Industry acquisitions: What’s the latest?

Following weeks of intense merger talks among the largest health insurers, Aetna announced that it had agreed to buy Humana for $34.1 billion in cash and stock. Humana had been reported to be exploring a sale since May. The combined company would have projected 2015 revenues of $115 billion, with about 56 percent coming from government programs Medicare and Medicaid.

Industry analysts expect the nation’s largest managed care organizations (MCOs) to continue to consolidate. MCOs are consolidating to diversify their businesses and to add growth, because the employer group business has flat lined. To grow, insurers need to beef up high-growth government programs markets or add business through acquisitions. In addition, the recent government overhaul of the health care market (Affordable Care Act) has put added pressure on insurers to cut costs. 

Humana serves 3.2 million members through Medicare Advantage. Combined with Aetna’s 1.26 million Medicare Advantage members, the merged company would have the biggest market share in the program, passing UnitedHealth. Humana is also a leading provider of Medicare Part D drug plans, with about 18 percent of the market share.

The combined entity will become the second largest health insurance company by revenue, behind UnitedHealth. Humana’s strong Medicare franchise will help diversify Aetna’s business, whose core business is selling coverage to employers.

The merger will have to overcome a federal antitrust review, which determines whether competition would be overly harmed by a merger. Aetna and Humana are currently the two main competitors in many parts of the United States. So regulators may approve the deal but require that the combined company divest some of its Medicare business.

Implication to the pharmacy benefit management (PBM) landscape

While CVS/Caremark currently serves as the PBM for Aetna, the company has the option to exclusively use Humana’s in-house PBM.  If that were to happen, CVS/Caremark’s market share would drop from about 23% today to about 17%. Humana’s PBM would become the nation’s fourth largest PBM, behind Express Scripts, Optum and CVS/Caremark. The CVS/Caremark contract is currently scheduled to expire in 2019.

The combined Aetna/Humana entity, if it maintains its own in-house PBM, will have a similar medical/pharmacy structure and capability as Optum/Catamaran and Blue + Prime.

The industry continues to consolidate and focus on the government as a payer increases. We believe that the Prime + Blue model offers clients and consumers unsurpassed value both in overall cost of care and superior clinical outcomes.


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