On October 19, 2015, Aetna Inc. and Humana Inc. announced that their respective shareholders had approved Aetna’s proposed acquisition of Humana, which was originally announced on July 3, 2015. Pursuant to the proposed acquisition, Aetna will purchase all outstanding shares of Humana for a combination of cash and stock valued at $37 billion. Aetna is currently the third largest health insurer by revenue, and Humana is the fourth, and the proposed merger will result in the combined company being the second largest, behind UnitedHealth Group. It will have over 33 million members, and provide coverage to 26% of Medicare Advantage enrollees nationwide, making it the largest Medicare Advantage insurer in the country. As such, this merger will have a significant impact on both physician groups and pharmacies.
This is not the only major merger occurring in the health care marketplace. Centene has also recently announced that it is acquiring HealthNet, and CVS recently acquired the Target pharmacy business. Additionally, Anthem and Cigna have also discussed merging – which, along with the Aetna/Humana merger, would result in 42% of the nation’s population being covered by the three largest companies.
On the physician group side, the consolidation of insurance companies and the creation of “Mega Carriers” will likely have a negative effect, as it will result in the increase of the bargaining power of the Mega Carriers and a decrease in the bargaining power of physician groups. When a large portion of a group’s patient population is covered by a Mega Carrier, the Mega Carrier will be able to more confidently impose lower rates to the group on a “take it or leave it” basis. Further, whereas certain physician groups may be able to survive a network termination by a smaller insurance company (for example, due to referrals to out-of-network providers), such group may not be able to sustain a termination by a Mega Carrier.
On the pharmacy side, the creation of Mega Carrier adds another complication in Pharmacy Benefit Manager (PBM) relationships with pharmacies. Aetna currently uses CVS/Caremark as its PBM, whereas Humana administers its own in-house PBM (also called Humana, or sometimes, “Argus”). Aetna has not yet announced what PBM the merged company will use – whether it will move all business to Humana’s PBM, or whether it will continue to use CVS/Caremark and migrate all business to that PBM (or some combination of the two options). Network terminations have been on the rise for the last year and a half. This merger could be problematic for pharmacies that have been terminated from one of the two networks, as it could potentially expand the scope of the termination to patients of both Humana and Aetna, rather than just one of them.
The completion of the merger remains subject to customary closing conditions, including the expiration of the federal Hart-Scott-Rodino antitrust waiting period and approvals of state departments of insurance and other regulators. Aetna has indicated in its press releases that it expects that the transaction will be completed in the second half of 2016. If the merger does proceed as planned, termination from the consolidated company would spell major trouble for any healthcare provider. If you have received a termination notice from Humana, Aetna, or CVS/Caremark, or any other insurer or PBM, contact Frier Levitt today.
