2015, First Report Managed Care Advisory Board member Anthony Morreale, PharmD, told us, “I think this is the beginning of the creation of an oligopoly. Ten years from now you’re going to have just a few giants dominating the market.”

A year and a half later, both deals—reportedly worth approximately $82 billion when combined—are all but dead after the US Department of Justice (DOJ) antitrust division sued to block them, and federal judges ruled in the DOJ’s favor. Aetna and Humana immediately decided against appealing, and amicably terminated their $34 billion merger. 

The Anthem-Cigna breakup has been more tumultuous. Technically, the deal is not dead because Anthem wants to move forward, and has appealed to overturn the federal ruling. Cigna wants out, and is suing Anthem to recover a $1.85 billion break-up fee, as well as $13 billion in shareholder damages. Meanwhile, Anthem has countersued to prevent Cigna from exiting the proposed merger; that case is scheduled to be heard in late March. Regardless, most experts believe that the proposed marriage between Anthem and Cigna will be called off, given the dysfunction that has existed between the two companies almost from the start of their announced pairing. 

This begs the question: Has the march toward an oligopoly been thwarted, or is this a mere speed bump along the way? Most of the experts we spoke with believe it is the latter. Just as water seeks its level, consolidation and growth in some form is going to occur. 

“The fact is, even if the deals don’t go through as proposed, these companies will find other ways to get bigger,” noted Dr Morreale, assistant chief consultant for clinical pharmacy services and health services research, Department of Veterans Affairs, in 2015. “It’s capitalism at work. If there is room for efficiencies and market grab, these companies are going to seize that.” 

Fellow advisory board member Gary Owens, MD, president of Gary Owens Associates, agreed with Dr Morreale then, and still does today. “It’s not so much a desire to [grow] as much as it’s a necessity,” he recently told First Report Managed Care. “They need to create economies of scale.”

Barney Spivack, MD, national medical director of Medicare case and condition management at OptumHealth, also concurred. “Bigger is viewed as better in terms of negotiating ability and clout with enlarging physician/provider groups,” he explained. Additionally, “market consolidation, at least locally, has been associated with the ability to charge higher prices. There are also clear benefits in terms of information technology, and positioning, at least as viewed by the consumer.”

What Now? 

The recent developments in both cases have left industry stakeholders wondering what will happen next in terms of large-scale health care business growth.

“If you can’t buy your way to size, you may have to grow your business organically,” Norm Smith, president of Viewpoint Consulting, Inc explained. “Insurance companies have money and business leadership already, and those are two very necessary skill sets for growing a business.”

Diversification will be essential going forward, according to F Randy Vogenberg, PhD, RPh, principal at the Institute for Integrated Healthcare. Big payers “have to diversify and do a better job of managing risk. They have to look not only vertical among insurers, but horizontal across the health care system.” 

One way of doing that, suggested Mr Smith, is to acquire regional integrated delivery networks (IDNs), citing Partners Healthcare of Boston as an example. This regional system was founded by Brigham and Women’s Hospital and Massachusetts General Hospital. “Currently, it is made up of a conglomeration of payers, [but] I don’t see why a big insurer wouldn’t be interested in a group like that,” he explained.

Partners has its own insurance product, so the payer would be purchasing lives, which was a primary goal of the recently quashed mergers. “I think it’s doable, and it’s scalable,” Mr Smith said.

Moreover, he explained that this growth strategy is more likely to pass anticompetitive tests. The proposed mega-mergers “were seen as anti-competitive when you got down to the individual markets. You were going to have just one payer in some places.” But an organization like Partners has competitors—in its case Harvard Pilgrim, Tufts Health Plan, and other IDNs.     

Mr Smith said he wonders if payers might set their sights on even larger IDNs that span several states, such as Intermountain Healthcare, based in Salt Lake City. “These IDNs already have sizeable populations. Acquiring members on a ‘wholesale’ basis is a great way to grow revenue, versus signing up members one at a time.” 

Systems such as Partners and Intermountain, noted Dr Spivack, also a member of the First Report Managed Care Advisory Board, were originally set up to “bypass the health insurance companies, further impacting the landscape.” He added: “From what I have seen, the push has been to acquire, if not merge.” Dr Spivack said he expects this to continue and even accelerate in the wake of the blocked mega-mergers. 

Spotlight on Medicare

At a high level, the mergers that would have created two behemoths from four major commercial health insurers were blocked because the federal government—and judges who sided with them—saw the deals as anticompetitive. This despite the insurers’ argument that bigger would have meant improved economies of scale and necessary negotiating strength with consolidated hospital systems. 

The Anthem-Cigna union was thwarted because the federal judge agreed that allowing the merger would have made it difficult for large employers to get competitive rates. Meanwhile, the reasons for blocking the marriage between Aetna and Humana are a bit more nuanced, and have implications for the Medicare program. Both companies have significant market share in Medicare Advantage plans, so they were banking on demonstrating that their product competed with traditional Medicare, giving seniors sufficient choice. 

But the judge in the case ruled that there was little evidence that Medicare Advantage and traditional Medicare plans compete. Evidence shows that Medicare Advantage customers who switch tend to move to other Medicare Advantage plans, not traditional Medicare, preferring the features of those programs.

“The decision has great relevance for Medicare Advantage plans,” Dr Spivack said. Indeed, ruling the other way would probably have led to a flurry of acquisitions of Medicare Advantage plans nationwide. Now, however, “there is likely not to be any significant move to consolidate different Medicare Advantage plans, as this would be seen as anticompetitive.” 

Innovative Growth Strategy 

While the lives added through acquiring an IDN would help improve payers’ negotiating stance, Dr Vogenberg said he believes more important factors are at play. 

“The issue in today’s marketplace is less about negotiation [strength] and more about performance—delivering value-based health on a population level,” he said. 

This dovetails with what Arthur F Shinn, PharmD, president of Managed Pharmacy Consultants, LLC, told us in 2015. Back then, he said he hoped that government approval of the proposed mega-mergers would be contingent on more stringent, evidence-based quality measures. “If I had anything to do with it, I would make that a mandate for approval,” he said. 

Dr Vogenberg noted that while the goal of quality measures—to improve outcomes—is noble, the present system of quality measure mandates is not working. 

“The current path forward is not sustainable, nor is it delivering on the promise of improved population health from a business perspective,” he said. Thus, he suggested that managed care stakeholders look less at what big insurers will do next, and pay more attention to potential disruption—be it from one of those payers or another entity. “The bigger question is, what is the innovation or disruption that has not yet occurred that will move health care in a more sustainable trajectory going forward?” 

Moreover, Dr Vogenberg explained that because “the majority of health care plans are purchased or run by employers, not the federal government, it is in the anticipated disruption of the commercial market that innovators and purchasers are now turning to.” Some potential disruptions, he said, are already in the marketplace, such as telemedicine solutions. Others appear more futuristic, but are the kinds of things Dr Vogenberg said have the potential to be more impactful than two companies merging. 

“For example,” he said, “pharmacists and physicians would be susceptible to practice scope disruptions in drug ordering, dispensing, and fulfillment stemming from newly-approved drug printing devices.” 

Still, these disruptions—even telemedicine—appear to be a long way off from being truly impactful, and most stakeholders are asking questions about what’s next, as in the coming year, or the next four years.  Does it matter that it was the Obama Administration’s DOJ that successfully blocked both mega-mergers? Will the new Republican administration be friendlier, and might that be the reason Anthem is holding out? 

“While it is true that regulatory oversight may be decreased under this administration, I am not sure that this will apply to health care as it might for financial services,” said Dr Spivack.

What’s Next?

Dr Vogenberg explained that President Donald J Trump’s desire to increase competition among insurers as a means of lower health care premium rates will keep these deals, or future deals like them, from moving forward.

“There will be nuisance litigation and posturing, but fundamentally it was over at the election,” Dr Vogenberg said. For that reason, the big insurers have to move on. “They don’t have time to litigate a matter that is very unlikely to be successful. Furthermore, they owe their stockholders and investors results today, which means they have to find new strategies.” 

The new president is likely to back the rulings, given his desire to increase competition. On the other hand, some analysts believe the Trump Administration might want to reach a settlement with large insurers to gain support for  their upcoming health care plan.

Mr Smith noted that the volatile political environment surrounding health care right now makes it difficult to predict the future of the insurance market. 

“Our present administration so far is not a rock of stability,” Mr Smith explained. “As Congress rolls out a revised health system, consistency in government will be essential. Uncertainty is not what you’re looking for when your business is based on actuarial findings.” 

Mr Smith’s criticism of the folks in Washington was bipartisan. “Whether Democrat or Republican, what’s important is steady, predictable government, and the rule of law is necessary. Let’s hope this administration is more consistent and predictable than the last as it rolls out new rules.”