Study: ‘Big five’ insurers depend heavily on Medicare, Medicaid business

https://www.fiercehealthcare.com/cms-chip/big-five-insurers-medicare-medicaid-growth-profits?mkt_tok=eyJpIjoiT0RnMFkySXdPV0psWldSaCIsInQiOiJQSllQNlpcL2RhTzBDZFwvZXh5M1ZUSDJyUU5JTGw3dnh1QTVac01rZUFcL2pNUUhhMXBaQjBxK29ScHRrOHhsT3d6aE5pcFRJUWd4Sm0rYXA4S0RYVGE2N0czN2hhc2hsXC9EZk9mSGVLR0V1UFlwVDZpQmdkcll0eTBMNDUzTHlIZDIifQ%3D%3D&mrkid=959610&utm_medium=nl&utm_source=internal

Rising Stocks

Even as they’ve retreated from the Affordable Care Act exchanges, the country’s biggest for-profit health insurers have become increasingly dependent on Medicare and Medicaid for both profits and growth.

In fact, Medicare and Medicaid accounted for 59% of the revenues of the “big five” U.S. commercial health insurers—UnitedHealthcare, Anthem, Aetna, Cigna and Humana—in 2016, according to a new Health Affairs study.

From 2010 to 2016, the combined Medicare and Medicaid revenue from those insurers ballooned from $92.5 billion to $213.1 billion. The companies’ Medicare and Medicaid business also grew faster than other segments, doubling from 12.8 million to 25.5 million members during that time.

All these positive trends, the study noted, helped offset the financial losses that drove the firms to reduce their presence in the individual marketplaces. Indeed, the big five insurers’ pretax profits either increased or held steady during the first three years of the ACA’s individual market reforms (2013-2016). Their profit margins did decline during those three years, but stabilized between 2014 and 2016.

Not only do these findings demonstrate the “growing mutual dependence between public programs and private insurers,” the study authors said, but they also suggest a useful policy lever. The authors argued that in order to help stabilize the ACA exchanges, federal and state laws could require any insurer participating in Medicare or state Medicaid programs to also offer individual market plans in those areas.

Nevada has already done something similar: It offered an advantage in Medicaid managed care contract billing for insurers that promised to participate in the state’s ACA exchange. The state credited that policy with its ability to coax Centene to step in and cover counties that otherwise would have lacked an exchange carrier in 2018.

It’s far less certain, though, whether such a concept will ever be embraced at the federal level during the Trump administration, since its focus has been on unwinding the ACA rather than propping it up.

Either way, recent events underscore the study’s findings about how lucrative government business has become for major insurers. One of the main goals of CVS’ proposed acquisition of Aetna is to improve care for Medicare patients, which would help the combined company “be more competitive in this fast-growing segment of the market,” CVS CEO Larry Merlo said on a call this week.

Aetna CEO Mark Bertolini added that the transaction has “incredible potential” for Medicare and Medicaid members, as the goal is to provide the type of high-touch interaction and care coordination they need to navigate the healthcare system.

 

CVS merger with Aetna: Health care cure or curse?

https://theconversation.com/cvs-merger-with-aetna-health-care-cure-or-curse-88670?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20December%206%202017%20-%2089557547&utm_content=Latest%20from%20The%20Conversation%20for%20December%206%202017%20-%2089557547+CID_461096d86af0ad8c2eedceabf8b8a42f&utm_source=campaign_monitor_us&utm_term=CVS%20merger%20with%20Aetna%20Health%20care%20cure%20or%20curse

The announcement that CVS plans to acquire Aetna for US$69 billion raises hope and concerns.

The transaction would create a new health care giant. Aetna is the third-largest health insurer in the United States, insuring about 46.7 millionpeople.

CVS operates 9,700 pharmacies and 1,000 MinuteClinics. A decade ago, it also purchased Caremark and now operates CVS/Caremark, a pharmacy benefits manager, a type of business that administers drug benefit programs for health plans. CVS/Caremark is one of the three largest pharmacy benefits managers in the United States. Along with ExpressScripts and OptummRXTogether, these three control at least 80 percent of the market.

Should American consumers be happy or concerned about the proposed merger? As a professor of health law and bioethics, I see compelling arguments on both sides.

Good for consumers, or for the companies?

CVS and Aetna assert they are motivated by a desire to improve services for consumers and that the merger will lower health care costs and improve outcomes.

Many industry experts have postulated, however, that financial gain is at the heart of the deal.

CVS has suffered declining profits as consumers turn to online suppliers for drugs. Reports that Amazon is considering entry into the pharmacy business raise the specter of increasingly fierce competition.

The merger would provide CVS with guaranteed business from Aetna patients and allow Aetna to expand into new health care territory.

The heart of the deal

The merger would eliminate the need for a pharmacy benefits manager because CVS would be part of Aetna.

Pharmacy benefits managers, which sprang up in the early 2000s in response to rising costs of care, administer drug benefit programs for health plans. Most large employers contract with pharmacy benefits managers that are different from their health insurers.

Nevertheless, a consolidation along the lines of a CVS/Caremark and Aetna merger would not be unprecedented. The nation’s largest health insurance company, United Healthcare, operates its own pharmacy benefits manager, OptumRx.

Pharmacy benefits managers process and pay prescription drug claims, negotiate with manufacturers for lower drug prices, and can employ other cost-saving mechanisms. They thus act as intermediaries between the insurer and pharmacies.

They also make a lot of money. They have been controversial in recent years for how they do so, allegedly keeping a keener focus on profits than on patients.

The merger has not been finalized and requires approval from government regulators, which isn’t always easy to get. In 2016 the U.S. Department of Justice sued to block two health insurer mergers: one between Aetna and Humana and a second between Anthem and Cigna. The government objected on antitrust grounds, arguing that the mergers would unduly restrict competition. Both efforts were abandoned.

CVS and Aetna argue that their proposed merger is different. It is a vertical rather than a horizontal merger, which means that it would combine companies providing different services for patients (insurance and filling prescriptions) rather than two companies doing the same thing.

However, the Trump administration is currently opposing another vertical merger, that between AT&T and Time Warner. It is unclear whether the administration will likewise oppose the CVS/Aetna merger.

Benefits of a merger

There is some evidence that a merger could help consumers.

A merger could result in more negotiating power. Combining the power of a leading pharmacy and a top insurer may allow CVS/Aetna to negotiate more effectively for price discounts from drug and device manufacturers.

It also could cut out the middleman. PBMs themselves have been blamed for raising health care costs. They often do not pass on negotiated drug discounts to consumers, but rather keep the money themselves. In addition, many believe they “make money through opaque rebates that are tied to drug prices (so their profits rise as those prices do).” With the merger, CVS/Aetna would not need CVS/Caremark to function as an intermediary. Eliminating a profit-seeking middleman from the picture could lower consumer prices.

The merger could provide easy access to health care for minor injuries and illnesses. CVS said it plans to expand its MinuteClinics, walk-in clinics that provide treatment by nurse practitioners for minor conditions. Also, CVS said it would offer more services, such as lab work, nutritional advice, vision and hearing care, and more. Thus, CVS promises that its clinics will become “health hubs.”

Many patients could turn to these clinics instead of seeking more expensive care from physicians or emergency rooms. Furthermore, health hubs could provide “one-stop shopping” convenience for some patients. This could be particularly beneficial to elderly individuals or those with disabilities.

Another benefit could be improved and expanded data analytics, which could result in better care. Combining information from patients’ health insurers with that of their pharmacies, including nonprescription health purchases, may promote better care. CVS pharmacists and health hub providers would be able to monitor and counsel patients regarding chronic disease management, pain management, prenatal care and other matters. Such attention could reduce the risk of complications and hospitalizations and thus also decrease expenditures.

Increase of other risks?

Skeptics argue that the CVS/Aetna merger is unlikely to yield cost savings and improved outcomes. They note that mergers in the health care sector generally lead to higher, not lower, prices and worry about other adverse consequences.

If the market shrinks to fewer pharmacy benefits managers because of consolidation, costs may actually increase. The remaining pharmacy benefits managers may have little incentive to compete with each other by demanding discounts from drug companies. As noted above, they may actually profit from higher pharmaceutical prices and thus welcome increases.

After the merger, Aetna may require those it insures to use only CVS pharmacies. In addition, it may require individuals to turn to CVS MinuteClinics for certain complaints even if patients prefer to visit their own doctors. Such restrictions would mean less choice for consumers, and many may find them to be very distressing.

The merger could also decrease competition and bar other companies from entering the pharmacy market. For example, Aetna may refuse to cover prescription drugs that are not purchased from CVS. In that case, Amazon may find it extremely difficult if not impossible to break into the industry. Less competition, in turn, often means higher prices for consumers.

It is difficult to predict the precise consequences of a CVS/Aetna merger. One way or another, however, its impact will likely be significant.

 

CVS Health to acquire Aetna for $69B: 5 things to know

https://www.beckershospitalreview.com/payer-issues/cvs-health-to-acquire-aetna-for-69b-5-things-to-know.html

Image result for CVS Health to acquire Aetna for $69B: 5 things to know

Image result for CVS Health to acquire Aetna for $69B: 5 things to know

CVS Health inked a definitive merger agreement to acquire all outstanding shares of Aetna for roughly $69 billion in cash and stock.

Here are five things to know.

1. The deal, unanimously approved by the boards of directors of each firm Dec. 3, is one of the largest transactions this year. It values Aetna at about $207 per share, higher than previous estimates of $200 to $205 per share. When including the assumption of Aetna’s debt, the transaction totals $77 billion.

2. Upon closing, Aetna’s Chairman and CEO Mark Bertolini will join CVS Health’s board of directors, along with two other Aetna leaders. Aetna will operate as a standalone business unit under the CVS Health umbrella, and the insurer’s management team will helm the subsidiary.

3. The companies said the deal will provide localized, community-based care across CVS Health’s 9,700-plus pharmacies and 1,100 clinics. Sources familiar with the deal told Reuters CVS Health plans to significantly extend health services at its pharmacies under the merger.

4. The transaction is slated to close in the second half of 2018. It is subject to regulatory approvals.

5. Rita Numerof, PhD, president of Numerof & Associates, said in an emailed statement to Becker’s Hospital Review, “Having the combined market clout puts Aetna more in a position akin to UnitedHealthcare in its ability to leverage an integrated PBM in negotiating prices and establishing preferred tiers with manufacturers.” She added, “With CVS’s large and growing clinical services footprint, Aetna can steer patients to CVS pharmacies and clinics — in many cases avoiding the costs of higher ER or other outpatient services. The merger can make expanded CVS services in-network and others out-of-network, putting additional pressure on conventional health systems to lower the costs of their outpatient services.”

The central questions behind the CVS-Aetna deal

https://www.axios.com/questions-behind-cvs-aetna-deal-2502001650.html

Image result for The central questions behind the CVS-Aetna deal

CVS Health’s proposed $66 billion buyout of Aetna, scooped by the Wall Street Journal, would create a sprawling health care empire with roughly $240 billion of annual revenue. Only Walmart would be larger, in terms of annual revenue among U.S. companies.

Looking ahead: Health insurance, prescription drug coverage, quick clinic visits and behind-the-scenes negotiating on drug prices would all be under one umbrella. But a slew of questions surround any potential deal, and the companies aren’t commenting on “rumors or speculation.”

The proposed transaction highlights the desire within the health care industry to consolidate more. Acquiring Aetna would give CVS even more patient data, as well as more leverage to get lower drug prices from pharmaceutical companies. But it’s not a slam dunk the deal would reach the finish line.

The biggest potential obstacles:

  • Antitrust: CVS and Aetna don’t have a lot of overlapping businesses, making it appear the deal would have better odds of passing antitrust muster than Aetna’s failed deal for Humana. The companies do, however, have sizable footprints in Medicare Part D prescription drug plans. They have 7.6 million combined Part D members, according to the latest federal data, which equates to about 17% of Medicare’s Part D enrollment.
  • Savings: The companies would presumably tout savings (i.e., money saved from layoffs and consolidating vendor contracts). But would the combined CVS-Aetna undoubtedly lead to lower health insurance premiums and better deals for drugs at the pharmacy counter? This is arguably the most central question.
  • Other relationships: CVS just signed a deal with Anthem, a major insurance competitor to Aetna, to run some of the operations of Anthem’s new pharmacy benefit manager. The Aetna buyout would complicate CVS’ new Anthem agreement.
  • The Trump wild card: Trump made it clear in his latest executive order that his administration will “focus on promoting competition in health care markets and limiting excessive consolidation.” The CVS-Aetna deal is a direct challenge to that order.
  • What’s old is new again: Health insurers used to own pharmacy benefit managers but sold them off several years ago. Now they are integrating back together. Will they eventually splinter off again if Wall Street demands it?

We’re on the brink of a health care M&A binge

Related image

CVS Health is extremely close to cementing its $66 billion takeover of Aetna, the Wall Street Journal reported yesterday. It’d be the biggest deal of the year, and Axios’ Bob Herman notes that more health care deals could also be in the offing:

  • Humana recently altered its executive compensation and severance policies in case the health insurer is bought out or merges with another company. Wall Street views Humana as a ripe acquisition target for Cigna because of Humana’s huge Medicare business.
  • Express Scripts is about to lose its large, lucrative pharmacy benefits contract with Anthem. Express Scripts’ CEO said at a Forbes health care conference yesterday he “would be open” to striking a merger deal with a health insurer or partnering with Amazon.
  • Catholic Health Initiatives and Dignity Health, two large hospital systems, likely will provide more details into their merger discussions when they chat with bondholders next week.

Get smart: Health care mergers and acquisitions have been in vogue for years, and big deals would be almost certain to happen if Congress also passes its tax cut bill — which would give companies more money to play with through vastly lower corporate tax rates.

Image result for axios

Aetna’s profits rise 39% despite revenue shortfall

https://www.beckershospitalreview.com/payer-issues/aetna-s-profits-rise-39-despite-revenue-shortfall.html

Image result for aetna headquarters

Aetna saw revenues dip 5 percent in the third quarter of fiscal year 2017 compared to the year prior, but cost containment allowed the insurer to boost net income.

The insurer reported revenue of $15 billion in the third quarter ended Sept. 30, down from $15.8 billion in the same period a year prior. Aetna cited lower premiums in its healthcare segment, fewer members in its ACA exchange business, and temporary suspension of the health insurer fee as contributors to the decline.

However, tapering expenses offset revenue losses. Aetna witnessed expenses drop 7 percent from $14.7 billion in the third quarter of 2016 to $13.7 billion in the same period this year. The insurer attributed the decline to temporary suspension of the health insurer fee, expense management efforts and lower transaction-related cost following the collapse of its proposed merger with Humana in February.

Overall, the payer achieved net income of $838 million in the third quarter of 2017, up 39 percent from $604 million in the same period last year. Aetna also saw its commercial medical loss ratio, or the amount of money it spends on medical claims, shrink year over year from 83.8 percent to 81.4 percent.

Aetna’s earnings report did not mention CVS Health’s proposed $66 billion bid to acquire the company.

CVS considers acquiring Aetna

 Image result for CVS considers acquiring Aetna
Related image

CVS has reportedly put in an offer to buy Aetna.

CVS Health has proposed buying Aetna for $200 per share, the Wall Street Journal reports. That would value the transaction at more than $66 billion.

Why it matters: This would be a gigantic buyout offer, one of the biggest of the year, if it goes through. CVS and Aetna, which already have a pharmacy contract together, would create a behemoth health care company with roughly $240 billion in annual revenue and substantial bargaining power over hospitals, drug makers and employers. The deal also would displace UnitedHealth Group as the largest health insurer and pharmacy benefits manager.